BRIAN ROSS UNIT / BRS / SHAKEDOWN ON WALL STREET CON MEN AND MOBSTERS RIP OFF SMALL INVESTORS
CS VO ON WALL STREET CON MEN SHAKING DOWN SMALL INVESTORS
SEGMENT [2] 1997/05/02 ************************************************
KEYWORDS: 20/20; ACQUIRED IMMUNE DEFICIENCY SYNDROME; BRIBERY; BULLS; FRAUD; FRAUD; GENERAL MOTORS; MAFIA (COSA NOSTRA); MICROSOFT CORPORATION; ORGANIZED CRIME; SHARKS; STOCK MARKET; SUN; TAX EVASION; TELEMARKETING; US DOLLAR
22:03:41
HUGH DOWNS, ABC NEWS
It s the perfect plot for a movie. But this is real life. Con men
and mobsters are bullying their way into Wall Street -- threatening
stockbrokers, paying bribes, doing whatever is necessary to get their
hands on your money. Well, tonight, a 20/20 investigation uncovers
this new crime phenomenon that s ripping off millions of dollars from
small investors like you.
BARBARA WALTERS, ABC NEWS
True. Because the stock market is on a roll. Money is pouring in
from people of all incomes who see the chance to make their money
grow. But what entices them is also attracting predators bent on
getting at their money -- your money.
How do they do it? ABC s chief investigative correspondent Brian
Ross has the exclusive inside story from a man who knows all about
taking risks.
TONY ELGINDY, STOCKBROKER
I received a bullet in the mail -- a bullet -- with my name on it.
300 - pound guys walking into an office beating you up, making you do
this, do this. It s happening. It s happening on Wall Street.
That s not going to happen to me.
(Gunshots)
BRIAN ROSS, ABC NEWS
(VO) Tony Elgindy is a 29 - year - old stockbroker who drives a
Ferrari, makes and loses millions and doesn t go anywhere without his
gun.
TONY ELGINDY
It s a small Colt 380.
BRIAN ROSS
(on camera) This is Wall Street in the 1990s -- threats, beatings,
guns?
TONY ELGINDY
It s definitely there. I ve seen it close up.
BRIAN ROSS
(VO) Elgindy started carrying a gun and using elaborate security
measures after he began cooperating with the FBI and federal
prosecutors, telling what he knows about a new wave of stock
swindlers and organized crime figures who have moved into Wall Street
in a big way, targeting as their victims small investors across
America.
TONY ELGINDY
They are what the scams are all about -- the $5,000, $10,000, $20,000
investor. They haven t got a prayer.
BRIAN ROSS
(on camera) Really?
TONY ELGINDY
Haven t got a prayer.
BRIAN ROSS
(VO) It s been the talk of Wall Street. Scores of stockbrokers
around the country under investigation or indicted on corruption
charges. Entire brokerage firms allegedly infiltrated by mobsters to
push worthless stocks. A climate of fear and violence
WALL STREET CEO
They looked like gangsters.
BRIAN ROSS
(VO) as stockbrokers in three - piece suits have come face - to -
face with hoodlums in shark - skin suits.
WALL STREET CEO
They came in, and they basically started in a Wall Street firm. They
started trying to rough people up.
NASDAQ COMMERCIAL
They created electronic trading.
BRIAN ROSS
(VO) And most of the problems have occurred with stocks connected to
or overseen by what is known as NASDAQ, which specializes in small
start - up companies, many of which have become huge successes like
Microsoft and MCI, which produced this glowing commercial.
But as we found in a 20/20 investigation, the same lenient rules that
have let legitimate start - up companies sell stock have also made it
easy for con men and the mob to do the same thing.
(on camera) And the way it works is simple. The con men and the mob
find obscure failing companies, or start their own, and then buy up
the stock cheap. Then using corrupt brokers, high - pressure
telephone sales and misleading press releases, they create a kind of
buying frenzy, sucking in small investors and driving up the price
until the crooks cash in their stock and the price collapses.
GEORGE FERNHAM (PH), BUSINESSMAN
We thought it was all on the up and up.
