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Three Principals Found Guilty in Manhattan Federal Court for $18 Million Real Estate Securities Fraud Scheme
PREET BHAHARA, the United States Attorney for the
Southern District of New York, and JOSEPH M. DEMAREST, JR., the
Assistant Director-in-Charge of the New York Field Office of the
Federal Bureau of Investigation ("FBI"), announced that MARK ALAN
SHAPIRO, IRVING STITSKY, and WILLIAM B. FOSTER were found guilty
yesterday after a three-week jury trial before United States
District Judge KIMBA M. WOOD on securities fraud, wire fraud,
mail fraud, and conspiracy charges after they stole more than $18
million from over 150 investors through private placement
offerings.
According to the Superseding Indictment and the
evidence at trial:
SHAPIRO, STITSKY, and FOSTER founded a group of
companies that operated under the name "Cobalt," which
purportedly engaged in the acquisition and development of
multifamily real estate properties throughout the United States.
Through the Cobalt entities, SHAPIRO, STITSKY, and FOSTER
fraudulently induced victims to invest by, among other things:
(a) misrepresenting Cobalt's operating history; (b) failing to
inform prospective investors that Cobalt was owned and controlled
by SHAPIRO and STITSKY, both convicted felons; and
(c) misrepresenting and causing others to misrepresent to
prospective investors Cobalt's purported ownership interests in
certain properties. In fact, Cobalt was a new company with
little or no record of real estate investment success, was
managed and controlled by SHAPIRO, and did not own several of the
properties that it claimed to own.
In order to carry out their scheme, SHAPIRO, STITSKY,
and FOSTER established a telemarketing center in Great Neck, New
York, where telephone calls were made to prospective Cobalt
investors. The defendants and their employees solicited funds
from investors by making false and misleading oral and written
representations about the investment for which the investors'
funds were solicited, including false representations about: (I)
the identities and relevant background information about the
individuals controlling the Cobalt entities; (ii) the identities
of Cobalt's business partners; (iii) the properties that Cobalt
owned; (iv) the properties in which investor funds were to be
invested; (v) the history of the Cobalt entities; (vi) the amount
of management fees to be taken by Cobalt entities from the
investor funds; (vii) the uses of the management fees taken by
Cobalt entities from the investor funds; and (viii) SHAPIRO's
educational background. For example, SHAPIRO falsely claimed to
have graduated from Harvard University with a Masters Degree in
Finance. SHAPIRO, STITSKY, and FOSTER then caused millions of
dollars of investors' funds to be transferred to accounts for the
defendants' personal benefit. SHAPIRO and FOSTER also created
and sent false financial statements and fake account statements
that purported to show that SHAPIRO had liquid assets in excess
of $3 million.
SHAPIRO, STITSKY, and FOSTER were each found guilty of
two counts of securities fraud, one count of wire fraud, one
count of mail fraud, and one count of conspiracy. The defendants
each face a maximum sentence of 20 years in prison on each count
of securities fraud, wire fraud, and mail fraud, and five years
in prison on the conspiracy count. On the securities fraud
counts, SHAPIRO, STITSKY, and FOSTER face a fine of the greatest
of $5,000,000 or twice the gross gain or loss from the offense,
and on each of the wire fraud, mail fraud, and conspiracy counts
they each face a fine of the greatest of $250,000 or twice the
gross gain or loss from the offense. The defendants also face
mandatory restitution to the victims of their crimes.
SHAPIRO and STITSKY were remanded by Judge WOOD
following yesterday's verdicts.
SHAPIRO, 60, of Glastonbury, Connecticut, STITSKY 55,
of Bayside, New York, and FOSTER, 69, of Easthampton,
Massachusetts, are scheduled to be sentenced on February 25,
2010, at 10:00 a.m. by Judge WOOD.
Mr. BHAHARA praised the work of the FBI in the
investigation of this case.
Assistant United States Attorneys ALEXANDER J.
WILLSCHER and MARC P. BERGER are in charge of the prosecution.
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