Industrial Enterprises of America Inc. (IEAM) is accusing Baker & McKenzie, LLP and former partner Martin Weisberg of securities fraud. The $600 million lawsuit, filed in US Bankruptcy Court, accuses the defendants of setting up a legal structure that allowed for an illegal pump-and-dump scheme and causing the company to sustain $150 million in losses and investors to lose $450 million. Facing criminal fraud charges over the scam are Weisberg and ex-CEOs John D. Mazutto and James W. Margulies.
Industrial Enterprises of America says that Weisberg was the one who helped set up its 2004 stock option plan, which provided for the issuance of restricted shares to employees, consultants, and outside directors. Rather than rewarding the Pittsburgh chemical company’s employees, the strategy was to use “print money” for company executives, their girlfriends, and lawyers.
The plaintiff says that since Weisberg was the beneficiary of the sale of the stock, which was improperly issued, the law firm ignored what was going on while helping IEAM officials steal from the company. Industrial Enterprises of America also contends that there were false and misleading SEC and NASDAQ filings and internal corporate malfeasances were set up to “raid the company of its working capital.”
One year after Industrial Enterprises of America filed for bankruptcy in May 2009, Mazzuto was charged over the allegedly $60 million stock fraud scam. He is accused of issuing shares worth tens of millions of dollars to relatives, friends, and other people he personally knows, which fraudulently inflated the value of the stock.
An indictment said that an attorney trust account that Margulies opened received the most company shares—3.5 million shares that he sold for $17.7 million. About $13 million went back to Industrial Enterprises of America. The remaining funds went to accounts that he and Mazzuto controlled.
Industrial Enterprises of America says that Mazzuto personally made $15 million from the stock scam, Margulies gained $6 million, and Baker & McKenzie earned over $1.7 million in fees. The plaintiff wants restitution for the full value of the shares that were improperly issued, as well as compensation for unspecified damages.
Related Web Resources:
Baker & McKenzie Sued for $600 Million for Role in Chemical Company Demise, Bloomberg, April 11, 2011
Baker & McKenzie Sued For $600 Mln Over ‘Pump And Dump’ Scheme, Morningstar, December 4, 2011
More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Texas Stockbroker Fraud Blog, March 23, 2011
Ex-Gilford Securities Broker Indicted in International Stock Fraud Scam Involving Pump and Dump of Israeli and Chinese Securities, Stockbroker Fraud Blog, February 19, 2011
Alleged Pump and Dump Stock Manipulation Scam Leads to Indictment of Six, Including a Securities Attorney, Institutional Investor Securities Blog, February 27, 2011