In the latest crackdown on penny stock fraud, four former employees of a defunct brokerage have pleaded guilty in connection with a scheme prosecutors say bilked customers nationwide of $67 million.
The Paramus-based company, F.D. Roberts Securities Inc., which operated an office on Buffalo's waterfront for four months until February, systematically manipulated stock prices that bilked thousands of customers across the country, U.S. Attorney Samuel A. Alito Jr. said Tuesday.
"These are not mere technical violations of securities laws," Alito said. "They were blatant frauds that cost investors millions of dollars."
The company had as many as 15 brokers working in its Buffalo office at 60 Lakefront Blvd. Before declaring bankruptcy in February, the company also had offices in Boca Raton and Tampa, Fla., and in California.
Robert Humphrey, F.D. Roberts' former national sales manager, admitted in U.S. District Court to conspiring with other top management at the firm to use dozens of fraudulent techniques to sell the stocks.
Humphrey faces up to 20 years in prison and a fine of $1 million. He specifically pleaded guilty to one count of conspiracy to commit securities fraud, and three counts of securities fraud.
Also pleading guilty to related charges were Kenneth Eisen, the former manager of the firm, and Pamella Rutherford, a broker, both of Boca Raton; and Glenn Siesser, a broker, of Highland Beach, Fla.
In December 1988, the SEC sued F.D. Roberts, four of its main officers, a number of Roberts employees and officers of Hughes Capital Corp. for fraud and market manipulation. The SEC alleged that F.D. Roberts conspired with Hughes Capital to illegally boost the price of Hughes stock.
The government alleged that although Hughes was a shell company without revenues or operations, the it stock fraud
defendants were able to boost its share price to $15 in early 1987. The stock collapsed after insiders sold nearly 200,000 stock warrants for $1.15 million.
Without admitting or denying guilt, the four F.D. Roberts officials -- including Sheldon Kanoff, a former SEC chief compliance examiner for its New York regional office -- agreed to resign and to be barred from the securities industry.
The brokerage agreed to close down and give back $280,000 in profits from trading Hughes stock.
Alito said F.D. Roberts would locate or create companies, which usually existed only on paper and had few or no assets.
The companies then would make an initial public offering of stock. F.D. Roberts would purchase the stock in nominee accounts that its officials referred to as "dirt-bag" accounts, Alito said.
Alito said up to 250 of the brokers worked at any given time, some of them making up to $250,000 a year.