Reformed stock cheat now uncovers schemes
Diana B. Henriques The New York Times Tuesday, February 18, 2003
Regulators follow his road maps to fraud
NEW YORK Hartley Bernstein spends his days exploring the piranha-infested shoals of the penny-stock market, where cheap, thinly traded stocks can be rigged to generate enormous profits for insiders.
.
From a bedroom of his eight-room Georgian-style apartment on Park Avenue in Manhattan, he searches the Internet for clusters of seemingly unrelated companies that use the same obscure accountants, lawyers and underwriters and share the same mysterious offshore investors.
.
He looks for flaws, fibs and fantasies in corporate documents - such as one company's plan to sell stock and use it to take over AOL Time Warner Inc., AT&T Corp., General Electric Co. and, for good measure, General Motors Corp.
.
Then Bernstein posts his conclusions on StockPatrol.com, his Web site, to warn investors away. Some of his most faithful readers are market regulators. Following his road maps, federal investigators have found and shut down frauds they might have missed. His cooperation has helped build criminal cases against at least 34 people.
.
Bernstein is good at what he calls "connecting the dots" of complicated penny-stock frauds because, five years ago, he was a formidable dot himself.
.
Through his law firm, Bernstein Wasserman, he worked for three of the most notorious penny-stock manipulators: Stratton Oakmont, Biltmore Securities and Sterling Foster.
.
But in reality he worked for Randolph Pace, who, with Meyer Blinder and Robert Brennan, made up what one lawyer has called "the Three Tenors of the penny-stock world." Blinder was jailed for securities fraud in 1992 after the collapse of his firm, Blinder, Robinson Co. Brennan, the force behind the equally infamous First Jersey Securities, is serving a nine-year prison term after being convicted of fraud in 2001.
.
Bernstein's apparent turnaround is rare in the world of stock manipulation. But several prosecutors and regulators have been persuaded by Bernstein, 51, who began to cooperate with the government in 1998.
.
He spent hundreds of hours coaching investigators on how to decipher Pace's deals and confirmed information from other sources. The government indicted Pace in late 1998. The government later expanded its case to include two additional penny-stock firms and several new defendants. Bernstein also provided background information about Stratton Oakmont's deals with Steve Madden, a shoe designer who pleaded guilty to fraud and money laundering and was sentenced last spring to 41 months in prison. In May 1999, Bernstein, too, pleaded guilty to securities fraud, conspiracy and perjury and agreed to forfeit $850,000 in illicit profit. Pace pleaded guilty in 2000 and last April was ordered to pay nearly $135 million in restitution to investors and was sentenced to eight years and four months in prison.
.
By the time Bernstein pleaded guilty, his career was in ruins but he was desperate to keep busy. In July 1999, after carefully sounding out his own lawyer and the government, he started StockPatrol, which he saw as a logical extension of the guidance he had been providing to investigators. He began by scanning chat groups and e-mail messages on the Internet for the latest hot penny-stock tip. Then he would scour the touted company's public paperwork, looking for red flags. He found them - and regulators paid attention.
.
In one case, Bernstein published several articles questioning whether Wellness Universe, a small health services company, was really the target of a $1 billion takeover bid as it claimed to be. Regulators halted trading in the shares, and three months later the company's founder, George Pappas, was indicted. In January 2001, Pappas pleaded guilty to concocting a phony takeover to drive up the stock price so he and his family could sell for a quick profit of $2.3 million. He is awaiting sentencing.
.
In another instance, Bernstein questioned the growth prospects claimed by Vector Holdings Corp., whose primary business was a stuffed-potato booth in a Florida shopping mall. In October 2002, the Securities and Exchange Commission accused the company and its president of violating securities laws.
.
When Bernstein came before Judge Loretta Preska in U.S. District Court in Manhattan for sentencing in June, the many letters submitted on his behalf included one from a vice president of the regulatory arm of the National Association of Securities Dealers. Preska sentenced Bernstein to two years' probation.
< < Back to Start of Article Regulators follow his road maps to fraud
NEW YORK Hartley Bernstein spends his days exploring the piranha-infested shoals of the penny-stock market, where cheap, thinly traded stocks can be rigged to generate enormous profits for insiders.
.
From a bedroom of his eight-room Georgian-style apartment on Park Avenue in Manhattan, he searches the Internet for clusters of seemingly unrelated companies that use the same obscure accountants, lawyers and underwriters and share the same mysterious offshore investors.
