Latest / Follow the Lies: Fraud & Deceit Uncovered / Episode 1: The Largest Securities Fraud Takedown in U.S. History — How the Mob Rigged Wall Street
Transcript
- Kevin Barrows: Since the late 1990s, boy bands and post-grunge alternative rock dominate the radio airwaves. Seinfeld wraps its legendary TV run, and the dot-com and Y2K frenzies grip Wall Street. Small investors chase lottery-like gains hooked by cold-callers promising overnight riches. But beyond the towering skyscrapers lies the underbelly of Wall Street, a ruthless criminal machine. Rig trades, bribe brokers, and mob enforcers to crush any resistance. In June 2000, the FBI fought back. In Operation Uptick, 120 were charged in the largest securities fraud takedown ever. Welcome to Follow the Lies, Fraud and Deceit Uncovered. I'm Kevin Barrows, former FBI special agent and case agent on this and other major frauds, now at Renaissance Associates. And I'm the investigator who tracked down missing sports treasures on the docu-series Sports Detectives. Today we dive into the systemic end of deception. organized crimes infiltration of the stock market. Before we dig into the story, let me give you a sense of who I am and why I'm the one to tell it. I've spent over 30 years chasing fraud, from the FBI to private investigations today. I'm a partner at Renaissance Associates, a private investigative firm, where I oversee investigations. I work with corporations, major institutions, insurance companies, law firms, and individuals helping them with internal investigations, litigation support, or any situations involving corporate fraud, embezzlement, misconduct, or abuse. Previously, I was a special agent in the FBI's New York field office assigned to investigate white collar crime. During my time there, I ran major investigations into securities fraud, identity theft, bank fraud, financial institution fraud, and international money laundering. I was the lead case agent on two of the largest white collar cases in U.S. history. First was Operation Uptick, a massive multi-agency securities fraud investigation that took down the mob on Wall Street. For my role, I received the Department of Justice Director's Award and was also nominated for the Attorney General's Award for excellence in law enforcement. The second was the largest identity theft case at the time. Over 30,000 victims, which exposed how dangerous insider threats can be to data security, pushed for tighter corporate regulations and show that even low tech access could cause massive financial damage. I'm also a security consultant for Professional Sports League and have co-written and hosted training videos for the NHL, NFL, and MLB on a range of security topics. I've lectured at the FBI Academy at Quantico and at the New York Field Office on interviewing techniques and analyzing complex financial records. I've been recognized as a thought leader in identity theft investigations and have written articles, including one called Truth Be Told. successful interviewing is an art that appeared in the New York Law Journal. On the media side, I've been interviewed by many outlets, appeared on ABC's 2020, was featured in National Geographic's Inside the American Mob, and have guested on podcasts like the Jordan Harbinger Show, where we talked about effective interviewing. I also co-hosted the Smithsonian Channel docu-series, Sports Detectives. On Follow the Lies, We delve deep into high stakes investigations to uncover lies across the deception spectrum. From corporate fraud to sports memorabilia scams, showing how lies erode trust at every level. Today we look at Operation Uptick. How it worked, how we cracked it, and why the lies still echo. Now that you know a little bit about who's telling the story, let's head back to the late 1990s and see how this massive fraud began to take shape. In the late 90s, the microcap stock boom exploded, fueled by new tech like email and the early internet. That combination created the perfect storm for organized crime to quietly infiltrate Wall Street. These tools suddenly gave the mob access to thousands of potential victims and allowed them to hide in plain sight. They zeroed in on thinly traded stocks that were incredibly easy to manipulate. The mob always knew manipulating stocks could make them serious money. much more than the old school standards like robbery, assault, or gambling. But their role on Wall Street was previously limited to shaking down brokers who owed them from gambling debts or other vices. Stock fraud was way too complicated and sophisticated for them until they found the right guy. He was a stock expert desperate to be a big shot, and he loved the protection of muscle they provided. Together, they set up DMN Capital in Lower Manhattan. which the U.S. attorney for the Southern District of New York later called the investment banker to the