Good morning, Mr. Chairman and members of the subcommittee. I am very pleased to appear before you today to discuss the Federal Bureau of Investigation's (FBI's) role in investigating organized crime's involvement in the financial and securities markets. The FBI investigates financial and securities fraud schemes primarily through our Financial Crimes Program. However, we have recently documented a willingness on the part of organized crime groups to engage more frequently in this type of criminal activity and as a result, our Organized Crime Program has become very active and engaged in pursuing these types of investigations.

Organized crime has stepped into financial and securities fraud schemes for the same reason that it engages in any other area of criminal activity - it goes where the money is and the "bull market" of the past few years, with its extraordinary profits, has caught the eye of organized crime. In the past approximately eight years, organized crime's involvement in the financial and securities markets has become significant. Historically, organized crime's role in the financial and securities markets was limited to shaking down and extorting stockbrokers who had found themselves indebted to organized crime figures, for any number of reasons, and attempted to work off their debts through stock manipulation. Today, elements of traditional organized crime groups, to include the Bonanno, Colombo, Decavalcante, Gambino, Genovese, and Luchese organized crime families, as well as Eurasian organized crime groups, have been linked to stock manipulation schemes. In some cases, traditional Eurasian organized crime groups have worked together to infiltrate the financial and securities markets.

New technologies such as e-mail and the Internet have made it easier for organized crime to conduct these stock and securities schemes. Not only can it reach a broader pool of potential victims, but the perpetrators can operate with a certain measure of anonymity. Organized crime groups target "small-cap" or "micro-cap" stocks, over-the-counter stocks, and other types of thinly traded stocks which can be easily manipulated. Organized crime schemes involving the financial and securities markets tend to use offshore bank accounts to conceal the conspirators' participation in the fraud scheme as well as provide a mechanism to launder the illegal proceeds of these type of fraud schemes. Thus, criminal indictments tied to these schemes usually include money laundering and income tax violations. Their victims tend to be elderly or inexperienced investors and there is every reason to believe that as the amount of money to be made increases, more and more of this type of activity will develop. What makes the financial and securities fraud scheme appealing to organized crime is the size of the profits to be made in relatively short periods of time coupled with the difficulty of detecting these schemes. The sheer amount of money involved makes it a tempting target for exploitation by organized crime.

Recently we have had a number of successful investigations and prosecutions in this area. In November of 1997, after a one year investigation which included extensive electronic surveillance, the United States Attorney's Office in the Southern District of New York indicted 19 defendants including Frank Lino, a Capo in the Bonanno organized crime family, Rosario Gangi, a Capo in the Genovese organized crime family, and Eugene Lombardo, an organized crime associate. These individuals orchestrated an effort to gain control and influence over a brokerage firm known as Meyers, Pollock, and Robbins, through bribes and extortion. Lino, Gangi, Lombardo and the other defendants used their influence over the brokerage firm to manipulate the market price of Healthtech International, a small company whose stock traded on the NASDAQ Small-Cap market. Lombardo and the other organized crime defendants in this matter secretly obtained shares of Healthtech from its CEO, in return for causing the brokerage and its brokers to manipulate the price of Healthtech's stock to artificially high levels. They then made substantial profits by selling their secretly obtained shares to the public at artificially inflated prices. As a result of this successful investigation, 17 of the defendants were convicted to include Lino, who was sentenced to 57 months in prison, Gangi who was sentenced to 97 months in prison, and Lombardo who was sentenced to 96 months in prison. In addition, the CEO was sentenced to 87 months. In another investigation conducted in the Southern District of New York, 120 defendants, including eleven members and associates of New York's five major organized crime families, were charged with crimes related to the manipulation of the securities markets. This investigation, code-named "Operation Uptick," centered on organized crime's involvement in a series of schemes to artificially inflate the market prices of 19 public companies and then sell, to the unsuspecting public, stock in those companies which was held by an investment firm known as DMN Capital, Inc. The investigation also revealed organized crime involvement in a number of fraudulent "private placements" of stock in several small, private companies. One other aspect of this investigation involved an effort by a Colombo organized crime associate to bribe an official for a pension fund who, in turn, would cause the pension fund to invest in a number of entities which had agreed to kick-back portions of the pension funds to DMN Capital, for the benefit of the organized crime associates. Charges involved in this investigation are pending trial.