BRIAN ROSS
(VO) That s just what happened to this family when a broker
persuaded one of them, George Fernham, a Dallas businessman, to
invest thousands of dollars in an obscure company called Alco
International.
GEORGE FERNHAM
Said it was a slam dunk. It was a sure thing.
BRIAN ROSS
(VO) Listed and traded on NASDAQ s second - tier market. Alco
claimed to have millions of dollars in orders for a breakthrough
medical device that would help protect surgeons from AIDS.
GEORGE FERNHAM
Twice a week, we would get literature in the mail showing how many
they sold and how much money they were going to make off it and how
the stock was just going to go through the ceiling.
BRIAN ROSS
(on camera) So when this showed up in the mailbox?
GEORGE FERNHAM
Happy days are here again.
JANICE, ALCO INVESTOR
It looked pretty legit.
BRIAN ROSS
(VO) George Fernham was so impressed, he recommended Alco stock to
his sister - in - law, Janice, in Michigan, who then told her father,
Richard Hadley (ph) about Alco.
(on camera) How much did you put in to Alco?
JANICE
We had $11,600.
RICHARD HADLEY, ALCO INVESTOR
So I had to get in on it, too. I bought three different times, a
total of $13,700, which is pretty good chunk of change for us.
BRIAN ROSS
(VO) What thousands of investors in Alco did not know until it was
too late was that there were only a few sales, that the brochures
were full of half truths and outright lies and that behind the scenes
at Alco was a convicted con man, this man, Melvin Lloyd Richards
(ph), supposedly barred by the government from dealing in stocks.
But federal authorities say Richards and his associates were able to
run up Alco s stock price by paying huge bribes to stockbrokers who
would then push the stock to their unwitting customers. Many of the
brokers worked at the same firm as Tony Elgindy.
TONY ELGINDY
Undeniably they were being bribed.
BRIAN ROSS
(on camera) You saw this yourself?
TONY ELGINDY
I saw cash.
BRIAN ROSS
How much cash?
TONY ELGINDY
I was able to determine that on any given month, on any given payday,
it was between $100,000 to $200,000 to $300,000 in cash going out per
office.
BRIAN ROSS
In cash bribes?
TONY ELGINDY
In cash.
BRIAN ROSS
(VO) At the time, Elgindy was an executive at the brokerage firm of
Armstrong McKinley (ph) in San Diego, which came to be at the center
of the Alco scandal, once Elgindy provided information to federal
investigators about how the bribe scheme worked.
TONY ELGINDY
Instead of recommending IBM, Ford, General Motors to their customer,
now they have an extra payment, extra incentive to recommend
something they normally wouldn t recommend.
BRIAN ROSS
(on camera) Could it have been done without the bribes to the
brokers?
TONY ELGINDY
No. Never. No. They still had no sales. Their losses were
mounting ...
BRIAN ROSS
They had no sales, their losses were mounting, and the brokers were
still pitching the stock?
TONY ELGINDY
Still pitching the stock.
GEORGE FERNHAM
When you talked to these people on the phone, the stockbrokers, you
would think that they were your best friends. I mean, they --
everything was always cheery and bright. The stock is going to make
you rich. Just hang in there.
BRIAN ROSS
(VO) These three investors did not know until we told them what was
behind the collapse of their Alco stock. The last contact George
Fernham says he had with his broker was when he tried to sell the
stock as the price was collapsing.
GEORGE FERNHAM
Put me on hold, and I never heard from him again. And I ve called --
I bet I called 50 times trying to get him to come back to talk to me,
and I never heard another word from him.
BRIAN ROSS
(on camera) At the time you wanted to sell ... ?
GEORGE FERNHAM
Yes, I was dead set on selling, and I couldn t sell it.
TONY ELGINDY
It s how much stock can you sell to the public and get away with it?
How much money can you make without getting caught?
BRIAN ROSS
(VO) Elgindy s information helped lead to the conviction of Richards
and four others on tax evasion charges, but not before investors lost
more than $100 million. Richards, awaiting sentencing next month,
told 20/20 he hadn t swindled or bribed anyone but declined to appear
in our report.
