Former Ferris Baker broker is to be sentenced today

Prison likely for trader tied to Ponzi scheme

December 13, 2007|By Paul Adams | Paul Adams,Sun reporter

In January 2003, Stephen J. Glantz left the Advest brokerage in Ohio and went to work for Ferris Baker Watts, bringing with him a solid book of business and a big client named David A. Dadante.

For the century-old Baltimore brokerage, it was the start of a legal and financial debacle that will linger long after Glantz and Dadante are sentenced this week for their roles in a stock-manipulation scheme involving Ferris' trading desk.

The firm faces a continuing federal investigation and several civil lawsuits that could take years to untangle.

Dadante pleaded guilty in August to defrauding investors in a $50 million fund he managed. Federal court records show that with the help of Glantz, Dadante used accounts at Ferris and other firms to engage in illegal trades that artificially raised the share price of a thinly traded stock over the course of more than two years.

In Cleveland yesterday, U.S. attorneys also charged former Advest broker William H. Salem with securities fraud and lying to investigators for his part in the alleged fraud. Advest, which was acquired by Merrill Lynch in 2005, was a Connecticut-based brokerage with offices in Ohio.

The charges were filed as a "criminal information," which typically means the target is seeking a plea agreement. An attorney for Salem could not be reached yesterday.

The criminal case against Glantz, who pleaded guilty to securities fraud in September, is scheduled to end with his sentencing at 1 p.m. today in Cleveland. His plea agreement calls for a sentence of 27 to 33 months in prison. Dadante's sentencing is set for tomorrow, with the judge expected to hand down a sentence of 10 to 12 years.

But for Ferris, the future is less clear. The brokerage remains the subject of a Securities and Exchange Commission investigation that legal experts say might not be resolved for months or years. Meanwhile, Ferris has said it is at least "open" to considering buyout offers from four suitors interested in acquiring the firm.

The SEC declined to comment for this article, in keeping with its policy of not confirming active investigations. Ferris has acknowledged it is under investigation by the SEC but declined to comment further this week. Ferris indicated in an August financial report that the SEC's investigation of the firm centers on Glantz and Dadante.

Ferris' role as Glantz's employer has left it and certain employees the target of lawsuits filed by Dadante's 100-plus victims, who are seeking to recover the estimated $28 million they lost. Dadante's victims - none of whom were Ferris clients - are waiting to see what the SEC case reveals about the firm's handling of the matter.

The Sun reported in April that internal memos showed the firm's compliance department had concerns about Dadante's trading within months of Glantz's arrival in Baltimore.

Despite some restrictions imposed by the firm, Dadante continued to trade shares of Duluth, Ga.-based Innotrac Corp. for months after the May 2003 memo was sent to top executives at Ferris.

What remains of Dadante's IPOF investment fund - and the victims' lost millions - is largely tied up in Innotrac stock sitting in accounts at Ferris and several other brokerages.

"I won't stop until I get ... this money returned to who it really belongs to," said Frank Regalbuto, of Mayfield Village, Ohio, who claims he lost $6.1 million of his own money and millions more belonging to his children and grandchildren.

Regalbuto and others contend that Ferris failed to supervise Glantz and either knew - or should have known - that Dadante was engaging in improper trades, among other things. Ferris argues the fraud was the work of a rogue broker and his client.

Regalbuto is at the center of a series of lawsuits targeting Dadante, Glantz, Ferris and several other banks and brokerages caught up in the fraud. He also names two traders at Ferris in one of his suits.

A federal judge in Cleveland has put the suits on hold while she sorts out the legal issues surrounding the matter.

In past proceedings, the judge criticized Regalbuto for pursuing a legal strategy that could end up interfering with a court-appointed receiver's attempts to recover money for victims. The receiver, Mark E. Dottore, is seeking to have Regalbuto's suits dismissed.

Regalbuto also sued Dottore, alleging he is taking large fees while getting nothing for investors, among other claims. Dottore disputes the allegations. The judge has yet to rule on whether the suits may proceed.

A self-made millionaire in the construction business, Regalbuto met Dadante on a gambling junket to Atlantic City's Tropicana Hotel in the 1980s. He later helped Dadante out of a financial jam, and they became friends.

In 1998, Dadante approached Regalbuto about an investment fund he was starting, drawing on his alleged connections to casino magnate Donald Trump and Goldman Sachs executives.

It sounded legitimate, so Regalbuto says he began pouring money into the fund, which was supposed to be invested strictly in initial public stock offerings.

After spectacular initial returns, Regalbuto, a fixture in Ohio's Italian-American community, persuaded dozens of friends and associates to invest tens of millions of dollars with Dadante.

More than 100 eventually did. But the fraud unraveled in Nov. 2005, when investors discovered they owned millions of shares of Innotrac - a small company with a history of losses.

The investors subsequently learned that IPOF was a Ponzi scheme, in which early investors are paid phony "returns" with money collected from new investors. Dadante had diverted some of the funds to finance a luxury home and gambling junkets to Las Vegas, according to investigators.

"He [Dadante] was a friend for 20 years, but he conned me," Regalbuto said.

paul.adams@baltsun.com

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