U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20290 / September 20, 2007
SEC v. Joseph Simone, et al., Civil Action No. 07-3928 (EDNY)
SEC Charges 28 Defendants, Including 13 Current and Former 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 28 defendants in a series of fraudulent schemes involving phony finder fees and illegal kickbacks in the "stock loan" industry. The defendants include 13 current and former "stock loan" traders employed at several major Wall Street brokerage firms, including Van der Moolen ("VDM"), Janney Montgomery, A.G. Edwards, Oppenheimer, and Nomura Securities. These traders conspired in various schemes with 15 purported stock loan "finders" to skim profits on stock loan transactions. The defendants earned over $8 million from their unlawful schemes over a period of nearly six years.
In its complaint, the Commission alleges that from as far back as 1999 until 2005, the stock loan traders named as defendants routinely defrauded the brokerage firms that employed them and others by engaging in collusive loan transactions and causing the firms to pay sham finder fees to companies controlled by the traders themselves or by their friends and relatives. Acting as fronts for the traders, these companies received hefty finder fees on several thousand stock loan transactions even though they did not provide any legitimate finding services and, in many cases, were simply shell companies that were not even involved in the stock loan business. These phony finders included a mailman, a perfume salesman, and a dental receptionist. The defendants shared in the sham finder fees through secret kickback arrangements. In some cases, defendants met monthly at New York City bars and restaurants to exchange thousands of dollars in cash, often wrapped in newspapers or stuffed into envelopes.
The defendants named in the Commission's complaint are:
Joseph Simone, age 65, resides in Staten Island, New York. From June 1997 until January 2005, he was a stock loan trader and a registered representative associated with VDM. Simone was co-head of VDM's stock loan desk and was known in the industry as "The Chief Inspector."
Island Capital Management, Inc. is a New York corporation with a business address in Bethpage, New York. Simone controlled Island, which purported to provide stock loan finding services.
Joseph Lando, age 34, resides in Milestone, New Jersey. From May 1997 to July 2005, J. Lando was a stock loan trader employed by Janney and head of sales for its stock loan trading desk. J. Lando was then known in the industry as "Joe Janney." He is currently employed as a securities lending representative at Penson Financial Services, Inc. ("Penson"), a registered broker-dealer.
Joseph Caracciolo, age 33, resides in Staten Island, New York. From in or about June 2000 through July 2005, he was a stock loan trader and registered representative employed by National Investor Services Corp. ("NISC") and was known in the industry as "Stock Loan Joe."
Alfred Varricchio, age 48, resides in Lynbrook, New York. From October 1979 through October 2006, he was a stock loan trader employed by A.G. Edwards.
Anthony Pianelli, age 53, resides in Middletown, New Jersey. From February 1983 through May 2004, A. Pianelli was a stock loan trader employed by Weiss, Peck & Greer, LLC ("Weiss Peck"). From June 2004 through December 2004, he was affiliated with JAP JAP Enterprises, LLC ("JJE"), a purported Finder.
Jill Pianelli, age 51, resides in Middletown, New Jersey. She is married to A. Pianelli. J. Pianelli is the sole shareholder and officer of JJE. She has never been associated with a broker-dealer or otherwise employed in the securities industry.
JJE is a New Jersey limited liability company formed in or about February 2004. A. and J. Pianelli controlled JJE, which purported to provide stock loan finding services. JJE's initial business address was the Pianelli residence in Middletown, New Jersey, but was later changed to an office in Red Bank, New Jersey.
Brian Fabrizzi, age 63, resides in Edison, New Jersey. From May 1997 to February 2005, he was a stock loan trader employed by VDM and co-head of its stock loan trading desk.
Donald Sorrentino, age 61, resides in Valley Stream, New York. From June 2002 to February 2005, he was a stock loan trader employed by Oppenheimer.
Anthony Carannante, age 63, resides in Brick, New Jersey. Since 1993, he has operated a Finder business under the name A&C Management ("A&C") out of his home.
Steven Daronzio, age 47, resides in Hazlet, New Jersey. From April 2003 through December 2004, he was employed by A&C purportedly as a Finder. From May 1999 to March 2003, he was a stock loan trader employed by a registered broker-dealer.
