U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20291 / September 20, 2007
SEC v. Darin DeMizio, et al., Civil Action No. 07-3927 (EDNY)
SEC Charges 10 Defendants, Including 3 Current and Former Morgan Stanley Stock Loan Traders, in Multimillion Dollar Stock Loan Scam
On September 20, 2007, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Eastern District of New York charging 10 defendants for engaging in fraudulent schemes involving improper finder fees and illegal kickbacks in the "stock loan" industry. The defendants include three current and former "stock loan" traders employed at Morgan Stanley, two relatives of those traders and the so-called "finders" with whom they schemed. In its complaint, the Commission alleges that over a period of nearly a decade, the defendants conspired to skim profits on stock loan transactions and pocketed over $4 million from their unlawful schemes.
The defendants named in the Commission's complaint are:
Darin DeMizio, age 41, resided in Staten Island, New York during the relevant period and now resides in Westfield, New Jersey. Darin DeMizio is a stock loan trader and registered representative associated with Morgan Stanley, where he is a stock loan trading desk supervisor. He has been employed with Morgan Stanley since in or about 1991, and is now on administrative leave. He was previously employed as a stock loan finder for a company operated by his father.
Peter Sherlock, age 36, resides in East Norwich, New York. From October 1994 to June 2007, Sherlock was a stock loan trader and registered representative associated with Morgan Stanley.
Anthony Lupo, age 62, resides in Freehold, New Jersey. During the relevant period, he purported to perform stock loan finding services through Clinton Management, Ltd., which he formed in or about 1996. Lupo also purportedly provides tax preparation services to a limited number of individual clients.
Clinton Management, Ltd. is a New York corporation with a business address in Brooklyn, New York. Clinton is owned and controlled by Lupo.
Craig DeMizio, age 42, resides in Colts Neck, New Jersey. He and Darin DeMizio are brothers. From April 2004 to August 2007, Craig DeMizio was a stock loan trader associated with Swiss American Securities, Inc. ("SASI"). Craig DeMizio previously purported to perform stock loan finder services through CD Management, Inc., which he formed in or about July 1997.
CD Management, Inc. is a New York corporation owned and controlled by Craig DeMizio. Its business address in Staten Island, New York was the same as Craig DeMizio's residence address during the relevant period.
Donato Tramontozzi, age 38, resides in Glen Head, New York. He is employed full-time as a pharmacist and is Sherlock's brother-in-law. Tramontozzi formed DFT Consulting, Inc. in or about July 2004.
DFT Consulting, Inc. is a New York corporation with a business address in Brooklyn, New York. DFT is owned and controlled by Tramontozzi.
Joseph Miller, age 34, resides in Brooklyn, New York. From December 1996 to January 2002, he was a stock loan trader associated with Morgan Stanley. In or about January 2002, Miller formed Cobblehill Consulting, Inc. as a purported finder business.
Cobblehill Consulting, Inc. is a New York corporation with a business address in Brooklyn, New York. Cobblehill is owned and controlled by Miller.
The Commission's complaint alleges two interrelated finder fee schemes. The first scheme operated as follows: Over the course of nearly a decade, two stock loan traders employed by Morgan Stanley — Darin DeMizio and Peter Sherlock — and three other individuals, including relatives of the two traders, skimmed millions of dollars in stock lending profits from Morgan Stanley and another brokerage firm through illegal kickback schemes with a stock loan finder named Anthony Lupo. From July 2000 through June 2006, Lupo collected over $4 million in finder fees as a result of these schemes and paid over $1 million in undisclosed kickbacks. Pursuant to the scheme, Darin DeMizio and Sherlock caused Morgan Stanley to enter into unnecessary loan transactions at inferior interest rates for the purpose of artificially generating finder fees for Lupo. In exchange, Lupo paid cash kickbacks directly to Sherlock in cash and paid nearly $600,000 to shell companies controlled by Craig DeMizio, Darin DeMizio's brother, and Donato Tramontozzi, Sherlock's brother-in-law and a fulltime pharmacist.
In a second and related scheme, Joseph Miller, a finder and former stock loan trader at Morgan Stanley, paid undisclosed cash kickbacks to a stock loan trader at a division of The PNC Financial Services Group Inc. ("PNC") in exchange for receiving PNC stock loan orders from the trader. Lupo participated in and shared the profits from the scheme. From January 2002 to June 2004, Lupo and Miller split over $1.2 million in finder fees generated by PNC orders. Miller ended his arrangement with Lupo in May 2003, but Miller continued the kickback scheme with the PNC trader on his own until January 2005.
All 10 defendants are charged with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. Tramontozzi, DFT, Craig DeMizio and CD Management are also charged with aiding and abetting violations of the above-antifraud provisions. The Commission's complaint seeks permanent injunctive relief, disgorgement and civil penalties.
In parallel criminal proceedings, the United States Attorney's Office for the Eastern District of New York has announced that it filed criminal charges against 5 of the individuals named in the Commission's complaint, one of whom, Joseph Miller, has entered a guilty plea.
The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter. The Commission's investigation is ongoing.