FILE COPYUNITED STATES DISTRICT COURTSOUTI ERN DISTRICT OF NEW YORK

----------------------------------------- -MOIHAMMED FEZZANI, CIRENACAFOUNDATION, DR. VICTORIA BLAND.LESTER BLANK, JAMES AND JANE BAILEY,

' '

v TMBA 1 DEL LTD_, MARGARET AND PATRICK

BURGESS, BOOTLESVILLE TRUST and ADAM JURY TRIAL DEMANDED

CLING-

COMPLAINT FOR SECURITIES

Plaintiffs FRAUD, MARKET

-against- MANIPULATION, RICO AND

COMMON LAW CLAIMS

BEAR, STEARNS & COMPANY, INC_, BEAR

STEAMS SECURITIES CORP,-RICHARD

HARRITON, ANDREW BRESSMAN, ARTHUR

BRESSMAN, RICHARD ACOSTA, GLENNO'HARE. JOSEPH SCANNI, BRETT HIRSCH, _

GARVEY FOX, MATTHEW HIRSCH, RICHARD

SIMONE, CHARLES PLAIA, JOHN McANDRIS,

JACK WOLYN'EZ. ROBER'IT GILBERT, FIRST

IHANOVLR SECURITIES, INC., 13ANQUE AUDI

SUISSE GENEVE, FOZIE FARKASH, RAWAI

RAES, BASIL SHIBLAQ, 1YAD SHIBLAQ, KEN --

1 CSTOKES, ISAAC R. DWECK, INDIVIDUALLY , t7 1Jand as custodian for NATHAN DWECK,

BARBARA DWECK, MORRIS L O ' 1999RALPH L DWECK, MILLO DWECK, BEATRICEDWECK, R.ICHARD DWECK, JACK DWECK,

S D D N YISAAC B. DWECK, HANK DWECK, MORRIS

=U .

WOLFSON, ARIELLE WOLFSON, AARONWOLFSON, ABRAHAM WOLFSON, TOVIEWOLFSON, ANDERER ASSOCIATES, BOSTON

PARTNERS, WOLFSON EQUITIES, TURNER

SCHARER, CHANA SASHA FOUNDATION,UNITED CONGREGATION MESARAH.

FAHNESTOCK & CO. INC., DONALD & CO.,BARRY GESSI R_ MICHAEL RYDI R_ and

APOLLO EQUITIES,

Dcisndants_

------------------------------------------------------

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TABLE OF CONTENTS

NATURE OF THE ACTION . . . - - - - - ............................. -?-

AN OUTLINE OF THE FRAUDULENT SCHEME ........................... . .... - 3-

(a) The Way the Scheme Was Supposed to Work .......... . ... . . . ..... - 4-

(b) The Built- in Guarantee of Collapse And Loss to Baron Investors . . ........... -7-

A SUMMARY OF THE CLAIMS AGAINST THE DEFENDANTS IN THIS ACTION _11-

(a) The Baron Defendants ......................... ..................... .12-

(b) Bear Steams ................................. ..................... -1?-

(c) The Broker Defendants ..................... . . . . ... . .. . .... . . . ....... -13-

(d) The Individual Defendants ...... ..... -113'(e) The Apollo Defendants ......................... ..................... .14-

JURISDICTION AND VENUE ............................................... -15-

PARTIES ...................................................... --------- - 16-

(a) Plaintiffs ................. ...................................... -16-

(b) Defendants And Their Co-conspirators ................................. - 17-

FACTUAL BACKGROUND .................................................

(a) The History of Manipulation of Baron's Founders, Weissman and Bressrnan .. .

(i) The Manipulation of CMSI and HPI, Up to The Start of Baron

(a) CMSI ........ ......................................(b) HPI ................................................

(b) The Founding of Baron With Bear Steams as Its Clearing Broker ............

(i) Bear Stearns's Clearing Business ............................. .

(ii) Bear Stearns Agrees to Clear for Baron Despite Its Knowledge

of Fraud ............................ .................

(iii) Baron Manipulates Its First IPO, Cypros, Then Changes

Clearing Brokers ...........................................

(c) Baron's Continued Manipulation until the Crash of June 1993 ............. .

(d) Baron Is Forced Temporarily Out of Business, Causing The Crash of All

Manipulated Securities ........................................ . .... .

(e) Baron's Continued Fraud, From August 1993 Through February 1995 ...... .

(i) Baron Comes Back with the Innovir IPO ........................ .

(ii) Baron Expands Its Staff and The Scope of Its Manipulation by

Adding the Hirsch Group .................................... .

