MANHATTAN (CN) – Former Sky Capital CEO Ross Mandell was sentenced Thursday to 12 years in federal prison for defrauding investors and manipulating the market, the U.S. Attorney’s Office said.
“Mandell was the leader of a scheme to defraud investors through two successive securities broker-dealers that he controlled – The Thornwater Company, L.P. and
Sky Capital, LLC,” prosecutors said in a statement.
A federal jury convicted him in July 2011 of conspiracy, securities fraud, wire fraud,
and mail fraud, after a 5-week trial.
Mandell, 55, of Boca Raton, Fla., also was ordered to forfeit $50 million.
According to the U.S. attorney’s statement: “Mandell and others directed the brokers at Sky Capital, LLC to manipulate the market prices of two Sky Capital stocks, which enabled them to raise tens of millions of dollars from investors through additional Sky Capital private placements with promises that the private placement shares of the stocks were ‘discounted’ to the purported market price. The defendants also enforced a ‘no net sales’ policy and instructed brokers not to accept Sky Capital sell orders unless a matching buy order could be generated from another Sky Capital customer, for the purpose of maintaining the market price of the Sky Capital stocks. The defendants and others used high-pressure sales tactics and made materially false statements and omissions to induce investors to buy Sky Capital stock and to discourage them from selling. The defendants and others also made unauthorized purchases of Sky Capital stock in customer accounts as part of the no net sales policy.
“To facilitate the market manipulation, Mandell and [co-conspirator Adam] Harrington offered excessive undisclosed payments to Sky Capital brokers – sometimes as much as 400 percent more than their normal commissions. The payments were often disguised as ‘advances,’ ‘loans,’ or ‘special bonuses.’ To generate funds for these payments, Mandell directed participants in the scheme to create a ‘spread’ on Sky Capital stock by negotiating to purchase large blocks from Sky investors at discounted prices. They then solicited other Sky customers to purchase the same stock at the higher price. The profit was split between Sky Capital and the brokers.”
Harrington was convicted at trial with Mandell and was to be sentenced today (Friday). Four other conspirators pleaded guilty before trial and are awaiting sentencing.