Mobbed Up on Wall Street

An inside look at the Mafia brokerages that thrived in the '90s -- and the career of one con artist

It was one of the most disturbing aspects of the bull market: the Mob setting up shop on Wall Street. Although organized crime had participated in a smattering of stock scams years before, never had "wise guys" actually established and run brokerage firms. In the 1990s, firmly encamped in lower Manhattan, the six New York area crime families took a hefty chunk of the $10 billion-a-year trade in grossly overpriced microcap stocks. By the end of the millennium, Wall Street had become a leading Mafia cash cow.

None of this could have happened without the foot soldiers of the Mob's Wall Street operations -- hundreds of hustling kids drawn by easy money in fabulous amounts. These were ambitious youths from the streets with no real knowledge of stocks and no skills other than the ability to lie. And none cut a wider swath than a skinny kid from Staten Island named Louis Pasciuto.

When Pasciuto's career began in the fall of 1992, at a brokerage firm called Hanover Sterling & Co., he was all of 18 years old. His previous vocation had been pumping gas -- and stealing from the cash drawer. By the time of his arrest by the FBI in October, 1999, Pasciuto had worked at 17 brokerage houses. The last of them was nothing more than a phone and a bank account in which he put money stolen from investors. By then he'd raked in uncounted millions of dollars, much of which he shared with partners in the Mob.

To his FBI case officer, Kevin Barrows, Pasciuto was a "one-man stock-fraud crime wave" who was "the Forrest Gump of securities fraud" -- since he showed up at just about every sleazy brokerage in Manhattan. Some of these were "chop houses" that sold nearly worthless stocks at absurd prices. Others were "bucket shops" that pretended to sell stocks.

Pasciuto's knowledge and candor made him an invaluable cooperating witness. He provided the FBI with priceless information that, Barrows notes, "led to the indictment of countless gangsters and corrupt brokers."

How did Pasciuto manage to stay in business for so long? Pure salesmanship. Although he had no background in finance and knew so little about investing that he socked away his own money in a mayonnaise jar, he became a star broker by sheer virtuosity on the phone. But he was not even licensed -- until he paid someone to take the NASD test.

And law enforcement should not rest easy. Organized crime will always be attracted to such easy money, and Mob-watchers say Mafia stock scams, both on and off the Internet, continue to flourish. As recently as last summer, a New York chop house made an effort to recruit Pasciuto.

The inside story of the Mob's foray into Wall Street is chronicled in Born to Steal: When the Mafia Hit Wall Street by Gary Weiss, a BusinessWeek senior writer who broke the story of the Mob's penetration of the Street in a 1996 cover story, "The Mob on Wall Street." The book has already had repercussions. On May 16, Federal prosecutors will seek Pasciuto's incarceration, claiming the book will jeopardize his safety. That is hotly denied by Pasciuto, the author, and the publisher, who assert that prosecutors are punishing Pasciuto for telling his story.

The following book excerpt describes Pasciuto's apprenticeship in crime at Hanover Sterling's offices in Lower Manhattan.


Louis was put to work in the "boardroom." It was a weird use of the word, which most people associate with long tables surrounded by retired rear admirals and other members of corporate boards of directors. In the chop houses, boardrooms were big rooms crammed with desks for the brokers and cold-callers. At Hanover, the desks were arranged in clusters, and people would work in "crews." And the guys in the crews were all very much like Louis.

These were kids from the outer boroughs and the close-in suburbs. Kids who had gone to community college or no college at all. White "ethnics," the Manhattan snobs would call them. Guys who spoke with New York accents. In Manhattan, people didn't talk like that anymore if they could help it. If you had any kind of standing in Manhattan, you worked hard to eradicate that way of talking. Not Roy Ageloff, the quick-fisted boss of the brokers at Hanover. Not the kids in the boardroom.

Years ago, these kids couldn't have made it into the front office. If they had worked hard and gotten MBAs, maybe they could have gotten assistant-trader gigs at second-tier firms. But these kids didn't have MBAs. Some of them could barely read. They couldn't have gotten any firm to hire them as brokers, not when it was the Eighties and the market was booming and the Street was filled with ambitious preppies trying to make it in the business. Kids without fancy college degrees could have only made it to the back offices, slogging along as clerks. Or maybe working in the dingy rooms where brokerage trades are executed. But the penny-stock era of the 1980s started to put street guys into the front offices.