(iii) In an Attempt to Avoid a Crisis, Baron Engages in Widespread Illegal

"Parkin?" with the Broker Defendants and the Individual Defendants

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-21-

2 2) --^7-

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-28-

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-31-34-

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-38-

-39-

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F \Documcnts\Bcar Stcarns\PlcadngsiCoinplaint 1-2S-99.pd 12/i/99 3:0? PM

(iv) Baron is Saved From Collapse When Adler Coleman, Fails ......... . -46-(0 Baron ' s Final Year And a Half of Fraud And Manipulation , February

1995 Through July 1996 ........................................... . -46-(i) Baron Gets Kicked out by its Clearing Broker Hanifen , But Despite

Overwhelming Evidence of Fraud , Bear Stearns Comes to its Rescue . . -50-(ii) Bear Stearns ' s Strong Support Lulls Investors into Further Business

with Baron ------- .------------- ........ ...... . -^-;-(iii) Baron Steps up its Fraud with Bear Stearns's I-Jell) . . .. . .. . . ....... . -SS-(iv) Bear Stearns Agrees to the Fraudulent PaperClip " Bait and Switch " -67-(v) Bear Stearns Assumes Control over Baron ' s Tradin _ _ _ _ _ _ _ __ _ -71-(vi) In Return for $3 Million Bear Stearns Agrees To Keep Clearing

for Baron and the Fraud Continues ... . ... . ................. . . . . . 74-(a) The "Brown Bag" Bribery Deals ... . .................... . -79-(b) Baron Continues its Manipulation And Fraud until Forced

out of Business ...................................... . -4^2-

THE REGULATORY AND CRIMINAL FINDINGS OF FRAUD ..... . ............. . - RB-

1,1 RS'f CLAIM FOR RELIEF ................................................. -90-(Securities Fraud - Section 10(b) of the Exchange Act and Rule I (fib-5)(iMisrepresentations and Omissions)

SE(X)Nl) CLAIM FOR RELIEF ---------------------------------------------- -94-(Securities Fraud -Section 9)

(Market Manipulation)

THIRD CLAIM FOR RELIEF .. - - - . - - ..................... -96(Securities Fraud - Section 10(b), Rule I Ob-5)

(Market Manipulation)

FOURTH CLAIM FOR RELIEF .............................................. -97-(RICO)

FIFTH CLAIM FOR RELIEF ................................................ 101(Aiding and Abetting Breach of Fiduciary Duty)

SIXTH CLAIM FOR RELIEF ................................................ - 10I-(Common Law Fraud)

1='VI)oauntntti'.11car5iaanilYlcadan_.,VCo-p1auv 1-20-97.^^id -1^- 2/1/99 3:05 I'M

Plaintiffs Mohammed Fezzani, Cirenaca Foundation, Dr. Victoria Blank, Lester Blank,

James and Jane Bailey, Baydel Ltd_, Margaret and Patrick Burgess, Bootlesville Trust and Adam

Cunp, by their attorneys Folkenflik & McGerity, for their Complaint against the defendants.

allege=

NATURE OF THE ACTION

This is an action which arises out of the criminal conduct of A.R. Baron & Co_.

Inc. ("Baron")_ Baron was a New York broker-dealer which operated from approximately May

of 1992 until its bankruptcy in July 1996. Conspiring with a network of inter-related persons and

entities, including in particular the defendants herein, Baron engaged in a fraudulent scheme to

obtain millions of dollars in illicit profits through the fraudulent sale and manipulation of

securities. Plaintiffs collectively lost over $6.5 million as a result of the criminal conduct

described below.

2. Baron itself, and 14 former officers and employees, twelve of whom are

defendants in this action, have pleaded guilty to felony charges in Supreme Court, New York

County. The other two have filed for protection under the bankruptcy code. The sole indicted

Baron officer, who did not plead guilty, was convicted by a jury of 25 separate felony counts.