ALAN BERSIN (PH), US ATTORNEY
Alco presented a classic situation where a brokerage house was
captured by con men from the outside.
BRIAN ROSS
(VO) San Diego US attorney Alan Bersin, whose office prosecuted the
Alco case, says even knowledgeable investors were taken in by the
elaborate scams.
ALAN BERSIN
What we see here is a fairly sophisticated scheme using all of the
paraphernalia of slick brochures, fast - talking sales people and a
pitch that worked.
BRIAN ROSS
(VO) Behind it all, of course, the huge amounts of money invested
every day on Wall Street, with the prices of legitimate stocks going
through the roof.
STUART ALLEN (PH), FORMER SEC INVESTIGATOR
And illegitimate stocks going through the roof, too.
BRIAN ROSS
(VO) Stuart Allen, a former top criminal investigator for the
Securities and Exchange Commission, says the bull market of the 1990s
has overwhelmed government regulators, allowing worthless stock and
corrupt brokers to flourish.
STUART ALLEN
Because of the sheer volume of activity in the market, this provides
a perfect cover for illegal operations to take place.
BRIAN ROSS
(on camera) So this has been a good time to be a con man?
STUART ALLEN
Yes.
BRIAN ROSS
(VO) And along with all the bribes and corruption on Wall Street
have also come threats and violence.
WALL STREET CEO
They came into the place. They were on a mission. They looked like
something out of a movie.
BRIAN ROSS
(VO) This man is the chief executive officer of a Wall Street firm
where a broker made the mistake of trading in a stock the mob was
trying to control -- undercutting the mob s effort to drive the price
up.
WALL STREET CEO
They walked through the firm looking for a specific person and
roughing and being very crude with some of the people. And that s
when they slapped him and told him to, you know, get off from making
a market. I don t want you selling any.
BRIAN ROSS
(VO) And the mobsters got what they wanted.
WALL STREET CEO
It definitely shook us all up. And we really had to back off from
that stock simply because they showed up.
BRIAN ROSS
(VO) Tony Elgindy says he s heard the same kind of threats. But so
far, he has refused to back off. And what has made him so dangerous
to the con men and the mob is not his gun, but something else he
always carries.
TONY ELGINDY
I carry a tape recorder like this with me wherever I go, any
conversation I have.
BRIAN ROSS
(on camera) And what did you get on tape?
TONY ELGINDY
Oh, what didn t I get on tape.
BRIAN ROSS
(VO) Dozens of conversations, in person and on the phone --
evidence, Elgindy says, of threats and stock manipulation, tapes now
in the hands of the FBI and the IRS.
ELGINDY S TAPE RECORDING
You re a family man. You ve got more to lose.
BRIAN ROSS
(VO) Like this phone conversation, in which Elgindy says he was told
that he and another man had to stop selling a particular stock, or
else.
ELGINDY S TAPE RECORDING
I don t want to lose not even five bleep cents here with this
deal here. If we have to do a number on him, we ll do a number on
him. We ll bring you in, and we ll do a number on you. So this is
not a threat.
BRIAN ROSS
(VO) In another case, Elgindy was summoned to a meeting at this
suburban Dallas restaurant and once again told to stop trading in a
particular stock -- this one listed on the so - called bulletin board
market.
ELGINDY S TAPE RECORDING
This ain t coming from me. I want you to know that. I m just the
messenger.
BRIAN ROSS
(VO) The messenger told Elgindy that eight other traders dealing in
the same stock had been roughed up while watching their stock screens
one day earlier, literally knocked to the floor.
ELGINDY S TAPE RECORDING
A lot of the traders were looking at their box yesterday, and then
they were looking up at the ceiling. You understand what I mean?
TONY ELGINDY
He was sent over to tell me -- to get me out.
BRIAN ROSS
(on camera) Is this a big guy?
TONY ELGINDY
This -- he s a big guy, yeah.
BRIAN ROSS
That s quite a message?