Rochelle Roman, age 39, resides in Hazlet, New Jersey. From October 1997 to January 2005, she was a stock loan trader employed by Kellner Dileo & Co. ("Kellner").
Shaun Sarnicola, age 29, resides in Brooklyn, New York. From May 1998 through September 2006, he was a stock loan trader employed by Kellner.
Anthony Tanico, age 39, resides in Manalapan, New Jersey. From 2000 to December 2004, he purportedly worked as a Finder through AJT Ltd. and then AJGT Ltd. Tanico formed AJT in or about 2000 and installed his mother as the sole officer. From 1994 to 1999, he was a registered representative associated with various broker-dealers located in Staten Island, New York. In December 1999, he consented to an NASD order barring him from association with any NASD member firm as a result of charges that he had an impostor take the Series 7 and 63 exams for him.
Andrea Lando-Tanico, age 36, resides in Manalapan, New Jersey. She is married to Tanico and is the sister of J. Lando. From April 1997 to February 2002, she was a stock loan trader employed by Southwest Securities Inc. After leaving Southwest, she began working as a Finder through AJT. In or about January 2003, she formed AJGT and continued working as a Finder. From April 2005 to June 2005, she was employed by Janney as a stock loan trader.
AJT is a New York corporation with a business address in Staten Island, New York. Even though Tanico's mother is the only person identified in the corporation's records, AJT was controlled by Tanico. AJT purported to provide stock loan finding services.
AJGT is a New Jersey corporation with a business address in Morganville, New Jersey. Lando-Tanico is the sole officer and shareholder of AJGT, which purported to provide stock loan finding services.
Michael McCormack, age 32, resides in Staten Island, New York. From April 1994 to March 2005, he was employed as a stock loan trader by A.G. Edwards and was known in the industry as "Mikey Irish."
Donna Centola, age 31, resides in Staten Island, New York. She has been married to McCormack since in or about September 2002, although they separated in or about April 2004. From March 2001 through April 2004, Centola purportedly worked as a Finder through DMAC Services, Inc. Before forming DMAC, she was a stock loan trader employed by a registered broker-dealer.
DMAC is a New York corporation with a business address in Brooklyn, New York. Centola is the sole officer and shareholder of DMAC, which purported to provide stock loan finding services.
Andrew Caccioppoli, age 47, resides in Mahopac, New York. From December 1991 to July 2005, he was a stock loan trader employed by Janney and supervised Janney's securities lending desk. Caccioppoli is currently employed by Penson as a stock loan trader.
Donna Macli, age 44, resides in Cortlandt Manor, New York. She is Caccioppoli's sister and has been employed as a dental receptionist for the past 20 years.
Thomas Macli, age 51, resides in Cortlandt Manor, New York. He is married to D. Macli and has been employed as a letter carrier for the past 23 years.
LUMAC Corp. is a New York corporation with business addresses in Cortlandt Manor, New York and Jefferson Valley, New York, which is the address of an apartment that Caccioppoli's brother was living in during the relevant period. D. Macli and T. Macli are the sole officers and shareholders of LUMAC, which purports to provide stock loan finding services.
Gary Manfre, age 44, resides in Metuchen, New Jersey. From July 1998 through February 2006, he was a stock loan trader and a registered representative associated with Nomura.
Richard Manfre, age 38, resides in Bethpage, New York. He is the brother of G. Manfre and has been employed as a perfume salesperson since 1992.
RAM Solutions, Inc. is a New York corporation whose business address is R. Manfre's home in Bethpage, New York. R. Manfre is the sole officer and shareholder of RAM, which purported to provide stock loan finding services.
More specifically, the Commission's complaint alleges:
- While Joseph Simone was co-head of the stock loan trading desk at VDM, he engaged in several schemes to defraud VDM using Island, a shell company that he controlled. Simone caused VDM to pay several million dollars in sham finder fees to Island. The following traders also colluded with Simone to increase Simone's illegal profits through circular loan transactions known as "ring" and "run-through" deals: Joseph Lando, the head of sales for Janney's stock loan desk; Joseph Caracciolo at NISC; Alfred Varricchio at A.G. Edwards; and A. Pianelli at Weiss Peck. Simone paid monthly cash kickbacks to these traders out of the sham finder fees paid to Island. Simone himself made approximately $3.6 million.
