Sunday, December 10, 2023
HomeFinancial AdvisorBarred Broker Indicted For Allegedly Defrauding Investors Out Of $88.6M

Barred Broker Indicted For Allegedly Defrauding Investors Out Of $88.6M

A barred New Jersey broker has been indicted for allegedly duping investors out of nearly $89 million by lying to investors and paying himself hidden fees on equity investments, according to the U.S. Attorney’s Office for the Eastern District of New York.

A three-count indictment on Wednesday in federal court in Brooklyn, N.Y., charged Raymond John Pirrello Jr., 47, of Sparta, N.J., with securities fraud conspiracy, wire fraud conspiracy and securities fraud. Pirrello, who also resides in West Palm Beach, Fla., faces a maximum sentence of 20 years in prison.

The SEC filed a parallel civil complaint yesterday against Pirrello that is tied to the alleged fraud.

In September 2019, the Securities and Exchange Commission barred Pirello from the industry after a jury in Atlanta found him liable for insider trading in an SEC enforcement action. He also was ordered by the SEC to pay $21,500 in disgorgement and a civil penalty of $107,000.

He, along with four co-conspirators—Marcello Follano, Robert Cassino, Anthony DiTucci, Joseph Rivera—and their four companies were accused by the SEC of “making fraudulent offerings relating to investments in pre-initial public offering (IPO) companies.” The SEC is seeking permanent injunctive relief, disgorgement of allegedly ill-gotten gains with pre-judgment interest, and civil penalties as well bars against the men.

According to the criminal indictment, between March 2016 and March 2023, Pirrello and others defrauded investors and prospective investors by hiding the fees investors paid for investments offered by Late Stage Management LLC., a Montclair, N.J.-based company that managed funds that invested in companies that were anticipating going public or being acquired by larger entities.

“The defendant lied to investors by claiming that the investments made through Late Stage carried no fees and that their full investment would be used to purchase stock, when in reality he was paying himself significant fees on each investment,” U.S. Attorney Breon Peace said in a statement. 

Pirrello held no official title at Late Stage or any of the sales offices, but he  founded and operated Sparta-based Prior2IPO, one of the largest of the sales offices, and worked as a partner to the leadership of Late Stage and directed the operation of the sales offices, the complaint said. Prosecutors said he regularly communicated with employees at all the sales offices “through telephone messaging and video calls regarding the stocks that were being offered, their price, and the pitch language that salespeople could use.”

Prosecutors said Pirello directed the salespeople to tout the investment as having “no up-front fees,” and that the only fees would be interest of 20% of the profits upon the exit or when the company made its IPO or sold to a larger company. “Investors were therefore led to believe that all their invested capital was used to purchase stock. In reality, a fee ranging from 10% to 50% of each investment was extracted up front in the form of a markup to the price of the stock and paid to the sales office and Late Stage,” the U.S. Attorney’s Office said.

A substantial undisclosed fee was always built into the price at which the stocks were offered to investors, in the form of a markup, prosecutors noted. In all, they said between March 2019 and July 2022, sales offices working on behalf of Late Stage raised roughly $528 million from investors and diverted about $88.6 million in undisclosed upfront markups to Pirrello and his co-conspirators.

Pirrello could not be reached for comment.

He last worked for Garden State Securities in Hackensack, N.J., from August 2008 to May 2016, according to BrokerCheck. He began his career in 1996 with Investors Associates, which was expelled by the Finra in 1998. He worked for other firms, including Barron Chase Securities, which also was later shut down by Finra.



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