TONY ELGINDY
Yes.
ERIC WYNN (PH), STOCK PROMOTER
Would you please drop the light from my eyes?
BRIAN ROSS
(VO) And it s clear the Wall Street tough guys won t hesitate to use
their muscle, as we saw firsthand one night covering the case of
stock promoter Eric Wynn, who, though he denies it, is a reputed
associate of the Bonnano (ph) Mafia family, convicted in a stock
swindling scheme.
ERIC WYNN
Do you see any markings on any of these people to identify who they
are? Are they like little gutter thieves?
BRIAN ROSS
(VO) As Wynn objected to our presence, his companion moved in and
roughed up our 20/20 camera crew.
CAMERA CREWMAN
You pushed me, man. Don t push me like that.
BRIAN ROSS
(VO) A rare public glimpse of what s been going on behind the scenes
on Wall Street. All of which raises questions about who s watching
the store. Many in law enforcement have been highly critical of the
National Association of Securities Dealers, the NASD, the industry
group charged by law with overseeing brokers and the stocks of
companies traded on NASDAQ and bulletin board markets.
STUART ALLEN
There should be more emphasis on scrutiny of these companies.
BRIAN ROSS
(on camera) So just the fact that a stock is listed on the NASDAQ
market, for you, doesn t mean everything s above board?
STUART ALLEN
That s right.
BRIAN ROSS
(VO) The top officials of NASD declined to be interviewed by 20/20.
But in a statement this week, the organization says that most brokers
are honest and that allegations of manipulation, fraud and bribery
are aggressively investigated. That s not how these three investors
see it. They ve had it with the stock market.
JANICE
We were very naive because we had never invested before. And I guess
that you think that there are, you know, some regulations.
BRIAN ROSS
(on camera) And this cost you how much?
JANICE
$11,600.
BRIAN ROSS
And what is it worth today?
JANICE
Five dollars.
GEORGE FERNHAM
These guys are just running rampant over there. I mean, they didn t
have a some huge operation, they had a huge scam going out there.
BRIAN ROSS
What do you say to the authorities who ... ?
GEORGE FERNHAM
You guys need to do your job.
BRIAN ROSS
Are there crooks out there right now issuing stock?
TONY ELGINDY
All over. All over.
BRIAN ROSS
The stock s being traded right now?
TONY ELGINDY
All over.
BRIAN ROSS
Stocks you know that are scams?
TONY ELGINDY
Yeah.
BRIAN ROSS
(VO) Scams so good, says Tony Elgindy, average investors across
America had better watch out.
TONY ELGINDY
It s not even let the buyer beware, because they have no way to know.
BARBARA WALTERS
Well, Brian, the first question I think I have to ask is why is Tony
doing this? He s endangering himself.
BRIAN ROSS
He s one of those people, Barbara, who just won t be pushed around by
anyone, including the mob.
BARBARA WALTERS
Now, he says, look, it s not just buyer beware, you don t know. So
what do you do? This is not happening with the big, well - known
names that we hear ...
BRIAN ROSS
No, it s not. It s mostly the smaller brokerage houses that often
push these stocks with cold telephone calls, telemarketing sales,
pitching stocks that are new to the market, people haven t heard of,
with the idea you can get in on the bottom floor and get rich quick.
BARBARA WALTERS
And the NASDAQ does have very good stocks.
BRIAN ROSS
Absolutely. There are plenty of stocks there. People have gotten a
lot of money off those stocks. But there are plenty also in there
that are very questionable.
BARBARA WALTERS
So you have to really trust and know your broker and ask a lot of
questions before you just plunge in, right?
BRIAN ROSS
That is the best advice.
BARBARA WALTERS
Well, this is amazing to all of us. We didn t know it, and we ll
take that advice. Thank you, Brian.
HUGH DOWNS
I m astounded here.
Well, next, it s time to stock up on suntan lotion. But beware. You
might be getting little or no protection if you buy some of the
newest products on the market. Arnold Diaz has a warning and some
expert advice for sun lovers, after this.
(Commercial Break)