crooked and corrupt, a place that would take any deal as long as it was dirty. DMN Capital quickly became the epicenter of the fraud, a joint venture for all five New York crime families, Bonanno, Colombo, Gambino, Genovese and Lucchese. They built a network of crooked brokers and makeshift boiler rooms that push worthless stocks on unsuspecting investors, often the elderly. thousands of everyday people lost their entire life savings. There were many schemes, but the most common one was simple and extremely lucrative. Crooked brokerage houses sold shares of over-the-counter or bulletin board stocks, also known as penny stocks, that a mob family or DMN capital already controlled. There was never a real public market. The shares came straight from the mob's own inventory. They used classic boiler room tactics, scripted pitches, high pressure sales, fake promises of guaranteed profits and flat out lies. On Fridays, brokers secretly got paid cash bribes in brown paper bags for their part pumping the stock and driving the price sky high. On top of the millions they made, mob members and associates were the muscle behind the boiler rooms. They kept rival families out, dealt with brokers who stepped out of line and, most importantly, made sure no customer ever sold their shares, especially after the broker had already been paid in cash. They refer to it as keeping the stock put away. One witness described getting smashed in the face with a phone over and over just for letting one of the best clients sell shares on a mob controlled stock. Keeping the stock put away was essential to getting the price pumped as high as possible so the mob could dump everything at once for huge profits, leaving investors with worthless paper. It was the classic multiplier effect. Old school muscle meets new market greed. That was the scheme. But how do you take down a machine this big and well protected? That's where the real investigation came in. Let's rewind to the late 1990s and see how we actually went after this massive fraud and just how deep it went. As a new agent on the security fraud squad, I was assigned the handler for cooperating witness. He was a cooperating witness because he was expected to testify for the prosecution. Otherwise he'd simply be an informant. He'd flipped after an arrest on minor securities fraud charges a year before and decided to work with us. He was originally arrested and handled by an agent who became our supervisor. When he was promoted, he temporarily assigned him to another agent before me, but that agent found him impossible to handle. He was controlling, highly intelligent, used to getting his way, and flooded us with huge volumes of information every day in the form of long, detailed emails because he was afraid to speak on the phone. When my co-case agent, John Brosner and I took over, our first priority was to dig through the reams of emails that were previously unread. We had to figure out which leads were worth chasing, and there were dozens. The cooperator kept working just like before his arrest, but now he was reporting back to us in real time, who he was meeting with and what crooked deals he was being pitched. And he was told not to engage in any trades or questionable activity without our authority. If you haven't figured it out yet, This witness was the mastermind behind DMN Capital. We immediately ramped up the briefings and started wiring him up to capture his conversations. We got some important criminal discussions on tape, but wearing a wire under his shirt became too dangerous. The final straw was when he went to a meeting with a capo and a bunch of high-ranking mob members, and they made him strip in the bathroom and patted him down. Luckily, we decided at the last second not to wire him up because who was going to be at the meeting. After that close call, we had the lab at Quantico retrofit one of his jackets with a built-in recording device. It was better, but still not ideal. The batteries lasted only about six hours and we only captured discussions he was a part of. So I applied for and received court approval to plant bugs in the DMN offices to record everything. I'll never forget that sunny Saturday morning. My heart was pounding out of my chest. Praying none of the partners showed up for weekend work. John and I posed as maintenance workers and went in with the special operations team to covertly install the bugs at DMN Capital. Once the bugs were live, we had agents monitoring around the clock, listening in on meetings between our cooperator and a variety of organized crime figures. We kept wiring him for outside meetings too, using our undercover consulting office in Lower Manhattan. That same spot doubled as our meeting debrief location after his meetings. We also leaned heavily on financial forensics and stock trade analysis to trace the flow of illegal funds and