On information and belief, the grand jury is still sitting and further indictments, including an

indictment of defendant Bear Steams Securities Corp. ("Bear Stearns Securities" or collectively

with its parent Bear Stearns & Co. "Bear Stearns"), and its chief executive, Richard Harriton,

("Harriton"), are expected shortly.

i \Documenls\I r Stcamt\l11-dings\Compl.ml 1-)8-99 ,,Pd -2- 2/1/99 3:05 I'M

Baron manipulated two stocks it "inherited " when it was founded, Health

Professionals. Inc. and Cyro Medical Sciences, Inc. ("CMSI"), several stocks for which

it underwrote the initial public offerings ("IPOs"), Cypros Pharmaceuticals Corp. ("Cypros"),

Innovir Laboratories, Inc. ("Innovir"), Voxcl, and PaperClip Imaging Software ("PaperClip"),

four stocks brought to it by a group of brokers it hired in 1994, Advanced Mammography

Systems, Inc_ ("Mammo"), Symbollon, Inc. ("Symbollon"), Aqua Care Systems, Inc_ ("Aqua"),

Laser Video Network ("Laser Video"), and several stocks, referred to as "cash stocks" or "bag

-jobs" for which, Baron and several Baron brokers accepted bribes in return for selling those

securities to its customers at inflated prices, Jockey Club, Inc. ("Jockey Club"), Comprehensive

Environmental Systems ("CEIS"), Icis Management Group ("Icis"), and U.S. Bridge of New

York Inc- ("U.S. Bridge")(hereafter referred to collectively as the "Manipulated Securities" or,

when referring to the Companies, the "Manipulated Companies"). During the relevant period,

the Manipulated Securities constituted approximately 98% of the stocks traded by Baron.

AN OUTLINE OF THE FRAUDULENT SCHEME

4. Because Baron's criminal conduct followed a repetitive pattern, stock-after-stock,

year after year, knowledge of the general scheme clarifies how defendants' conduct fits into

Baron's broader criminal enterprise. The Baron conspiracy, like all criminal conspiracies, was

conducted in secret, and plaintiffs have not yet had access to all material information. However,

plaintiffs have been able to piece together the details set forth below based upon. among other

things, (a) public records from the criminal trial of Baron and its brokers, including sworn guilty

rVD-un-t,\Rcar StcamcVPlcadinpcVComplainf 1-28-99 I)d -3- U1199 3 05 PM

pleas and sworn trial testimony of the criminal participants themselves, ( b) admissions by Baron_

now acting under the control of a trustee appointed by the Securities Investor Protection

Corporation ("SIPC" and the "SIPC Trustee"), (c) findings entered by the Securities Exchajiee

Commission ("SEC"), the National Association of Securities Dealers ("NASD"). and the New

York Stock Exchange ("NYSE") in proceedings against Baron or its brokers, (d) indictments

issued by the New York County Grand Jury, (e) review of other litigations against Baron and the

defendants herein brought by other Baron customers and the SIPC Trustee, and (f) a multi-year

investigation by counsel into the conduct of Baron-

(a) The Way the Scheme Was Supposed to Work

While on occasion Baron engaged in fraudulent practices in securities which were

underwritten and sold to the public by other Guns, the core of the scheme was to manipulate

stocks in which Baron was the underwriter. As underwriter, Baron would generally receive

underwriter' s warrants , unit purchase options , and other rights to obtain securities which gave it a

substantial stock position at little cost, and a huge profit if the manipulation was successful.

6. Baron's general approach was to begin with a company with an appealing story,

in a currently "fashionable" industry, with small profits, if any, and relatively small sales and

capital needs, and then raise funds through a public offering. Because of the small size of the

offering, the initial sales would be made to a relatively small and manageable group of potential

investors, the substantial majority, if not all, would be favored clients of Baron or other brokers

with whom Baron conspired.

F:ADocum entslB car SteamsVl'Icadings Complains 1-28-99 wwpd -4- 1/1/99 3 05 PN",

Baron organized large teams of brokers and "cold callers" who were directed to

sell as much stock in the Manipulated Companies as they could at ever higher prices, through

"high pressure" sales tactics (<gernerally known as a "boiler room" operation ). Generally, there

was no real market for the stock outside of Baron, and its customers, and the other brokers with

whom it conspired- Because of the limited public information available on these companies

(few, if any, were followed by other brokerage firm analysts)- Baron brokers were able to "Lox"

the stock, i.e., control both purchases and sales.

To control purchases, the brokers were directed to generate orders by

disseminating any favorable information, suppressing any material adverse information, and

fabricating false and misleading favorable information, thereby securing fraudulently generated

purchases that created sufficient demand to force up the price of the Manipulated Securities.

When that failed, Baron engaged in widespread unauthorized purchases, which it concealed from

its customers for as long as possible through various means. Frequently, the customers who were

victims of unauthorized transactions could be convinced to accept the unauthorized transaction in

the face of favorable price movements. If the customer refused to accept the trade they were

treated as "errors," and either canceled or re-billed to yet another customer who had not

authorized the purchase. Sometimes Baron also engaged in totally fictitious purchases and sales

occasionally "matched" or "parked" with other defendants and at other times completely

artificial, what Baron traders often referred to as "space shots."

