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June
09 Wednesday
2010

UPDATE: 13 People Indicted In $12 Million \'Boiler Room\' Fraud Scheme

(Updates with comments from lawyers, additional details.) By Chad Bray Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Thirteen people, including a purported member of the Bonnano organized crime family, were charged Wednesday in an alleged "boiler room" scheme that caused investors to buy more than $12 million in stock based on false claims about the firms. According to a criminal indictment, the boiler room, operated by purported Bonnano soldier Anthony Guarino, allegedly induced investors to purchase shares through private placements of Florida online-broadcast provider Realcast Corp., New York online gaming company BBC Gaming Inc. and other companies.

The Federal Bureau of Investigation conducted searches beginning at 8 a.m. EDT Wednesday of the offices of Powercom Energy Services Corp. and Empire Energy Services Corp. in Manhattan's Garment District, said James Margolin, a New York FBI spokesman.

In addition to Guarino, Steven Kimmel, the president and chief executive of Realcast, and Alex Lemberg, the chief executive of BBC Gaming, were charged in the indictment. Kimmel said in company documents that he is a former employee of the U.S. Securities and Exchange Commission, according to the indictment.

An SEC spokesman declined comment Wednesday.

The charges include conspiracy, securities fraud and wire fraud.

Mathew J. Mari, a lawyer for Guarino, said his client's company has been "doing legitimate business for a very long time" and Guarino is confident the allegations "can be explained." Claims by law enforcement officials that his client is a suspected Bonnano soldier were "laughable," he added.

In a boiler room scam, brokers typically use high-pressure sales tactics, usually by telephone, to induce potential clients to invest.

In a statement, U.S. Attorney Preet Bharara said many of the victims were elderly.

Guarino, Lemberg and six others charged in the case pleaded not guilty at a hearing in federal court in Manhattan on Wednesday. Ten people were arrested Wednesday, with Kimmel expected to appear in court in Florida and another defendant expected to appear in court in Pennsylvania.

Information on Kimmel's lawyer wasn't immediately available late Wednesday and a call to Kimmel's office at Realcast wasn't immediately returned Wednesday.

Arkady Bukh, a lawyer for Lemberg, said his client "absolutely denies the allegations."

Realcast allegedly paid at least 40% of money solicited by Guarino's operation as commissions without that information being revealed to potential investors, according to the indictment. The scheme went back as far as 2000, according to the indictment.

Members of the boiler room allegedly represented that they were receiving no commission or a commission of 10%, according to the indictment.

In December 2009, a member of the boiler room allegedly told an unidentified co-conspirator that his "mother will come out of the grave" before Realcast is a successful company, according to the indictment.

However, the boiler-room member told a potential investor in February that Realcast could be bought in the near future and he was "comfortable" telling an investor that the company's shares should sell for as much as $15 to $18 on the high end.

In March, Guarino and another defendant allegedly discussed that various investor leads they had received in the New York City area were unusable because the investors lived nearby and might be able to personally check up on their operations.

BBC Gaming also allegedly retained Guarino's operation to solicit investors in 2009, agreeing to pay a 40% commission, according to the indictment.

In its offering document, the company allegedly represented its shares would be offered by the officers of the company, who would receive no commissions, and 10% of the offering proceeds had been allocated for "organization/offering expenses," according to the indictment.

Copyright © 2009 Dow Jones Newswires