capture the rig trades, while continuing our mission to flip more more cooperators. I'll share my interviewing tips in future episodes. The successive uptick, like most big cases, relied heavily on turning suspects into cooperating witnesses. There were plenty of challenges, but the biggest one was keeping our cooperators safe until the day of the arrests. If it was discovered that he was talking to the FBI, he would likely disappear and never be found. The stakes were sky high and the pressure was intense. Never more so than a few weeks before the takedown, when I was pulled out of an arrest briefing for an urgent call from our cooperator. He was absolutely panicked and said that a dangerous capo wanted to quote, take a walk with him in an hour or so. We both knew what that usually meant, that he wasn't coming back. He was convinced the arrest had leaked and his cover was blown. We told him, don't get into a car and stay on public streets. We mobilized fast and set up surveillance around his office. And the NYPD posted a uniformed officer on the block to deter any violence and to be ready to react. We were fortunate that day. The capo just wanted to tell him how happy he was and to thank him for all his hard work. We exhaled, but only for a second. That call was a stark reminder that one wrong move One leak detail on our cooperator and the entire case could vanish in a blink. With the pressure at its peak, we knew the arrest had to go down as planned. And when they did, it all came crashing down. Two weeks before the arrest, we had to make our cooperator disappear. But first, we needed to debrief him intensely. Every detail, every name, every crooked deal we heard on the wiretaps. So we devised an elaborate cover story months earlier. He bought plane tickets, booked hotels in Italy, and talked openly with his partners at DMN Capital about restaurant recommendations in Rome. We listened in on every call to make sure they weren't suspicious. During those two weeks, the two lead assistant United States attorneys, several agents from our squad for protection and I, spent long days and nights extracting every last bit of information. We fed it straight to John, presented it to the grand jury. I drove back and forth to testify myself. The tension was constant, the arrests were closing in, and we couldn't afford a single mistake. I'll be honest, the only way I kept my head straight was the long runs and the brutal summer heat. But the information we got was invaluable. It sealed the case. Then came the big day. After a night of no sleep, John and I met at the New York Operations Center at 5.30 in the morning. Dressed in our best suits, we were there to oversee the arrests and give the execute order. that dozens of teams scattered across the country. Every team had a solid plan background on their target. But as anyone who's ever been in arrest knows, surprises are inevitable. People go on vacation, move out two days earlier, have unexpected visitors, guard dogs, the list goes on. Almost every arrest requires agents to adapt and overcome, no matter how well planned. The Ops Center was buzzing, phones ringing, supervisors pacing. support staff tracking every team, and everyone glued to communications. John and I were the nerve center for Intel. By that point, we knew just about everything possible about all 120 subjects, their habits, vehicles, family, hangouts. So when a team hit a wall, a wrong address or an unexpected visitor, they called it out over the radio and we were ready with answers. Check his girlfriend's place in New Jersey or he always goes to the diner on Route 46. It felt like conducting an orchestra. One wrong note and the whole thing could fall apart. As the clock hit six, we started calling out over the radio, Team one, execute, Team two, execute, and so on down the line to all 30 or so teams. We had SWAT assigned to a few of the more violent subjects, and those went off without a hitch. By the end of the day, 100 of the 120 subjects were in custody. The remaining 20 either surrendered or were picked up in the following few days. It was one of those moments you don't forget, the culmination of years of work. all coming together in a single intense morning. The scene on the afternoon of the takedown is etched in my memory. We set up a massive processing center in the New York office for the intake, mug shots, and fingerprinting of the 100 arrestees. The room was packed and chaotic, with waves of arrest teams and defendants pouring through. John and I stood in the center and spotted Jimmy, our cooperator's partner, longtime friend, and best man at his wedding, sitting alone on a bench in handcuffs, frantically scanning the room for his partner in crime. We walked over. sat on either side of him and simply said, Jimmy, he's not coming. He instantly dropped his head and the blood drained from his