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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").  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 . Government press releases
- In October 2001, Galasso and Hutter led the group to acquire
a controlling interest in Spectrum. In August, Galasso had pled
guilty to unrelated federal racketeering charges of arson, mail
fraud, and wire fraud, while acting as the leader of a criminal
enterprise associated with the Colombo Organized Crime Family
of La Cosa Nostra. In the same case, Hutter had pled guilty federal
money laundering conspiracy .
- While out on bail and awaiting sentencing, the pair plus
Burns and Dilluvio purchased Spectrum on October 26, and acquired
3 to 4 million shares of its stock. Burns then acted as a nominee
president and chief executive officer to conceal the fact that
Spectrum was owned and controlled by the two convicted felons.
The government has moved to revoke their bail and can move to
increase the sentences on the previous convictions .
- The four men then used various manipulative practices to
artificially inflate ("pump") Spectrum's stock price
and then sell ("dump") the company's nearly worthless
shares onto an unsuspecting investing public .
- Inside his personal office located in Westbury, New York,
Galasso displayed a sign that read "Operation Infinite Liquidity,"
in an apparent play on the original name for the U.S. military
operation in Afghanistan, "Operation Infinite Justice."
- On November 1, Spectrum issued a press release announcing
the formation of a wholly-owned subsidiary named Spectrum Homeland
Security Solutions, Inc. ("SHSS"). Other press releases
falsely claimed that SHSS and Spectrum had obtained exclusive
rights to sell the DeGERMinator,
a hand-held device that purportedly killed anthrax in five seconds
or less through the use of ultraviolet light. The device's manufacturer
disavowed these claims and directed Spectrum to remove them from
its Web site, but Spectrum ignored those directions .
- Spectrum, which was a shell company with no revenues or assets,
opened a bank account on November 1 with a $1 deposit. The headquarters
address listed on the company's Web site was actually a rented
mail box at a mail-reception company .
- As part of the manipulation scheme, Dilluvio executed dozens
of successive buy and sell orders that artificially increased
the trading volume of Spectrum stock in an effort to make it
appear that the company's stock was widely-traded and was a desirable
investment. For example, on November 2, a brokerage account opened
by Dilluvio was responsible for 13,800 (54%) of the 25,220 trades
of the Spectrum common stock that day .
- Spectrum made certain corrective disclosures on its Web site,
but continued to tout in press
releases and soam e-mails its supposed progress in combating
"bio-terrorism" and "cyber-terrorism." These
include an e-mail dated November 29 touting the company's management
and predicting a "$15.00 stock price! Over a 10-fold move!"
- These efforts successfully "pumped" the stock price
up from virtually nothing on October 17, (just before Spectrum
was acquired by Galasso and Hutter) to an intraday high of $14
in early November, even though Spectrum lacked revenue and assets.
After the price peaked, the defendents "dumped" the
stock at a significant profit .
- On or about November 7, Bloomberg News Service ran an article
questioning the DeGERMinator's effectiveness against anthrax,
as well as various claims made on Spectrum's Web site. The stock
price fell dramatically .
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
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
. The Web sites of Spectrum and the manufacturer now carry
a disclaimers that the device is not recommended for killing anthrax
News Index ||| Quackwatch
This article was posted on December
crime associate and three others arrested in anthrax-related
stock fraud scheme. U.S. Department of Justice news release,
Dec 11, 2001.
sues company, company president, and three promoters for fraudulent
anthrax protection claims. Securities and Exchange Commission
news release, Dec 11, 2001.
- United States v. Saverio Galasso III, et al., 00-CR-122 (S-3)
Finance provides detailed information on the stock price,
press releases, and other news about the company.