F 0ocumcntslincar Ste=s\P1cadings \Corop1ain1 1-2S-99.wpd -5- 2'1%99 ; OS 1'ii

9_ Baron could substantially control sales of the security by refusing to inform its

clients of any adverse news, by discouraging their clients from sales which the customers sought

to initiate, by providing false and misleading information to clients in order to cause there to

change their mind concerning any proposed sale, or simply by failing to execute sell orders.

1 U. The various fraudulent techniques were designed to, and did, inflate the market

price of the Manipulated Securities. Baron then used those inflated prices to fraudulently

convince customers to make further purchases. With sales thus fraudulently constrained and

with purchases thus fraudulently stimulated and consciously timed for their impact on the

market, the price of the stock increased, at least fora period of time. Baron and its affiliates

would then "cash out."

1 I . As long as prices remained high, investors seemed to make money. But as with

all such Ponzi schemes, eventually the stocks had to crash. In a sense, the greater the initial

"success," the more quickly the scheme's need for fresh investment capital would outstrip its

ability to produce new investment. Since the Manipulated Companies generally had no earnings,

they had continuing short-term needs for cash. Even after a successful initial public offering

("IPO"), there was often only enough cash to fund a year of operations.

12. Accordingly, a part of the scheme was to sell the 1PO in units, composed of a

share of common stock and one or more warrants. A warrant is an instrument like an option

giving the holder a contract right to purchase a share of stock at an agreed upon price -- known as

the strike price -- for a specified period. For example, if the stock IPO price was S5, and if the

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warrants had a strike price of $8.50, and if Baron could manipulate the price to 59.00, then the

warrant holders would exercise their 58.50 warrants, paying the issuer the extra cash to exercise

the warrant, and the issuer would receive the much needed capital as a result of the warrant

exercise.

(I)) The Built-in Guarantee of Collapse

And Loss to Baron Investors

13- Baron was, therefore, under substantial pressure to move the price of its securities

up substantially, to trigger warrant exercises, because if it did not, its IPO companies would

simply run out of money and fail. Since the "success" of the last IPO was important to market

the next one, failure could not be allowed. As warrants were exercised, the "float," (the amount

of stock available for sale), increased. It required increasingly more work to control the market

for the Manipulated Securities.

14- As prices moved up, however, Baron's customers would start to demand that

Baron execute sales. Most of Baron's customers were new to Baron, lured into investing with

Baron by the promise of assured price increases. When those increases came, investors would

want to take some profits, and not all of them could be defrauded out of it_ Baron now had to

find fresh investor money both to counteract any unavoidable sales and to move the price up.

15. Further, as Baron expanded, they did so by taking groups of brokers who had

engaged in manipulation at their prior firms and brought with them the baggage of their 0"111

manipulated stocks. Those stocks also had to be propped up to keep those brokers' customers

happy and willing to put new money into the Baron stocks-

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16. As a result, the ever increasing need for substantial "fresh" money was daunting

Since the value of the Baron stocks were so overinflated and the relationship of the Baron stocks

to reality so tenuous, there inevitably were runs on the Baron stocks, either f onm adverse news car

otherwise. Absent aggressive buying by Baron or its customers, the price would collapse- As is

shown below, j ust such a collapse temporarily forced Baron out of business in June and Jul), of

1993. That collapse was the result ofa highly critical article on Baron's stock Hill-

IT Further, certain companies specialized in "selling short" the securities

manipulated by "junk 1130" firms like Baron . Periodically, Baron stocks would be subject to

selling pressure from the "shorts" which Baron had to counteract or its stocks, and it, would

collapse.

18. Baron's methods of market manipulation had the unintended but inevitable effect

of creating enormous capital needs for Baron. As described above, to inflate prices or counter

pressure from sales, which caused prices to decline, Baron would frequently engage in massive

programs of unauthorized trading, enter sales to fictitious buyers, or use other similar trading

schemes designed to create the appearance of market demand. But when unauthorized trades

were finally identified as "errors," the trade would be transferred to Baron's "error account." In

effect, Baron then became the "purchaser" of the security. It was no help to Baron if the security

was "sold out" of a customer's account for non-payment. Baron often would have to buy the

trade itself, since there was no real market outside Baron for the Baron stocks. Baron was, in

effect, constantly being forced into converting its cash capital into the Manipulated Securities at

PADocumcros\RcatScamsM' lead ingsVCoinplaiui 1-2S-99.wpd -8- ?11.191 11. 0i PM

the inflated prices it had engineered. Baron, in effect, became an involuntary victim of its own

fraud.