Now the chop-house era was beginning, and the street kids were everywhere. Hanover Sterling was at the forefront of this socioeconomic-demographic revolution on Wall Street. In the boroughs and the 'burbs, news was spreading, fed by word of mouth and ads in the city's tabloids: The Street was looking for ambitious kids from the street.

Roy took a liking to Louis, and introduced him to the best broker at the firm, Chris Wolf. One day he had Louis hang out in the office with Chris and his partner Rocco Basile. Louis listened to them pitch for an hour or two.

Louis was in the presence of genius.

"Man, he was good. Definitely one of the best salesmen I've seen. Chris is about five feet four or five. Long, pushed back hair. Good-looking kid. Real name's not Wolf. It's Italian. He's an Italian kid. Changed his name to Wolf for his broker license. That's the name he chose to do business. Great name, Chris Wolf. Jewish much better than Italian last name," said Louis.

"So I listened to him, and he had this thing that he did when he opened accounts. Somebody would say, 'I'm not interested, blah blah blah.' Chris would say, 'O.K., take care.' Then Chris would call them back 30 seconds later and he'd say: 'You know, Bob, I just gave you that investment opportunity, and I'd be a jerk to let you off the phone. It's an outstanding situation. All I'm looking for is for you to buy one share or a thousand shares -- it don't matter. It's not the dollar amount. Give me a chance to show you percentage gains. Because you know and I know that if I show you 40% on paper, I'm going to be the broker you're going to be doing business with year-round.' Blah blah blah. So you beat him up till he buys the stock."

Louis paid attention. The next morning he called one of his leads and pitched him, using another broker's name. He used the whole spiel, and after the guy hung up he did a callback and talked about being a jerk to let him off the phone. Blah blah blah.

It worked. The guy bought 1,000 shares.

"I get off the phone and I'm screaming 'A thousand shares! I opened a thousand shares!"'

At this point Louis hadn't passed the Series 7, which is the test administered by the NASD that gives brokers the solemn right to sell stocks to the public. He wasn't supposed to be using someone else's name. He also guaranteed profits, which was another no-no. But this was Hanover, after all -- part of the Chop House Wall Street that dwelled in a parallel universe with the Real Wall Street.

After that, Louis became a pitching fiend. Pitching to everybody. Pitching to himself in the mirror. Pitching to his girlfriend, to his father.

Louis was a natural at getting people to do things. He had been manipulating people since he was a kid. He had the knack, the instinct.

"How are they going to say no to me? 'Grab a pen. Grab a pen.' I'd say it 60 times. 'Grab a pen. Grab a pen.' And that would be it. They would grab a pen, and then I would tear them to shreds. And then they'd be like, 'Oh, I don't really want any.' I'd say, 'Of course, you don't want any.' Sometimes I used to kill them. 'Of course you don't want any. You're in Texas. You don't know anything about the market. You probably don't have a TV antenna down there."'

Selling was an interactive thing. That's why scripts were dumb. With scripts you talked "at" people. To sell, you had to get into the other guy's head. You had to engage in a dialogue. Talking with, not talking at. He was now in the realm of the kind of relationship that would define his life -- the relationship between thief and victim.

That was the division of the world. The takers and the taken. Louis was planting himself firmly on the side that was going to prevail.


At Hanover, the money was in the rips.

Sometimes they were called chops. Nobody knew how either term originated. Nobody cared.

Rips were the huge sums that the brokers earned from the stocks they sold. Ordinary stocks generated commissions. Ordinary NASDAQ stocks had "markups" -- a reasonable profit for the broker and his firm. Chop stocks had rips.

The rips were announced each morning for Hanover's "house stocks" -- stocks whose markets were controlled by Hanover. At the time Louis was at Hanover, two of the house stocks were a Tampa (Fla.)-based investment company called Eagle Vision Inc. and Mister Jay Fashions International, a New York women's apparel manufacturer. Mister Jay's was selling for about $8, and its rip was $1.50, which meant that Hanover had the stock on its books for about $5 and split the $3 profit with the broker.

A $3 markup would not be so bad for a $100 stock. That's a 3% markup. Reasonable. There are no hard-and-fast definitions of excess markups, but more than 5% is a red flag, and more than 10% will almost invariably result in a visit, sooner or later, from a grim-visaged, polyester-suited NASD examiner.

