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Four Men Arrested in Anthrax-Related
Stock "Pump and Dump"Scheme

Stephen Barrett, M.D.

Four New York area men are facing civil and criminal charges arising from a "pump and dump" scheme that exploited the Nation's fear of anthrax and bioterrorism. On December 11, 2001, the U.S. Department of Justice announced the the arrests of Saverio "Sammy" Galasso III, David Hutter, Charles Dilluvio and Michael J. Burns on charges arising from a scheme involving publicly-traded stock in Spectrum Brands Corp. (OTCBB symbol "SPBR"). [1] Simultaneous with the arrests, the U.S. Securities and Exchange Commission (SEC) announced the filing of a civil lawsuit against the men and the company for securities fraud [2]. Government press releases allege:

If criminally convicted, each of the four defendants faces up to five years in peison and a $250,000 fine. In announcing the four arrests, U.S. Attorney Alan Vinegrad stated:

This securities fraud scheme, by a convicted organized crime associate, a confessed money launderer, and others is particularly reprehensible. The defendants resorted to a variety of manipulative devices in order to profit illegally from anthrax attacks, harming unsuspecting investors in the process. The dismantling of this scheme is the result of the outstanding work and cooperative efforts of the U.S. Postal Inspection Service, the FBI and the SEC [1].

The SEC has charged the men with violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Its civil action seeks permanent injunctions, restitution, disgorgement of ill- gotten gains, and civil penalties from all defendants and an officer-and-director bar against Burns.

Spectrum's December 16 closing price, which reflected a November 5th stock dividend of 5 shares for each share held, was 14 cents [4]. The Web sites of Spectrum and the manufacturer now carry a disclaimers that the device is not recommended for killing anthrax spores.

References

  1. Organized crime associate and three others arrested in anthrax-related stock fraud scheme. U.S. Department of Justice news release, Dec 11, 2001.
  2. SEC sues company, company president, and three promoters for fraudulent anthrax protection claims. Securities and Exchange Commission news release, Dec 11, 2001.
  3. United States v. Saverio Galasso III, et al., 00-CR-122 (S-3) (ADS).
  4. Yahoo! Finance provides detailed information on the stock price, press releases, and other news about the company.

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This article was posted on December 18, 2001.