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Kenneth D'Angelo also has agreed to cooperate with the government's investigation into a conspiracy at the former telemarketing firm.

September 12, 2003|From Bloomberg News and Times Staff Reports

GenesisIntermedia Investor to Plead Guilty in Fraud

An investor in GenesisIntermedia Inc., a former telemarketing company in Van Nuys that was 75% owned by Saudi financier Adnan Khashoggi, agreed to plead guilty to helping manipulate the company's share price in a conspiracy that netted more than $130 million, U.S. prosecutors said Thursday.

Kenneth D'Angelo, 60, agreed to plead guilty to charges that he conspired to commit securities fraud and wire fraud, and a count of wire fraud. He and co-conspirators used several methods to raise GenesisIntermedia's stock price to as high as $18.77 in 2001, including making secret payments to have the company's shares touted on financial TV programs, the Justice Department said.

The stock now is virtually worthless.

Ultimate Holdings Ltd., a Bermuda-based company headed by Khashoggi, held 75% of the company's shares at the time of the alleged conspiracy. Khashoggi is not mentioned by name in the indictment filed Thursday, though it does say that one of D'Angelo's co-conspirators was "a Saudi Arabian national" and "purportedly a wealthy international arms dealer and financier."

The investigation is continuing, said U.S. Atty. Debra W. Yang in Los Angeles.

Court papers say that, between April 2001 and September 2001, D'Angelo took part in about 18,000 trades of GenesisIntermedia stock, valued at more than $87 million in all. He used brokerage accounts he controlled, including at a small brokerage operated by relatives.

The stock soared from $7.50 in early April 2001 to $18.77 by June 28, and held above $17 until early September of that year. The company, which operated Internet kiosks in shopping malls, continued to lose money throughout that period.

The stock was touted in May 2001 by Rafi Khan, a Southland stock promoter who had been barred from the securities industry by the Securities and Exchange Commission.

As the stock surged, the conspirators were able to use the equity as collateral for brokerage loans. The scheme ultimately led to the bankruptcy filings of two brokerages, MJK Clearing Inc. of Minneapolis and Native Nations Securities Inc. of New Jersey, when GenesisIntermedia's stock collapsed in the fall of 2001 and the collateralized loans weren't repaid.

D'Angelo has agreed to cooperate with the government's investigation into the conspiracy, the Justice Department said.

He faces up to 10 years in prison and will be required to pay restitution to victims.

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Calif. Sets Sept. 23 for Tobacco Bond Sale

California on Thursday set Sept. 23 as the date for the sale of $2.3 billion in tobacco settlement bonds, part of the state's plan to plug a $38-billion budget gap.

The tax-exempt bonds are to be repaid by future payments the state will get from tobacco firms under a 1998 liability settlement with 46 states.

But because of rising worries this year about the health of tobacco companies' finances, California will sell its tobacco bonds with a "credit enhancement" -- a pledge that the state would make up, from its general fund, any shortfall in tobacco company payments.

That is expected to reduce the interest rate on the bonds compared with tobacco issues that don't have enhancements.

Credit rating firm Standard & Poor's in August cut its ratings of most tobacco bonds two levels, to as low as BBB, the second-lowest investment-grade rating. S&P cited the threat of more smokers' lawsuits against tobacco firms, as well as declines in U.S. cigarette consumption.

Tobacco bonds have been issued by many states and municipalities, including New York, Oregon and Wisconsin.

Current annualized yields on previously sold California tobacco bonds without credit enhancements are as high as 8.25%, according to bond dealers.

Some dealers estimated Thursday that because of California's fiscal problems, the new bonds still would require yields of 7% or more, on the longest-term issues, to attract investors.

For California investors in the highest tax brackets, a 7% tax-exempt yield is equivalent to a yield of 11% or more on taxable bonds.

But municipal bond yields in general have been falling in recent weeks, along with yields on Treasury bonds. If the trend continues, it could save the state interest cost on the tobacco bonds.

The $2.3-billion deal will include securities maturing in four to 40 years, according to State Treasurer Phil Angelides' office in Sacramento.

Citigroup Global Markets Inc. will serve as senior manager for the deal, with Bear, Stearns & Co., First Albany Corp. and UBS Financial Services as co-senior managers. Seventeen other investment firms will be co-managers.

From Times staff reports and Reuters

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