Lawyer Convicted in $100M Pump-and-Dump Scheme; Two Law Firms Face Civil Suits
A lawyer from suburban Cleveland has been convicted of securities fraud in a $100 million pump-and-dump stock scheme.
Lawyer James Margulies was convicted in a scheme to inflate the price of stock for New York-based Industrial Enterprises of America Inc., which owns a company that makes antifreeze and other car chemicals, Cleveland.com reports. The New York Times and the Wall Street Journal (sub. req.) also have stories about the Manhattan verdict.
Margulies, who was legal counsel and then CEO of the company, was accused of using $7 million in illegal profits to buy luxury items including a $350,000 ring for his wife, a $500,000 vacation club membership and mortgages on high-priced homes, according to a press release (PDF).
Margulies was accused of helping sell the company stock to friends and relatives, who sold their shares and invested some of the money back in the company. As a result, the company appeared to be in good financial health and the value of its stock rose, prosecutors said. Later investors—including a teachers’ pension fund and a Methodist church—lost money when the stock became worthless.
Industrial Enterprises filed for bankruptcy in 2009. It has filed 14 lawsuits against more than 100 defendants, Cleveland.com says. Previous press coverage has identified two of the defendants as Baker & McKenzie and Holland & Knight. The latter firm has said its work for Industrial Enterprises involved the defense of a single litigated matter, and all the work was performed in a professional manner.
