21 Brokers Indicted in Sterling Foster Case

Twenty-one brokers have been indicted in the government’s expanding case against defunct brokerage Sterling Foster and its alleged use of deceptive sales tactics. The six-count securities fraud indictment, which was unsealed in Manhattan federal court, alleges that the former Sterling Foster brokers were involved in illegal stock sales as part of six public offerings from June 1994 to June 1997. Sterling Foster was the lead underwriter for five of the offerings. The Securities and Exchange Commission also filed a related civil suit in Manhattan federal court against 18 of the brokers. Sterling Foster, which was based in Melville, N.Y., closed in 1997 after the FBI raided its offices in search of evidence about the alleged fraudulent sales practices. The brokers allegedly used fraudulent and deceptive practices to sell shares, known as “house stocks,” in the public offerings. The alleged activity included bait-and-switch tactics in which the brokers opened customer accounts with well-known stocks and then switched the customer’s investments into house stocks. To date, six defendants have pleaded guilty to criminal charges stemming from the scheme. They have repaid or agreed to repay about $32 million in illegal profit.