U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20295 / September 24, 2007
SEC v. Joseph Simone, et al., Civil Action No. 07-3928 (EDNY)
SEC Charges Patrick Verdi and G.P. Institutional Services, Inc. In Multimillion Dollar Stock Loan Scam
The Securities and Exchange Commission announced today that it filed an amended complaint in one of the "stock loan" civil actions filed on Thursday September 20, 2007. The Amended Complaint now also charges Patrick Verdi, the former supervisor of the stock loan desk of Schonfeld Securities LLC ("Schonfeld"), and G.P. Institutional Services, Inc. ("GP"), a purported stock loan finder firm controlled by Verdi, as defendants in the pending action, with engaging in a scheme to defraud Schonfeld and others through the payment of sham finder fees to GP.
The Amended Complaint specifically alleges as follows: From at least March 2000 through January 2004, Verdi schemed with defendant Joseph Simone, then the head of the stock loan desk of Van der Moolen Specialist USA, LLC ("VDM"), to pay sham finder fees to GP on stock loan transactions in which GP performed no services. VDM paid the sham finder fees to GP on stock loan transactions in which Verdi had Schonfeld borrow stock from, or lend stock to, VDM at rates that favored VDM at Schonfeld's expense. Simone had VDM lend or borrow the same stock in transactions with other firms at better rates, and GP's finder fees were paid out of VDM's artificial profits. Verdi and Simone arranged the stock loans themselves and GP did not provide any finding services on the transactions. Verdi controlled GP's bank accounts and transferred virtually all of the sham finder fees received by GP to members of his family. Verdi made approximately $2 million from the scheme.
The Commission's Amended Complaint charges Verdi and GP 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. The Amended Complaint seeks permanent injunctive relief, disgorgement and civil penalties against Verdi and GP.
The United States Attorney's Office for the Eastern District of New York ("USAO") today filed parallel criminal charges against Verdi for the same conduct. The Commission acknowledges the assistance and cooperation of the USAO and the Federal Bureau of Investigation in this matter. The Commission's investigation is ongoing.