.
He looks for flaws, fibs and fantasies in corporate documents - such as one company's plan to sell stock and use it to take over AOL Time Warner Inc., AT&T Corp., General Electric Co. and, for good measure, General Motors Corp.
.
Then Bernstein posts his conclusions on StockPatrol.com, his Web site, to warn investors away. Some of his most faithful readers are market regulators. Following his road maps, federal investigators have found and shut down frauds they might have missed. His cooperation has helped build criminal cases against at least 34 people.
.
Bernstein is good at what he calls "connecting the dots" of complicated penny-stock frauds because, five years ago, he was a formidable dot himself.
.
Through his law firm, Bernstein Wasserman, he worked for three of the most notorious penny-stock manipulators: Stratton Oakmont, Biltmore Securities and Sterling Foster.
.
But in reality he worked for Randolph Pace, who, with Meyer Blinder and Robert Brennan, made up what one lawyer has called "the Three Tenors of the penny-stock world." Blinder was jailed for securities fraud in 1992 after the collapse of his firm, Blinder, Robinson Co. Brennan, the force behind the equally infamous First Jersey Securities, is serving a nine-year prison term after being convicted of fraud in 2001.
.
Bernstein's apparent turnaround is rare in the world of stock manipulation. But several prosecutors and regulators have been persuaded by Bernstein, 51, who began to cooperate with the government in 1998.
.
He spent hundreds of hours coaching investigators on how to decipher Pace's deals and confirmed information from other sources. The government indicted Pace in late 1998. The government later expanded its case to include two additional penny-stock firms and several new defendants. Bernstein also provided background information about Stratton Oakmont's deals with Steve Madden, a shoe designer who pleaded guilty to fraud and money laundering and was sentenced last spring to 41 months in prison. In May 1999, Bernstein, too, pleaded guilty to securities fraud, conspiracy and perjury and agreed to forfeit $850,000 in illicit profit. Pace pleaded guilty in 2000 and last April was ordered to pay nearly $135 million in restitution to investors and was sentenced to eight years and four months in prison.
.
By the time Bernstein pleaded guilty, his career was in ruins but he was desperate to keep busy. In July 1999, after carefully sounding out his own lawyer and the government, he started StockPatrol, which he saw as a logical extension of the guidance he had been providing to investigators. He began by scanning chat groups and e-mail messages on the Internet for the latest hot penny-stock tip. Then he would scour the touted company's public paperwork, looking for red flags. He found them - and regulators paid attention.
.
In one case, Bernstein published several articles questioning whether Wellness Universe, a small health services company, was really the target of a $1 billion takeover bid as it claimed to be. Regulators halted trading in the shares, and three months later the company's founder, George Pappas, was indicted. In January 2001, Pappas pleaded guilty to concocting a phony takeover to drive up the stock price so he and his family could sell for a quick profit of $2.3 million. He is awaiting sentencing.
.
In another instance, Bernstein questioned the growth prospects claimed by Vector Holdings Corp., whose primary business was a stuffed-potato booth in a Florida shopping mall. In October 2002, the Securities and Exchange Commission accused the company and its president of violating securities laws.
.
When Bernstein came before Judge Loretta Preska in U.S. District Court in Manhattan for sentencing in June, the many letters submitted on his behalf included one from a vice president of the regulatory arm of the National Association of Securities Dealers. Preska sentenced Bernstein to two years' probation. Regulators follow his road maps to fraud
NEW YORK Hartley Bernstein spends his days exploring the piranha-infested shoals of the penny-stock market, where cheap, thinly traded stocks can be rigged to generate enormous profits for insiders.
.
From a bedroom of his eight-room Georgian-style apartment on Park Avenue in Manhattan, he searches the Internet for clusters of seemingly unrelated companies that use the same obscure accountants, lawyers and underwriters and share the same mysterious offshore investors.
.
He looks for flaws, fibs and fantasies in corporate documents - such as one company's plan to sell stock and use it to take over AOL Time Warner Inc., AT&T Corp., General Electric Co. and, for good measure, General Motors Corp.
.
Then Bernstein posts his conclusions on StockPatrol.com, his Web site, to warn investors away. Some of his most faithful readers are market regulators. Following his road maps, federal investigators have found and shut down frauds they might have missed. His cooperation has helped build criminal cases against at least 34 people.
.
