Investor Relations 101

[Tina]

Issue Date: IR Alert - July 10, 2009,

Wall Street Brokerage Staffers Accused of Running "Trans-Atlantic Boiler Room" Scheme to Defraud U.S. and British Investors
Six employees of Wall Street retail brokerage Sky Capital ran a $140 million "trans-Atlantic boiler room" to defraud investors in the United States and Britain, authorities charged on Wednesday. U.S. prosecutors announced a criminal indictment of securities, wire and mail fraud against Sky Capital founder, president and chief executive Ross Mandell and five others, while the Securities and Exchange Commission also filed civil charges, Reuters reports.

All six surrendered to FBI agents on Wednesday and later appeared in Manhattan federal court and entered pleas of not guilty before being released on bond. The SEC complaint said brokers raised $61 million between 2002 and 2006 from investors, but then enforced a policy that prevented them from selling their stocks in Sky Capital Holdings and Sky Capital Enterprises. They were publicly traded on the Alternative Investment Market of the London Stock Exchange until 2006, reports Reuters writer Grant McCool.

"Customers were not told that they would be unable to sell their shares, and the no net sales policy helped artificially inflate the price of the Sky Entities stocks," the SEC said. "When trading in those stocks was suspended by the London Stock Exchange in 2006, the investments were rendered worthless."

The SEC described the purported fraud as a "trans-Atlantic boiler room scheme." Apart from Mandell, of Boca Raton, Florida, other principals and employees charged were former chief operating officer Stephen Shea, Adam Harrington, Arn Wilson, Robert Grabowski and Michael Passaro.

Mandell was released on a personal recognizance bond of $5 million secured by his Florida home and $25,000 in cash. Shea, Harrington, Wilson, Grabowski and Passaro were all released on $1 million bond each secured by property or cash.

Grabowski's lawyer, Bettina Schein, said he would defend the charges. She said his clients still invested with him and that they were "sophisticated and informed investors."

The Office of the U.S. Attorney in Manhattan accused the men of enriching themselves with client money. "Investor funds were substantially used to enrich the defendants and others; to pay excessive undisclosed commissions to brokers and to pay off victims who had lost money through prior purported investment opportunities," the office said.

It said the defendants acted primarily from two successive securities broker-dealers, the Thornwater Company LP and Sky Capital LLC, raising some $140 million for the scheme between 1998 and 2006.