NEW YORK -- Three securities firms and 21 registered brokers were charged Wednesday with taking part in a 'massive' stock-rigging scheme in the over-the-counter securities market.
Manhattan District Attorney Robert Morgenthau said at a press conference that thescheme defrauded 'several thousand' small investors out of more than $10 million.
The prosecution marks the first time that New York State's Organized Crime Control Act has been used in connection with fraud in New York City's financial markets, Morgenthau said.
'What the enterprise essentially did was to create fictitious markets for the sale of over-the-counter securities,' Morgenthau said.
'By fixing the prices, the enterprise defrauded the persons from whom they bought stock at artificially low prices and the persons to whom they sold stock at artificially high prices.'
The firms were identified as Wakefield Financial Corp., Kelly Trading Co. and G.K. Scott and Co.
The defendants were arrested Wednesday morning for arraignment in New York State Supreme Court.
Part of the indictment charged the three securities firms, known collectively to prosecutors as the 'Wakefield Group,' created the appearance of legitimate, independent and competitive markets in various over-the-counter securities.
In reality, Morgenthau said, the members of the enterprise worked together to set unofficial prices and to arrange trades to profit themselves.
Leaders of the Wakefield Group, Morgenthau said, formulated strategies and directed other members of the group to enter fraudulent price quotations into the National Association of Securities Dealers' Automated Quotations systems, known as NASDAQ.
In one instance, the group rigged the price of securities so the price doubled within the first three hours of trading, making a profit of more than $1 million for Wakefield.
The firms whose securities were illicitly traded, Morgenthau said, were Topologix Inc., ComponentGuard Inc., Weaver Arms Corp., R. W. Technology Inc., Phoenix Advance Technology Inc. and Media Products Inc.
Of the 21 brokers charged, 13 were charged with the crime of enterprise corruption, punishable by up to 25 years in prison. If the 13 are convicted, they would have to serve a minimum jail term of one to three years.
The 13 also face other charges of grand larceny, scheme to defraud, falsifying business records and violations of New York's general business law.
Identified as principals of the 'Wakefield Group' were: Alexander Minella and Wakefield Financial Corp., of which he was then president; his brother Keith Minella and Kelly Trading Co. Inc., of which he was president; George Kevorkian and G.K. Scott and Co., of which he was president, and Kevorkian's son John Kevorkian, head trader for G.K. Scott.
Their orders, said Morgenthau, were relayed to others charged in the indictment.
They are: Parsons Eng, a principal in Wakefield Financial; Joseph Zaborowski, manager of Wakefield Financial's Manhattan office; Keith Friedman, manager of the firm's Huntington, N.Y., office; Joseph Elkind, a trader at the firm Baird Patrick & Co. Inc.; Theresa Crescenzi, a trader at Wakefield Financial, and Donato Delvecchio, a trader at Kelly.
Their orders in turn were given to other members of the enterprise, identified in the indictment as: Morton Kantrowitz, a securities trader at Nash Weiss & Co.; Jack Maffai, a securities trader at Carr Securities Corp., and Howard Edrich, a broker at Wakefield Financial.
Six other brokers at Wakefield Financial, a part of the accused organization, were charged with conspiracy and other offenses. They are Raymond Koubek, Philip Ardizzone, Arthur Goldstein, George Palefsky, Theresa Fiorillo and Kenneth Stoops.
In addition, Robert Moran, an assistant trader at Nash Weiss & Co., is charged with assisting the Wakefield Group to artificially set prices for Weaver Arms Corp. securities.
The final member of the accused is Howard Citron, who appeared on a fourth indictment with Alexander Minella, Wakefield Financial and Jack Maffai for allegedly falsifying records of brokerage firms to conceal the true owners of securities, who could thereby evade payment of income taxes.
When Wakefield Financial ceased operations in March 1989, prices dropped drastically in the securities over which the Wakefield Group had exercised control, according to the indictment.
The charges were the result of a three-year investigation conducted jointly by the district attorney's Rackets Bureau and the Organized Crime Control Bureau of the New York City Police Department.
The crimes are alleged to have occurred between Sept. 18, 1987, and Feb. 14, 1990.
Stephen Strombelline, assistant director of the National Association of Securities Dealers, said investors who have lost money can apply for relief to the NASD's arbitration department.