Legal News

New York White-Collar Roundup (The Bernie-less Version)

By Amir Efrati

With all the Bernie Madoff action going on lately at the U.S. attorney's office for the Southern District of New York, it's easy to forget there are other white-collar matters going on in the region. A couple to bring you up to speed on.

A Family Affair? A trial begins today for Darin DeMizio, a former supervisor in Morgan Stanley's stock-lending business, on charges that he steered his firm's business to certain individuals in exchange for illegal kickbacks to his brother and father. (Click here for the WSJ story.)

DeMizio is the only person going to trial out of nearly 30 defendants who were criminally charged as part of a crackdown that started in 2007 on the multibillion-dollar stock-loan industry. Until DeMizio, all of the defendants pleaded guilty and most received prison sentences.

The prosecutor who brought all the cases, Sean Haran, has left for private practice, leaving AUSAs Kelly Currie, Winston Chan and Winston Paes to mop up what's left of the government's campaign, according to federal court filings. They face white collar defense bar veteran David Spears, representing DeMizio.

The cases involve "finders," or firms that act as intermediaries and assist borrowers and lenders in locating stock to borrow. Problems occurred when employees of brokerage firms paid sham fees to finders whose services weren't needed, and the finders paid back a portion of those fees to the employees.

At today's trial, prosecutors will say DeMizio defrauded Morgan Stanley by causing it to borrow or lend securities from entities that paid sham finder fees to DeMizio's family members in the late 1990s and early part of this decade. Prosecutors also charged him with making a false statement to the Federal Bureau of Investigation during its investigation.

An Israel Plea? Hedge-fund swindler Samuel Israel III may finally be allowed to plead guilty to skipping out on prison.

Last summer, the day he was supposed to report to prison for his 20 year prison sentence, Israel hit the road. He faked his suicide and took off in an RV for nearly a month before ultimately surrendering in Massachusetts. Click here for today’s AP story; here, here and here for previous LB posts.

Israel is expected to admit Monday in a White Plains, N.Y., court that he went on the lam in June rather than serve 20 years for bilking millions from investors.

Judge Kenneth Karas refused to accept a guilty plea after Israel said drug addiction treatment was affecting his thinking. A court-ordered evaluation has now found Israel competent to stand trial for fleeing — or to plead guilty. Sounds like he’s chosen the latter.

Update: Israel did indeed plead guilty this afternoon to failing to surrender. He faces as much as 10 years on top of the 20-year term he received for bilking hundreds of million of dollars from investors.
Sentencing is June 24.

Full post as published by Law Blog - WSJ.com on March 16, 2009 (boomark / email).