NEW YORK — Three securities firms and 21 brokers were charged today in a massive price-rigging scheme that defrauded thousands of investors of more than $10 million, the district attorney's office said.
Manhattan Dist. Atty. Robert Morgenthau said a coterie of "market makers" would control a company's stock price by selling the over-the-counter stock again and again to each other, thereby making it appear that a great demand for the stock existed and artificially driving up the price.
When it was high enough, Morgenthau said, they would sell their stock at a profit.
"By fixing the prices, the enterprise defrauded the persons from whom they bought stocks at artificially low prices, and the persons to whom they sold stock at artificially high prices," Morgenthau said.
In one case, he said, the defendants rigged the price of a group of securities so that their price doubled within the first three hours of trading. The group made a profit of more than $1 million for Wakefield Financial Corp., one of the three securities firms charged, Morgenthau said.
Michael Cherkasky, assistant district attorney for investigations, estimated that the scheme, operated between September, 1987, and February, 1990, cost investors more than $10 million.
The scheme's leaders were charged with enterprise corruption, punishable by a prison term of up to 25 years upon conviction.
Thirteen of the people and the three firms were also charged with multiple counts of grand larceny, scheming to defraud, falsifying business records and violations of the state general business law.
Besides Wakefield, which has offices throughout New York state, the other firms charged were Kelly Trading Co. Inc., which has offices in Manhattan, and G.K. Scott & Co., with offices in New York, Florida and Tennessee.