- Brian Fabrizzi, the other co-head of VDM's stock loan trading desk, also defrauded VDM through the payment of sham finder fees from which he benefited. Fabrizzi conspired with Anthony Carannante, a finder who did business as A&C, and Donald Sorrentino. Fabrizzi and Sorrentino colluded to arrange "run-through" loans between VDM and Oppenheimer that enabled Fabrizzi to cause VDM to pay sham finder fees to A&C. Carannante kept a portion of the fees and funneled the rest back to Fabrizzi, who paid monthly cash kickbacks to Sorrentino.
- Rochelle Roman and Shaun Sarnicola, two traders at Kellner, conspired with Carannante and one of his associates, Steven Daronzio, to cause Kellner to pay sham finder fees to A&C. Carannante and Daronzio kept a portion of the sham fees, and Carannante paid the balance in cash kickbacks to Roman and Sarnicola.
- Roman also defrauded Kellner by causing it to pay sham finder fees to AJT and AJGT, two finder firms run by Tanico and Lando-Tanico. Tanico paid Roman monthly cash kickbacks and kept the balance of the sham finder fees for himself and his wife. J. Lando also caused Janney to pay sham fees to AJT and AJGT.
- Michael McCormack, a trader at A.G. Edwards, schemed with Centola (his wife), J. Lando and Roman to defraud A.G. Edwards through sham finder fees paid to DMAC, a shell company owned by Centola. McCormack arranged for J. Lando and Roman to have Janney and Kellner borrow stock from A.G. Edwards at inferior rates and then lend the stock to other firms specified by McCormack at better rates. DMAC's sham finder fees were paid out of these artificial profits.
- Andrew Caccioppoli, a trader who supervised Janney's stock loan desk, schemed with D. Macli and T. Macli, to defraud Janney by having it pay sham finder fees to LUMAC, a shell company owned by the Maclis.
- Gary Manfre, a trader at Nomura, schemed with his brother Richard Manfre, Simone and J. Lando to defraud Nomura through sham finder fees paid to RAM, a shell company owned by R. Manfre, a perfume salesman. Simone and J. Lando had VDM and Janney pay sham fees to RAM after G. Manfre had Nomura lend stock to VDM and Janney at inferior rates. Simone and J. Lando loaned the same stock to other firms at better rates, and RAM's finder fees were paid out of these artificial profits.
- A. Pianelli also schemed with J. Lando to defraud Weiss Peck and Janney by paying sham finder fees to JJE, a purported finder owned by J. Pianelli. J. Lando had Janney pay fees to JJE on loan transactions with Weiss Peck that were arranged entirely by A. Pianelli and J. Lando.
All 28 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, and with aiding and abetting violations of these antifraud-provisions. The Commission's complaint seeks permanent injunctive relief, disgorgement and civil penalties.
The United States Attorney's Office for the Eastern District of New York has filed parallel criminal charges against 11 of the individuals named in the Commission's complaint. Nine of those individuals have entered guilty pleas: Simone, Caracciolo, Sorrentino, Carannante, Daronzio, Roman, Sarnicola, McCormack and Gary Manfre. In connection with his guilty plea, Simone also agreed to pay a total of $3.6 million in forfeiture.
Simone, Island, Gary Manfre, Richard Manfre and RAM, have agreed to settle the SEC charges by consenting, without admitting or denying the allegations of the complaint, to the entry of permanent antifraud injunctions. Gary Manfre, Richard Manfre and RAM will also jointly disgorge $94,262, the total amount of their ill-gotten gains plus prejudgment interest. Because Simone has agreed to forfeit an amount equivalent to his ill-gotten gains in conjunction with his guilty plea in the parallel criminal case, the consent judgment in the SEC case does not require disgorgement of those same ill-gotten gains. The Commission's claims for civil penalties against Simone, Island and Gary Manfre, and all of its claims against the other defendants, remain pending. In addition, the Commission today issued administrative orders respectively barring Simone, Gary Manfre and Caracciolo from association with any broker-dealer. The three respondents consented to the issuance of the respective orders.
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.
