MANHATTAN (CN) – Six officials at a Wall Street brokerage ran a $140 million boiler room scheme that defrauded investors in the United States and Britain, federal prosecutors say. Sky Capital founder and CEO Ross Mandell allegedly directed brokers to make misrepresentations and omissions and use high-pressure sales tactics to push stocks to unsuspecting investors. The SEC filed a parallel complaint.
Mandell, 52, of Boca Raton, and five others surrendered to the FBI on Wednesday and face charges of investment fraud and stock manipulation. They entered not guilty pleas before being released on bond.
The SEC says that between 1998 and 2006, the defendants lied to customers about how their money was being spent and used it to maintain lavish lifestyles, pay excessive, unregistered commissions and pay off previous investors – the mark of a Ponzi scheme. They used phony trade tickets and brokerage statements to back up the fraud, according to the indictment.
The SEC’s civil complaint alleges the defendants raised more than $61 million between 2002 and 2006, but restricted investors from selling the stock, which became virtually worthless when it was banned from trading on the London stock exchange. The commission called the fraud a “trans-Atlantic boiler room scheme.”
The company traded on the Alternative Investment Market of the London Stock Exchange until 2006.
The defendants allegedly solicited the money for two related companies: Sky Capital Holdings and Sky Capital Enterprises.
Mandell’s scheme allegedly involved the defendants’ purchasing large blocks of Sky Capital stock from investors at discounted prices and then soliciting other customers to buy it back at a higher price. The profits from these trades were split between the company and the brokers, prosecutors said.
The defendants also disguised payments as “advances, loans or special bonuses,” according to the indictment.
Mandell purportedly paid off investors who lost money by making them “consultants” to Sky Capital, issuing company checks as payment for their alleged services. Mandell signed someone who sold him watches to a consultant agreement and issued company checks to pay for them, according to prosecutors.
Sky Capital allegedly paid for Mandell and his family to travel in a private jet and paid a company that installed a home theater system at the CEO’s house.
Also charged were COO Stephen Shea of Brooklyn and brokers Adam Harrington Rukdeschel of New York City, Arn Wilson of Dix Hills, N.Y., Robert Grabowski of Staten Island and Michael Passaro of Boca Raton.
Wilson, Grabowski and an unnamed conspirator engineered a series of trades to swap investors’ holdings in Sky Capital Holdings and Sky Capital Enterprises, solely to generate commissions and manipulate the market, the indictment states.
The six were charged in a two-count indictment to commit securities fraud, wire fraud and mail fraud. Mandell was released on a $5 million bond secured by his Florida home and $25,000 in cash. The other defendants were each released on $1 million bond.