How the mob sold stocks
A new book explains how organized crime made its way onto Wall Street through small firms in the 1990s, in part thanks to a young, connected stock hustler.
By Ron Insana
Wall Street scandals are fresh on investors' minds because the major brokerage firms recently agreed to pay fat fines over conflict-of-interest issues. But there was a completely different sort of corruption that made its way to the Street in the 1990s.
The mob moved into Wall Street.
"Every single crime family had people down there physically in the brokerage houses on Wall Street," says Gary Weiss, a Business Week investigative reporter who first wrote about mob activity on the Street in the mid-1990s.
In his new book "Born to Steal," Weiss writes about the life Louis Pascuito, a young, mob-connected, stock hustler.
"He was a very sort of non-descript fellow, and he talked in different way than I would expect -- very nice, polite kid," says Weiss. "But then he showed me this indictment that he had just pleaded guilty to, and it was quite an extraordinary document."
Stealing millions
Over the course of six years in the '90s Pascuito worked for 17 small brokerage firms and stole millions from unwitting investors before finally being arrested.
"You had these firms that today you would never hear of them -- they've all gone out of business," says Weiss. "These little firms sold stocks to everybody out there in TV land. They were cold-calling firms. And the wise guys would be right there taking money from the brokers."
Here's how it might work:
Take "a stock like Eagle Vision (EAGV, news, msgs), for example," he says. "What it did didn't matter. Did it have a legit business? Didn't matter."
A trader who worked for the mob would walk out to the floor of one of these firms and call out a price for the stock. Then the cold calling would begin.
The firm would've bought the stock for, say, 10 cents a share, but sell it to investors who didn't know better for $8 a share, $4 of which went to the broker and the rest to the firm.
Running the chop shops
Pascuito ended up making a lot of money. At one point, he was running two of these so-called chop shops that pulled in $100,000 a month.
"He had this great apartment in Battery Park City," Weiss says. "He had great cars, he had a drawer full of Rolex watches, and he would just spend every cent that he got."
And he kept giving to the crime families involved, avoiding arrest because the criminal activity was happening inside seemingly legitimate businesses. Even the FBI had a hard time finding the fraud.
"Many of the investigators were so trained on what they had seen in the past, knowing how to investigate cargo thefts, extortion, things of that nature, that when you start seeing people doing business deals where there's no illicit property on the table, it's a little disorienting," says Ed Stroz, who was an FBI agent in New York City in the '90s specializing in securities fraud.
Then there was mob's less subtle approach.
"The other way was to use a more strong-armed tactic, to come in and maybe use fear to try and get the cooperation of the people maybe you needed to execute the trades you wanted to execute," says Stroz.
Tough to prove
Take the case of trading firm Sharp Capital. "They were shorting a particular chop stock -- that stock had friends," Weiss says. "And the people who were selling the stock were not happy with the fact that they (Sharp Capital) were driving down the price. The wise guys who were behind the stock came by and roughed up the trader."
But despite the simplicity of these scams, proving they were illegal was altogether another matter.
"Many people won't admit to it in a way that will allow them to testify," says Stroz. "Some of your witnesses are not the most stellar people and are subject to challenges in cross examination."
In the end, the mob, like some of the most trusted and established firms on Wall Street, paid the price for its own avarice.
"The total aim on Wall Street of both legitimate and not so legitimate (businesses) after all is to make money, and in the zeal to make money, there are corners cut," says Weiss. "And once you cut one corner by 3 millimeters, before you know it, you're cutting it three inches and then a guy named Louis Pasciuto comes and he cuts it three feet. When you start to cut corners, that's the beginning of the end. And that's exactly what happened."
