In early 2003, Dadante moved his account to Ferris after Glantz was lured to the firm with a big signing bonus. Almost immediately, Dadante began using illegal trading methods to manipulate the stock, according to court documents. The shares peaked at $12 in 2004 - nearly five times what Dadante paid in the beginning.
Buying in small lots, Dadante accumulated millions of shares using money he mostly borrowed from Ferris using the stock as collateral. Dadante's growing debt and unusual trading caught the attention of the firm's internal watchdogs.
Their concern resulted in a May 2003 memo to top executives. But the firm did little to stop him, and Dadante kept trading Innotrac for the rest of that year in the mistaken belief that the company was on the verge of something big.
Dadante says he made more than $5.3 million that year with legitimate trades in stocks such as Google, Micron Technology Inc. and Taser, among others. He had discovered a new form of gambling, and he was winning.
That's when he started living large, leasing a Lexus and breaking ground on a 5,000-square-foot luxury home down the street from Regalbuto and his son. He equipped it with a custom-designed casino patterned after Bellagio in Las Vegas - complete with slots and prints of famous Impressionist paintings. He called it Dante's Inferno and had a custom-designed logo printed in red felt on every table.
Mike Regalbuto recalls feeling relief when Dadante moved in next door. It was a further sign, he reasoned, that Dadante and his fund were for real.
But the fraud crumbled months later. A Regalbuto family friend, a hedge fund manager, got a tip that he should check into Innotrac. He soon discovered regulatory filings showing that Dadante and the IPOF fund owned more than one-third of the company's shares. He sensed that something was wrong and told Mike Regalbuto.
That led to a Nov. 15, 2005, confrontation in Frank Regalbuto's basement. Dadante confessed. Their money wasn't in a safe account at Goldman Sachs. It was spread among accounts at five brokerages - much of it tied up in Innotrac shares that had few buyers.
When the news broke, shares of Innotrac plunged, wiping out much of the IPOF fund's remaining value. Its assets were turned over to a court-appointed receiver. The FBI launched a probe, and federal regulators started investigating Ferris' handling of Dadante's account. The firm disclosed recently that it could face a $1.2 million federal fine stemming from the matter.
Dadante insists that he never intended to steal the money. He just wanted to make a living as a fund manager and made up a wild story to get it off the ground.
"It snowballed to the point where I couldn't get myself out of it," he said.
paul.adams@baltsun.com
SHAREHOLDERS VOTE TODAY
Shareholders of privately-held Ferris, Baker Watts Inc. are scheduled to vote this morning in Washington on selling the firm to Royal Bank of Canada in a $230 million stock deal. Ferris, which has Baltimore roots dating to 1900, has 14 offices and 1,000 employees, including 461 in Maryland.