face. In that precise moment, he realized his closest confidant had betrayed him and had been working with the FBI. He also knew his fate was sealed. That look on Jimmy's face, the moment he knew he'd been betrayed by the one person he trusted most, is what I carry with me from that day. In cases like this, Lives don't just destroy victims. They destroy everyone involved in the scheme and their families become collateral damage. That's why flipping cooperators isn't just a tactic. It's sometimes the only way to break the cycle. In fact, two years ago, I got a phone call from an unknown number. It was a lower level cooperator from UPDEC calling after all these years to thank me for quote, saving his life. He told me cooperating changed everything. He was given a second chance, kicked drugs and alcohol, and has lived on the straight and narrow ever since. On June 14, 2000, Operation Uptick reached its climax. In one coordinated sweep, over 600 FBI agents, task force members, and local law enforcement arrested 100 of the 120 defendants charged across 12 states, most of them at dawn. The charges ranged from racketeering and securities fraud to wire fraud, money laundering, and even murder for hire. The total losses to investors were than $50 million. The impact was immediate and lasting. It put a glaring spotlight on how vulnerable microcap stocks really were, triggered congressional hearings, and led to major reforms to protect everyday investors from falling into the same traps. That's the story of Uptick, from the lies that built this empire of fraud to the truth that finally brought it crashing down. Now let me leave you with a few final thoughts. Every case has its place on what I call the deception spectrum. An uptick is a classic example of systemic deception. Lies on a massive coordinated scale. Turning suspects into cooperating witnesses was absolutely key to cracking it. Like in most cases, documents and data alone aren't enough. You need people on the inside to give you the real picture. The fabric of the fraud. A good example is a time a critical cooperator, the guy who could tie crooked brokers' initials in an office diary to cash payments, committed a crime right on the eve of trial and was disqualified from testifying. The case was suddenly hanging by a thread. John and I had to scramble. We had to find someone else who was credible and could connect the initials to the brokers who received the cash payments. We focused on an assistant who'd made the original journal entries. but she had a very common name and we barely knew anything about her. In one night, we tracked her down. She was working at a salon in Manhattan and we convinced her to cooperate. And she became the key witness that put the bad guys away. From rigged trades to sweeping arrests, we followed the lies of Uptick. Over $50 million stolen from investors and the mob's grip on Wall Street shattered. These same tactics are still alive and well today. You see them in crypto pumps and social media stock hype. Same playbook, just new tools. If you think about it, the fake trades in Uptick built artificial value, the same way a forged provenance chain inflates a game-used jersey. Spot the lie and it unravels. Each week, I'll share a lie detector tip, a technique or strategy that I've used over the years that has given me the best chance of success to uncover the truth, even in the most challenging cases. Today's lie detector tip is a practical consideration that many investigators overlook. Always try to be the first interview a witness. Once they've built a story and lied to someone else, the truth gets a lot harder to extract. In uptick, Being first to interview our key witnesses saved us months of work. We were the first to interview many of our would-be cooperators, and this gave us a significant advantage. They didn't know they were under investigation yet, but we knew everything. The boiler rooms they worked in, the crooked deals they sold, who their customers were, and how much they got paid. We talked, they listened, and they quickly realized there was only one smart option. That's why interview strategy matters so much. whether you're busting a fraud ring or authenticating a piece of memorabilia. I'll dive deeper into interviewing techniques and share some of my go-to strategies in future episodes. In coming episodes, we'll dive into similar cases, plus crossovers to sports fraud and historical mysteries. Next time, we're diving into another big one, the Cummings Identity Theft Ring, the largest of its era, and another case that I led as a case agent. Which fraud ever touched your life or someone close to you? I'd really like to hear your story. Send it to Kevin at followthelivespodcast.com. It might even become the next episode. Hit subscribe, drop a rating and review, and help us keep uncovering the lies. Until next time.