Bernstein is good at what he calls "connecting the dots" of complicated penny-stock frauds because, five years ago, he was a formidable dot himself.
.
Through his law firm, Bernstein Wasserman, he worked for three of the most notorious penny-stock manipulators: Stratton Oakmont, Biltmore Securities and Sterling Foster.
.
But in reality he worked for Randolph Pace, who, with Meyer Blinder and Robert Brennan, made up what one lawyer has called "the Three Tenors of the penny-stock world." Blinder was jailed for securities fraud in 1992 after the collapse of his firm, Blinder, Robinson Co. Brennan, the force behind the equally infamous First Jersey Securities, is serving a nine-year prison term after being convicted of fraud in 2001.
.
Bernstein's apparent turnaround is rare in the world of stock manipulation. But several prosecutors and regulators have been persuaded by Bernstein, 51, who began to cooperate with the government in 1998.
.
He spent hundreds of hours coaching investigators on how to decipher Pace's deals and confirmed information from other sources. The government indicted Pace in late 1998. The government later expanded its case to include two additional penny-stock firms and several new defendants. Bernstein also provided background information about Stratton Oakmont's deals with Steve Madden, a shoe designer who pleaded guilty to fraud and money laundering and was sentenced last spring to 41 months in prison. In May 1999, Bernstein, too, pleaded guilty to securities fraud, conspiracy and perjury and agreed to forfeit $850,000 in illicit profit. Pace pleaded guilty in 2000 and last April was ordered to pay nearly $135 million in restitution to investors and was sentenced to eight years and four months in prison.
.
By the time Bernstein pleaded guilty, his career was in ruins but he was desperate to keep busy. In July 1999, after carefully sounding out his own lawyer and the government, he started StockPatrol, which he saw as a logical extension of the guidance he had been providing to investigators. He began by scanning chat groups and e-mail messages on the Internet for the latest hot penny-stock tip. Then he would scour the touted company's public paperwork, looking for red flags. He found them - and regulators paid attention.
.
In one case, Bernstein published several articles questioning whether Wellness Universe, a small health services company, was really the target of a $1 billion takeover bid as it claimed to be. Regulators halted trading in the shares, and three months later the company's founder, George Pappas, was indicted. In January 2001, Pappas pleaded guilty to concocting a phony takeover to drive up the stock price so he and his family could sell for a quick profit of $2.3 million. He is awaiting sentencing.
.
In another instance, Bernstein questioned the growth prospects claimed by Vector Holdings Corp., whose primary business was a stuffed-potato booth in a Florida shopping mall. In October 2002, the Securities and Exchange Commission accused the company and its president of violating securities laws.
.
When Bernstein came before Judge Loretta Preska in U.S. District Court in Manhattan for sentencing in June, the many letters submitted on his behalf included one from a vice president of the regulatory arm of the National Association of Securities Dealers. Preska sentenced Bernstein to two years' probation. Regulators follow his road maps to fraud
NEW YORK Hartley Bernstein spends his days exploring the piranha-infested shoals of the penny-stock market, where cheap, thinly traded stocks can be rigged to generate enormous profits for insiders.
.
From a bedroom of his eight-room Georgian-style apartment on Park Avenue in Manhattan, he searches the Internet for clusters of seemingly unrelated companies that use the same obscure accountants, lawyers and underwriters and share the same mysterious offshore investors.
.
He looks for flaws, fibs and fantasies in corporate documents - such as one company's plan to sell stock and use it to take over AOL Time Warner Inc., AT&T Corp., General Electric Co. and, for good measure, General Motors Corp.
.
Then Bernstein posts his conclusions on StockPatrol.com, his Web site, to warn investors away. Some of his most faithful readers are market regulators. Following his road maps, federal investigators have found and shut down frauds they might have missed. His cooperation has helped build criminal cases against at least 34 people.
.
Bernstein is good at what he calls "connecting the dots" of complicated penny-stock frauds because, five years ago, he was a formidable dot himself.
.
Through his law firm, Bernstein Wasserman, he worked for three of the most notorious penny-stock manipulators: Stratton Oakmont, Biltmore Securities and Sterling Foster.
.
But in reality he worked for Randolph Pace, who, with Meyer Blinder and Robert Brennan, made up what one lawyer has called "the Three Tenors of the penny-stock world." Blinder was jailed for securities fraud in 1992 after the collapse of his firm, Blinder, Robinson Co. Brennan, the force
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