Ex-broker at Ferris charged in stock scheme

September 05, 2007|By Paul Adams | Paul Adams,sun reporter

U.S. attorneys in Cleveland say a former Ferris Baker Watts broker played a central role in a multimillion-dollar stock manipulation scheme that led to a management shake-up at the Baltimore firm this year.

Prosecutors charged Stephen J. Glantz, who left Ferris in 2005, with one count of securities fraud and one count of lying to investigators yesterday for what they say was his part in a plan to artificially raise the share price of Duluth, Ga.-based Innotrac Corp.

The fraud, which collapsed in November 2005, led to investors essentially overpaying for the stock, which is worth less than one-fifth of its value at its peak.

Among other things, Glantz is accused of making unauthorized purchases of Innotrac stock in unwitting clients' accounts to help another customer, David A. Dadante.

Investigators say Dadante operated a Ponzi scheme that stole an estimated $28 million from about 100 investors, with some of the money spent on gambling junkets in Las Vegas.

Glantz is the only person who worked at Ferris who has been criminally charged in the case involving Dadante, who pleaded guilty to securities fraud last month in Cleveland and agreed to cooperate with investigators.

Court documents filed yesterday suggest that "others" aided in the fraud but do not indicate that anyone else at Ferris is being targeted for criminal charges. The charges against Glantz were filed as a criminal information, which is typically used when the target of an investigation is cooperating.

Ferris has said that it believed investigations by the Securities and Exchange Commission and the Justice Department were focused on Glantz and Dadante, but legal experts say the firm could still face civil penalties if the SEC finds fault with its internal controls and its overall handling of the matter.

The investigation could take months, perhaps years.

`Very disappointed'

"We at Ferris Baker Watts are very disappointed by the misconduct alleged in the complaint against this former employee who left the firm more than 20 months ago," said Robin Oegerle, a spokeswoman for the firm. "FBW has cooperated fully in the investigation by the government agencies and will continue to do so."

Six top executives and traders went on leave this year as Ferris investigated the fraud. Three executives have since retired or resigned, including general counsel Theodore W. Urban and former CEO Louis Akers Jr. Two traders and the firm's head of retail sales returned to work. Ferris has said that none of its clients lost money as a result of Dadante's actions.

The criminal complaint against Glantz says he violated the firm's written policies designed to prevent fraud and misled its internal watchdogs after they raised questions about his purchases of Innotrac stock on behalf of clients who had not authorized the trades.

The activity occurred despite that and other concerns raised by employees at the firm.

Concerns raised

The Sun reported in April that Ferris' compliance department believed early on that Dadante's trading had raised the price of Innotrac stock and that he had violated securities laws. In a May 2003 memo to top executives at the firm, they also raised concerns about supervision of Dadante's account and Glantz.

In February 2004, Roger Calvert, chief executive officer of Ferris, wrote in an internal memo that Dadante could continue purchasing Innotrac shares as long as he paid for them in cash. The memo was in response to concerns about Dadante's borrowing millions of dollars from the firm to finance his trades.

Legal experts say filing a criminal information rather than an indictment likely means Glantz is cooperating with the government and working on a plea agreement.

Glantz, who once worked in Ferris' offices in Hunt Valley and Baltimore, could not be reached yesterday, and his attorney in Cleveland did not respond to a telephone message.

"It usually signals that someone has made his or her peace with the government and has agreed to acknowledge wrongdoing," said David Bohan, a Chicago attorney and former federal prosecutor, referring to the filing of a criminal information.

"I certainly wouldn't read into a two-count information against a cooperating individual that the investigation is over."

Court documents say Dadante began buying Innotrac stock in August 2002 based on Glantz' recommendation. At that time, Glantz was a broker with Advest Inc. Glantz left Advest in January 2003, taking with him Dadante's account containing 570,000 shares of Innotrac.

Dadante continued to trade through his account at Advest, however. Over the next year, he amassed nearly 4.2 million shares of Innotrac, mostly by using money borrowed from Ferris. At the time of Calvert's 2004 memo, Dadante's debt to the firm was $18.4 million.

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