Three former WJB Capital Group Inc. executives were charged with defrauding investors of more than $11 million in a bid to prop up the now-defunct broker-dealer.
Former WJB Chief Executive Officer Craig A. Rothfeld, 43, of Manhattan, co-founder Michael N. Romano, 41, of Commack, New York, and former Chief Financial Officer Gregory S. Maleski, 39, of Massapequa, N.Y., pleaded not guilty Thursday to first-degree grand larceny and other charges before New York State Supreme Court Justice Larry Stephen. They face as long as 25 years in prison if convicted of grand larceny.
The men convinced at least 15 clients, including friends and family, to extend old loans and invest more money with the firm, which halted operations in January 2012 amid slower trading, a shortage of capital and interest rates of 25% on some debts, prosecutors said.
'Painful decision' as WJB shutters B-D operation)
“Another investment fraud has come to light — this time forcing more than 100 employees out of work,” Manhattan District Attorney Cyrus Vance said in a statement. “Manhattan is the center of the securities industry and my office will continue to aggressively prosecute those who steal from innocent investors.”
The charges come as New York regulators and prosecutors have intensified enforcement efforts in the financial industry since the economic crisis. Mr. Vance in 2010 formed a major economic crimes bureau to combat complex economic crimes, which participated in the WJB investigation.
Mr. Rothfeld is accused of using the money for mortgage payments and improvements on his Manhattan apartment and Hamptons home and on private-school tuition, while Mr. Romano is accused of spending it on mortgage payments, luxury cars and trips to strip clubs, hotels and country clubs.
Prosecutors said Mr. Rothfeld and Mr. Romano also used corporate American Express cards for personal use and then used company funds to pay the charges. The three men are accused of embezzling at least $7.1 million from the firm from at least 2008 through 2012.
Mr. Rothfeld and Mr. Maleski are also charged with filing false reports to the Financial Industry Regulatory Authority Inc. that overstated the firm's net capital position in order to stay in business. Finra expelled the company for misstating financial records and barred Rothfeld from the securities industry in August 2012.
Defunct WJB Capital and two execs hid company's financial distress for years, Finra says)
Mr. Rothfeld and Mr. Romano are also charged with filing false state income tax returns that underreported their incomes by hundreds of thousands of dollars.
Mr. Rothfeld's attorney, Harvey L. Greenberg of Greenberg & Wilner, urged the judge to set bail lower than the $5 million cash that prosecutors requested for Mr. Rothfeld and Mr. Romano. Mr. Greenberg said his client has no criminal record, has lived in New York all of his life and is married with two children. Mr. Greenberg said Mr. Rothfeld makes $200,000 a year with a company called Harlem Lofts that rents and sells properties in Harlem.
“He's not a flight risk,” Mr. Greenberg told the judge. “He has no place to go. My client is a working individual, he's not going anywhere.”
Mr. Romano's attorney, Edward V. Sapone, said his client did nothing wrong. Mr. Sapone said Mr. Romano took a lower salary as the firm's troubles mounted in an attempt to save the company and used $50,000 of his own money to pay its bills.
“This is not a case where a principal tried to line his pockets with investors' money,” Mr. Sapone said.
Mr. Sapone also asked Mr. Stephen to set a lower bail, citing his client's “strong community ties.” Mr. Romano has no criminal record, was born and raised in New York, has been married for 18 1/2 years and has three children, Mr. Sapone said.
Mr. Romano is currently employed as a trader for ICAP Plc in Jersey City, N.J., and needs to continue working to support his family as he has no money due to WJB's collapse, Mr. Sapone said.
“They're financially ruined because WJB Capital is defunct,” Mr. Sapone said. “This is not a case where we have scions of wealth. This man is bankrupt in a literal sense.”
Mr. Maleski's attorney, Francis Murray, said his client is an accountant with a pregnant wife and a 4 1/2 year old daughter. There are no allegations that he took any money from the company for his personal use, and no allegations that he committed tax fraud, Mr. Murray said.
Mr. Rothfeld is charged with a total of 65 counts, including securities fraud and tax fraud. Mr. Romano is charged with 40 counts and Mr. Maleski is charged with 59 counts. Mr. Stephen set bail at $1 million bond or $500,000 cash for Mr. Rothfeld and Mr. Romano and $500,000 bond and $250,000 cash for Mr. Maleski. The three men are scheduled to return to court on March 11.