New Jersey officials say they have arrested 21 people in connection with a securities fraud scheme that scammed investors out of at least $50 million. State Attorney General Anne Milgram said the scheme, operating from Sao Paulo, Brazil and Miami, Florida, utilized the New Jersey securities market.
Milgram said the "Heritage Financial" case involves an international criminal organization that operated over at least the last three years.
The New Jersey Bureau of Securities initiated the investigation that later resulted in a joint investigative team consisting of the US Department of Justice Fraud Task Force, FBI, U.S. Postal Inspectors, Securities and Exchange Commission, the Brazilian Federal Police, as well as the New Jersey authorities.
"Our Bureau of Securities uncovered an international securities fraud ring through the hard work and tenacity of its staff in its investigation of investor complaints," Milgram said.
A federal grand jury in Miami, Florida returned indictments on Rodrigo Molina and Marcos Macchione for their involvement in the scheme as money laundering service providers for the fraud. The indictments follow major operations carried out in Brazil and Florida in February 2008 that resulted in the arrest of 18 subjects in Brazil and three in Florida.
The Brazilian operation netted the alleged leader of the criminal organization, Doron Mukamal, as well as his partners, associates and employees. Also arrested in Brazil were the "doleiros" or money launderers that assisted the organization by providing a complicated maze of bank accounts that quickly hid money sent in by the victims. The three subjects arrested and indicted in Florida were responsible for the United States portion of the doleiro operations being managed out of Brazil, according to Milgram.
New Jersey investigators became involved in this case in 2005 when victims from around the world contacted the Bureau of Securities to report that a New Jersey securities broker had defrauded them. Heritage Financial of Trenton, N.J., one of the companies that was quickly determined by state investigators to be completely fictitious, offered to purchase nearly worthless stock from investors by paying much more than the stocks were worth.
Shortly before the stock transaction was supposed to take place, the fictitious broker would require the victim to pay some sort of advance fee. These fees were purported to pay for taxes, escrow payments or other services not actually required in legitimate transactions.
Once these "fees" were wired into bank accounts, mostly located in Miami, the fictitious brokers simply abandoned the transaction.
On many occasions, the victims were told that the broker had located warrants that supposedly gave the victims the right to purchase additional shares of the stocks already held by the victims at a discounted price. Although these warrants were fictitious, the victims were enticed to advance additional monies for the warrants based on the brokers' offer to buy the warrants back from the investors at a purported huge premium to the investors.
In many cases victims were further victimized when they were told that the broker had located warrants or the rights to purchase more shares held by the victims. These warrants were imaginary, but the con artists would offer to pay huge premiums to the investors for them. Again, lured by the promise of huge profits, the investors would remit large payments for further fictitious fees.
"Many foreigners investing in American stocks were quickly confused by elaborate ploys conceived by this criminal organization that served to provide an air of legitimacy," said Vincent J. Oliva, Chief of the New Jersey Bureau of Securities.
The con artists used well-designed websites to fool their victims into believing that they were legitimate securities brokers. The perpetrators, in order to carry out their scheme, stole the identities of real New Jersey broker-dealers and created others that were fictitious, authorities said.
In many instances, they even created false governmental entities that touted the legitimacy of the fictitious brokers. Additionally, voice over internet (VOIP) telephone providers were utilized so that the fictitious brokers had U.S. phone numbers even though they were located in Brazil and other countries.
"When this operation utilized false New Jersey entities, victims thought they were calling their broker located in Trenton or Newark when in fact, they were calling the con artists who were operating 'boiler rooms' all over the world," said Criminal Justice Director Gregory Paw.
Representatives of the SEC have advised that for at least the last three years, this fraud scheme is responsible for the greatest number of victim complaints received by them.
To date, the Bureau of Securities has seized and/or frozen over $2 million through the investigation, and additional monies have been seized by federal authorities. The majority of those funds are now being returned to victims by a court-appointed receiver.
Besides arresting the fraud scheme leader and managers, the Brazilian operation, called "Operacao Pirita", raided an operating "boiler room" located in a Sao Paulo hotel full of telemarketing con artists actively carrying out the fraud. In addition to the arrests, the Brazilian Federal Police, with the assistance of personnel from the NJ Bureau of Securities and N.J. Division of Criminal Justice, seized 17 guns, 17 vehicles, drugs, at least one home and over $1.5 million in cash and jewelry.