Bad Wiretaps Force Prosecutors to Drop Charges in $30 Million Stock-Fraud Case

Thursday, March 27, 2014

Pumps & Dumps, a website devoted to schemers who traffic in the seedy world of penny stocks, nominated Sherman Mazur for the lead in a remake of the film “The Wolf of Wall Street” after he was arrested by the FBI last year and charged with market manipulations that cost 20,000 investors $30 million.

The U.S. Attorneys Office was licking its chops at the prospect of prosecuting Los Angeles-based Mazur and 13 others for artificially inflating the price of stocks, sucking in investors, then dumping their own holdings, precipitating a sharp loss in value. But it is apparently a lot easier for the government to legally eavesdrop on an entire nation of innocent citizens than a few stock traders suspected of multi-million-dollar fraud.

Earlier this week, federal prosecutors dropped the charges against Mazur and eight others when it became clear that key wiretap evidence was inadmissible because it was obtained through a faulty procedure. The Los Angeles Times reported that Mazur’s attorney, Marc S. Harris, said that an FBI agent had told a judge that the wiretap was necessary because there were no informants available to provide the information.

The law puts the bar high for obtaining a wiretap. In this case, however, there was a suspect who was already cooperating with the authorities and the necessity of a wiretap was called into question.

Too bad. The U.S. Attorney’s description of Mazur’s modus operandi was right out of the movies and, if proven, could have provided material for a “Wolf” sequel. A press release described:

“. . . two separate large-scale fraud schemes in which conspirators gained control of the majority of the stock of publicly traded companies, often co-opting company management to assist in these efforts; concealed their control of the stock by purchasing and transferring shares to offshore accounts and to nominee entities with names such as ‘Dojo,’ ‘Picasso,’ and ‘Big Dog’; fraudulently inflated the prices and trading volumes of the companies’ stocks through slick marketing campaigns, misleading press releases, payments to stock promoters, and ‘cross-trading’ among co-conspirators that made it appear the stocks were being actively traded; coordinated the sale of the companies’ shares at the peak of the fraudulently manipulated market; and hid profits in nominee and offshore accounts.”

But the man whom U.S. Attorney Andre Birotte Jr. had called “a serial market manipulator” walked.

That wasn’t the case 21 years ago when Mazur ran American Resource Corporation in Los Angeles and controlled $750 million worth of apartments and office buildings at its peak. In 1988, he was said to be managing 580 postal, utility and government buildings. American Resource went bankrupt in 1991.

Mazur pleaded guilty to seven counts of tax and bankruptcy fraud in 1993 for diverting money from 200 real estate partnerships he ran, many of which ended in failure. He was sentenced to six years in prison and fined $250,000.

On the day Mazur pleaded guilty, former Lincoln Savings & Loan chief Charles H. Keating Jr. was sentenced to 12 and a half years in prison for fraud, racketeering and conspiracy. The day before, Charles W. Knapp, another former S&L executive who ran American Savings, was convicted of lying to obtain a $15-million loan.

That was back in the old days when big-time while-collar criminals went to jail.     

–Ken Broder


To Learn More:

Charges Dropped in Stock Manipulation Case (by Stuart Pfeifer, Los Angeles Times)

Fourteen Arrested for Market Manipulation Schemes that Caused Thousands of Investors to Lose More Than $30 Million (U.S. Attorneys Office)

Real Estate Whiz Sherman Mazur Pleads Guilty to 7 Counts of Fraud (by James F. Peltz, Los Angeles Times)

Leave a comment