Investigative Programs: Organized Crime

Mobstocks

As early as 1992, Gordon Hall used bribery to induce securities brokers to use high-pressure sales tactics to sell Eagle Holdings, Incorporated stock shares to customers. This illegally inflated the price of the common stock shares. In 1996, he began to conspire with members of the Bonanno and Genovese La Cosa Nostra (LCN) Families in New York to "pump up" the price of common stock issued by Health Tech International, Incorporated. Hall had been the Chairman of Eagle Holdings, and was now the Chairman and CEO of Health Tech. Hall made an agreement with stock promoters Irwin Schneider, Claudio Iodice, and Eugene Lombardo, an associate of the Bonanno LCN Family in New York. In exchange for artificially inflating and supporting the stock price and volume of Health Tech common stock, Hall would pay Lombardo, Schneider, and Iodice with shares of the stock. Health Tech common stock and warrants, which are high risk corporate securities similar to stock options, traded on the NASDAQ small-cap market under the trading symbols "GYMM" and "GYMMW." Hall paid these shares of stock to Lombardo, Schneider, and Iodice under the guise of "consulting agreements."

Well-placed, confidential sources reported this activity to the FBI quickly and, after some preliminary investigation, agents and detectives working on a task force in New York City obtained court authorization to intercept telephone calls of the group. For almost a year, working with the U. S. Securities and Exchange Commission and officials from NASDAQ, agents and detectives conducted surveillance, intercepted conversations, analyzed complex business and trading records, and interviewed witnesses and experts to determine the extent of the conspiracy and develop the evidence necessary to indict and convict those involved.

Lombardo, Schneider, and Iodice paid bribes to brokers under them who manipulated the price of the securities by artificially creating demand for them. These brokers made false claims to customers in order to induce them to buy Health Tech stock so the price would rise. The trading activity increased the price of the stock so conspirators could sell their shares at a profit, or "dump" them. When customers decided to sell the Health Tech stocks, brokers would refuse to take their calls or make unauthorized trades in the customers' accounts. In January 1997, sales of Health Tech shares increased almost four times over sales in December 1996. By the end of February, the stock price had risen to a high of $2.813 per share, from its $.87 close on December 31. This "pump and dump" scheme made millions of dollars for the conspirators at the expense of unsuspecting customers.

The investigation showed that as the scheme continued, the Bonanno and Genovese LCN Families took control of two branches of Meyers, Pollack and Robbins, a major brokerage firm, and tried to expand the scheme to include other small-cap companies. LCN members sought to control which brokers worked at the branch offices in order to avoid detection by law enforcement, and to control who would receive profits from the scheme. As disputes arose in these matters, LCN members resorted to their classic methodology to maintain control. They made threats of violence against individuals who were not backed by other LCN members and held "sit downs" or meetings to resolve disputes with individuals who were backed by LCN members.

In mid-January, Jonathan Lyons, who managed one of the branch offices being used by the group, complained that the office was functioning solely for the conspirators to sell Health Tech and tried to keep Lombardo's brokers from working in the office. Lombardo sent a Bonanno LCN soldier and an associate to threaten Lyons. Lyons in turn sought protection through a friend from a Bonanno capo and another Bonanno soldier. Lombardo then contacted Frank Lino, a Bonanno Family capo who met with other Bonnano members to resolve the dispute. When the resolution did not satisfy Lombardo, he contacted Rosario Gangi, a Genovese Family capo to assist. Another meeting was held which included Gangi and Ernest Montevecchi, a Genovese LCN Family soldier, and Lombardo prevailed. Gangi and Montevecchi were also instrumental in helping Lombardo control a second branch office of the firm.

At one point, Lombardo, Schneider, and Iodice became dissatisfied with the method and timeliness of Hall's payments. Lombardo, Iodice, and another individual met with and threatened Hall and his senior vice president to ensure their continued cooperation and payment for the services of Lombardo and the others. Several telephone calls were intercepted in which Lombardo and others discussed their intent to hurt Hall.

When interviewed by agents and detectives, victims of the scheme reported that they were told by brokers that they had hundreds of people working under them, they had invested heavily in the stock themselves, and they made promises as to the future performance of the stock. One customer had even recorded a sales call in which a broker falsely claimed to have 250 other brokers working under him and that he had purchased 1,000,000 Health Tech warrants himself.

Late in the conspiracy, Lombardo, Iodice, and others attempted to take over a third brokerage firm and use it to manipulate the stock of another small-cap company. The principal of that company refused to go along with the scheme and was told, "You are either with us or you are not with us," and, "If you are not with us, you will have a problem." When these statements were made, he was also threatened with a blunt metal object.

As a result of the investigation, 33 people were indicted on charges of extortion, securities fraud, stock manipulation and commercial bribery. The defendants including several members and associates of the Genovese and Bonanno LCN Families, as well as the principals of Health Tech and Meyers, Pollack and Robbins. Twenty-eight defendants pled guilty and five were convicted after two separate jury trials.