But Mister Jay's sold for about $8. If it cost Hanover $5, that looks a lot like a 60% markup, doesn't it? Nope.

Rips weren't markups -- if the traders were careful. If a firm bought a stock at $5 and immediately sold it for $8, that would be a huge markup and that polyester suit would appear at the door. But if the traders waited a little while, and $5 was no longer the "prevailing market price" -- voila! It wasn't a markup any more. It was a "trading profit." A rip. It helped a lot that the firm controlled the lion's share of the trading of these house stocks, and pretty much set the market price of the stocks.

So the brokers were paid vast sums, and the regulators, who were looking for excessive markups, didn't notice.

True, sometimes the firms got careless, and waited too long, and the rips really were excessive markups. Or the broker may have gotten the stock up to $8 by lying about it, and he might be prosecuted for that. But the $1.50 that went to the broker was at least superficially legal and was invisible to everybody, regulators and customers alike.

The brokerage would add on a few cents commission. "The customer thinks he's only paying 3 cents a share commission, which is very reasonable. A good commission. He'd be happy about that," said Louis.

"That's how they made a ton of money at Hanover. The brokers could put away [sell] a million shares of stock in two days," said Louis. A million shares times $1.50, or more, is nice money.

After a few months at Hanover, Louis wanted rips. He wasn't getting them. He had a plan.

Chris Wolf was becoming famous in the chop-house world as half of the team of "Chris and Rocco" -- the other half being Rocco Basile. So why shouldn't there be a Louis and whoever? A "Louis and Benny" maybe? Fellow Hanover broker Benny Salmonese would be a great partner. They had talked about teaming up. It was the way guys yammer away when they've had a couple of beers. But it made sense. Benny was a few years older, a smooth talker, a dealmaker, a conciliator. Louis was a teenager, as rough around the edges as No. 3 sandpaper -- and he didn't have a broker license.

Louis took the NASD test for the first time when he was at Hanover. He didn't study. He got a 40, well below passing.

License, bull. Why shouldn't he have a client book? He could get clients. It was only fair. Benny had a license. Perfect. They could both use it. They could both be Benny.

That was the plan. Now they had to execute it.

Benny went to a little brokerage called Robert Todd Financial Corp. in July, 1993. Louis had never heard of it, but Massood Gilani, a compliance examiner in the special investigations unit of the NASD, sure had. He knew Todd just as well as he knew Hanover -- and just as well as he knew Louis's supervisor, John Lembo, one of the most-complained-about brokers at the most-complained-about brokerage. Gilani's District Management Information System Cause Examination Examiner Log for District 10 showed that Todd was one of the little firms in Manhattan that was getting serious complaints. Jan. 15, 1993 -- "unauthorized transaction." Jan. 20, 1993 -- "failure to execute sell order." Red flags, no action. Todd stayed open. Benny, and soon Louis, would be in no danger of having their livelihood interrupted.

They worked out a great deal -- great for Louis, great for Benny, great for Todd. Todd got 30% of the rips Benny and Louis were to generate. They agreed to split the remaining 70%. Louis got 40% of their share if he brought in over $100,000 in rips. Otherwise, he would get 30%.

Louis was in a world where the outer parameters of acceptable behavior were determined not by right or wrong, but by what the NASD and the Securities & Exchange Commission saw and what they didn't see or didn't want to see. The regulators saw the unauthorized trades and no-sales rules because people complained. They didn't see, and didn't want to see, the unregistered brokers and the rips -- or at least, they didn't see them while the unregistered brokers were working and the rips were being charged.

Sure the regulators acted decisively against the chop houses -- after they went out of business. If World War II had been fought like that, the Allies would have stormed the beaches of Normandy during the Korean War.

Todd was never seriously threatened by regulators during its existence. It nurtured Louis, transforming him from a well-off kid into a rich adult.

In the years that followed, all of the brokers named in this excerpt, including Pasciuto, pleaded guilty to securities-fraud charges. Pasciuto awaits sentencing, the rest are serving prison terms. Eagle Vision and Mister Jay's were not implicated in any wrongdoing. The NASD says it has tightened up its supervision of brokerages since the events depicted in Born to Steal.

From the book Born To Steal: When the Mafia Hit Wall Street by Gary Weiss. Copyright (c) 2003 by Gary Weiss. Reprinted by permission of Warner Books, Inc., New York, NY. All rights reserved.

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