Two companies listed on the AIM market in London were at the centre of an international fraud that cost investors $140m (£87m), it is alleged.
Ross Mandell, a self-confessed "bad boy" from the era of drug-fuelled trading on Wall Street who was once briefly disbarred from acting as a securities dealer, used the two London-listed companies, Sky Capital Holdings and Sky Capital Enterprises, to fund a lavish lifestyle for himself and to shower gifts on favoured employees, according to criminal and civil charges laid against him yesterday.
According to legal filings, Mr Mandell squandered money raised from AIM investors to pay for personal expenses, including a decorator for his penthouse in a Trump tower in New York and to fund "extravagant" business trips to London, where five-star hotels and "adult entertainment" were put on the corporate credit card.
All the while, he was lying to investors about the business ventures of the companies and using the Sky Capital broking business in New York to manipulate their share prices on the AIM.
Sky Capital Holdings was a small stockbroking company floated on the AIM in 2002, with Grant Thornton as its nominated adviser. Its prospectus disclosed Mr Mandell's chequered past, including that the National Association of Securities Dealers in the US was only allowing Sky to operate on the promise that he would not be personally involved in the business. Yet, according to a criminal complaint, he was deeply involved in management.
Sky Capital brokers were heavily incentivised to sell the company's own shares to clients and secretly ran a "no net sales" policy which meant that they would not process sales of the shares unless they could find a corresponding buyer. That kept shares in the two Sky companies artificially high, according to civil charges filed by the Securities and Exchange Commission and a criminal complaint. Meanwhile, Mr Mandell personally lied to AIM investors, including two Manchester-based investors who had bought $1m of Sky Capital shares. He persuaded them not to cash out, telling them he was about to sell the company to a German bank at twice the current share price. That was a fiction, it is alleged, and he later told the investors the deal collapsed because the German bank had wanted him to work for it for three years – something he could not do "because I'm Jewish".
Mr Mandell was charged with five associates on two counts of fraud that carry a 25-year prison sentence. He was released on $5m bail after entering a not guilty plea yesterday. The two Sky companies were delisted after the FBI raided their New York office in 2006, rendering the shares worthless. The US Department of Justice alleges the companies were a scam from the start, designed to compensate investors in an earlier scam in New York where Mr Mandell had been selling shares in businesses he secretly controlled and which never delivered.
The London Stock Exchange's AIM has less exacting listing requirements, relying on nominated advisers to judge companies as suitable for investors.