"This scheme hurt innocent victims who were looking at the market,… (Kirk McKoy, Los Angeles…)
Federal agents arrested 14 people, including a former deputy district attorney, on suspicion of running a stock manipulation scheme from Southern California that cost investors more than $30 million.
Authorities said the scheme involved the heavy promotion of worthless stocks, which the perpetrators later sold for huge profits in a classic "pump-and-dump" scheme. More than 20,000 investors worldwide are believed to have been victims.
Investigators with the FBI and Internal Revenue Service used wiretaps to secretly record thousands of telephone calls and text messages during a three-year investigation, building what U.S. Atty. Andre Birotte Jr. said was the most important evidence in the case.
One of the suspects was recorded saying that a company on which shares were traded simply did not exist: "There's nothing in there. There's nothing to the company. It's monkey business," the executive said, according to prosecutors.
"This scheme hurt innocent victims who were looking at the market, seeing high-volume trading and thinking, 'This will be a good investment,'" Birotte said. "What they don't know is it's all a sham."
The investigation is continuing and it's possible that total investor losses could reach $300 million, Birotte said.
The scheme allegedly was led by Sherman Mazur of Westwood, whom Birotte described as "a serial market manipulator." Mazur, 63, was convicted in 1993 of bankruptcy fraud and tax evasion and sentenced to six years in prison, prosecutors said in a motion asking that he be jailed without bail.
Before going to prison, Mazur made a fortune in real estate. He was accused of diverting money from his businesses and failing to pay income tax on it. He still owes more than $12 million in back taxes from the 1990s, prosecutors said.
Mazur faces 30 felony charges and a possible sentence of more than 100 years in prison in the new case.
Also charged in the case were Regis Possino, 65, of Pacific Palisades, a former deputy district attorney who was disbarred in the 1980s after his conviction in a marijuana sales case.
Another defendant is Joey Davis, a Los Feliz resident and head of a public relations firm, who allegedly promoted the stock of a company called frogads.com by writing a press release about actress Pamela Anderson's endorsement of the company.
Anderson, who promoted the stock in an informercial, is not suspected of wrongdoing, said Thom Mrozek, a spokesman for the U.S. attorney's office in Los Angeles. Anderson's spokeswoman issued a statement that said the actress was misled by officials with the company.
Mazur, Possino and Davis could not immediately be reached for comment.
The scheme involved a slick marketing campaign about the stocks, including misleading press releases, videos and cross-trading among defendants to create the illusion of high demand for the stocks, prosecutors said.