On March 1, 2000, after a three year investigation by the FBI and the New York City Police Department, 19 individuals were indicted by the Eastern District of New York on RICO charges relating to the fraudulent manipulation of securities by members and associates of Gambino and Genovese organized crime families working with a Russian organized crime group. Among those indicted were a Capo and an associate of the Bonanno organized crime family, a Soldier in the Genovese crime family, a Soldier and an associate of the Gambino organized crime family, and an associate of the Colombo organized crime family. Of the 19 defendants, 17 have been charged with racketeering violations. This investigation is ongoing.

Another investigation, recently conducted in the Eastern District of New York, charged 23 defendants with participating in a large-scale stock fraud and money laundering scheme that was controlled and directed by a confederation of traditional and Russian organized crime groups. This scheme generated more than $10 million in illegal proceeds by defrauding hundreds of innocent victims who, through false and misleading, high-pressure sales pitches, were induced by the defendants to invest in worthless stock. The scheme was led by defendants Dominick Dionisio and Enrico Locasio, associates of the Colombo organized crime family, who placed and supervised crews of registered and unregistered brokers and unlicensed cold callers in boiler rooms located in the branch offices of several brokerage firms. Dionisio was sentenced to eight years in prison and ordered to pay $10 million in restitution. Locasio was sentenced to five years in prison and ordered to pay $5 million in restitution. This investigation is also ongoing.

Finally, the YBM Magnex case was initiated by our Philadelphia office in 1996. As part of a criminal conspiracy, YBM Magnex was formed by an individual with ties to the former Soviet Union and associated with organized criminal activity in Eastern Europe. Once formed, YBM Magnex registered its stock with securities regulators in Canada and the United States in order to sell the stock to the public in both countries. In May 1998, federal Agents from the FBI, Internal Revenue Service, United States Customs Service, Immigration and Naturalization Service, and Department of State executed a search warrant on the premises of YBM Magnex in Newtown, Pennsylvania, one of the organization's US bases for financial operations. The conspirators in this investigation had engaged in a stock fraud scheme centering on YBM Magnex shares offered through the stock exchange in Calgary, Alberta, Canada. YBM Magnex was trading on the Toronto Stock Exchange (TSE), Ontario, Canada, as a member of the exchange's leading index of 300 companies until the time of the aforementioned raid of the YBM Magnex offices, when the TSE removed YBM Magnex from its index.

In June 1999, YBM Magnex pleaded guilty in U. S. District Court, Eastern District of Pennsylvania, to a one count criminal information charging a multi-object conspiracy to commit securities fraud and mail fraud. As part of the conspiracy, YBM Magnex filed a prospectus with securities regulators at the Ontario Securities Commission (OSC), for approval to issue a second public offering of its stock, the proceeds of which generated approximately $100 million (CDN).

Beginning in August of 1996, YBM Magnex filed a series of documents with the Securities and Exchange Commission (SEC) and the NASDAQ to obtain authorization to issue stock in the U. S. It is important to note that this plea constitutes a global resolution of all criminal conduct involving the corporate defendant only, that occurred between 1993 and the date of the plea. The YBM investigation is ongoing.

Although these investigations are financially complex, we utilize traditional investigative techniques such as the use of informants, Undercover Operations, and electronic surveillance in developing cases suitable for prosecution. Our investigations are coordinated with the Securities and Exchange Commission (SEC) so as to minimize losses to the investors once these schemes are uncovered. Both the SEC and the National Association of Securities Dealers (NASD) have provided assistance by identifying victims, co-conspirators, and trading activity relative to these fraudulently manipulated stocks.

Conclusion

I want to thank the subcommittee for giving me the opportunity to testify here today. The trend towards investing in the financial markets and the tremendous profits which have been realized in recent years as well as the sheer volume of funds involved make the financial and securities markets prime targets for exploitation by organized crime, as it goes where the money is. The FBI is fully prepared to address this emerging area of criminal activity and have already realized significant successes as well as prevented substantial financial losses. We look forward to working with Congress to ensure that we continue to meet the investigative demands of this emerging and developing aspect of organized crime. This concludes my prepared remarks. I would like to respond to any questions that you may have.