I ()_ AV'orsc yet, liar- "net capital" purposes, the Baron stocks were valued at 50% of the

trading market value. 1=oreverv dollar of cash capital Baron invested in its own stocks, it lost

50^ of that capital on its hooks- NASD regulations and clearing fimi deposit requirements

created additional needs for increased capital as Baron's business expanded- Baron had to

continuously "feed the beast" with increasingly greater infusions of fresh capital.

20. Baron, and its clearing brokers, including in particular Bear Stearns, knew when

its marnipulations were leading to a crisis. As Baron engaged in massive unauthorized purchases

to temporarily offset pressure on the stocks. Baron's trade date debit (the total of trades not yet

paid (or) would increase dramatically. Trades are required by federal regulation to be paid for by

the settlement date (in the relevant time period, 5 business days after the trade date). When the

trade was unauthorized and the customer would not pay, Baron would have to seek an extension

of the payment date to keep the stock floating. As a result, Baron's extension requests would

increase.

21. if Baron was "caught" by a customer and forced to cancel an unauthorized trade,

Baron would often "re-bill" the trade to another customer, and thereby cause cancellations and

re-bills to increase- Shortly thereafter, Baron's inventory in the stock would soar. As a result,

Baron's profits and capital would become highly susceptible to the price fluctuations of the

Baron stocks-

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22. All of these characteristics : trade date debit, extension requests , cancellations, re-

bills, and stock inventory, were monitored daily by both Baron and its clearing broker, Bear

Stearns_ On information and belief throughout its existence all of the above characteristics were

tar beyond industry norms. To someone as experienced as Harriton and Bear Stearns, these

numbers alone were sure signs of illegal sales activity.

23. Further, each new round of manipulation led to sharp declines in Baron's capital

and significant losses from failed, unauthorized customer trades. Baron was constantly in danger

of going below the minimum capital required to stay in business. In addition to being forced out

of business in June 1993, Baron narrowly avoided a crash in February 1995, was temporarily

forced out of business in October-November 1995, and finally entered bankruptcy in July 1996.

Due to capital deficiencies, it was also temporarily barred from trading on a number of occasions

for periods from several days to several weeks. Baron's bankruptcy was the inevitable result of

its way of doing business.

24. At the time of Baron's bankruptcy, investors suffered more than $80 million in

losses, and tens of millions in additional losses were incurred along the way. Baron's

manipulations inflated the market value of the Manipulated Securities by literally billions of

dollars. Plaintiffs were customers of Baron who collectively lost over $6.5 million as a result of

Baron's fraud.

r-\Doeuments ear SieamsU'Icadings \Complaint 1 - 28-99 %apd - 1 0- 2ii1199 3:( 15 I'M

A SUMMARY OF THE CLAIMS AGAINSTTHE DEFENDANTS IN THIS ACTION

25 In spite of Baron's small capital, the youth of its owners, officers and key

en ployccs (mostly in Their 20's), their relative lack of experience in either the securities industry

or even any oilier meaningful financial business, industry or academic expertise, Baron was able

to obtain many tens of millions of dollars of investor money. That money was almost entirely

invested in the Manipulated Securities, securities which were manipulated by Baron for its own

benefit and for the benefit of it principals and others, including, in particular, the defendants.

I-low could these young, relatively inexperienced brokers have learned to commit these

sophisticated frauds? I-low could they continue undetected for nearly half a decade? I-low could

a small firm commit fraud on such a massive scale and effect the securities markets so

substantially? In short, how could Baron have done what it did without substantial help? The

answer is that they did not.

26. The defendants in this lawsuit are some of the numerous other persons and firms

whose participation in the manipulation made Baron's fraud possible. The list of participants in

the schemes stretches from its clearing broker, defendant Bear Stearns Securities (subsidiary of

defendant Bear Stearns (collectively "Bear Stearns")), to the various customers, brokers and

other brokerage firms who engaged in coordinated fraudulent transactions with Baron. Because

of the automatic stay against suits imposed by the bankruptcy code, Baron. its parent the Baron

Group, Inc. (Baron Group"), its chief salesman Roman Okin ("Okin") and chief financial officer

r'1Doai , nis\13ear Stearns\PleadinasVComhlainl 1-21S-99.-pd -11- 1/1199 3:05 I'M

Mark Goldman ("Goldman"), all of whom have filed for bankruptcy, can not be joined as

defendants in this action, without further court order.

(a) Th e Baron Defendants

27. Andrew Bressnman ("13ressman") was the President, Chief Executive and "master

wind " of Baron. Bressman has filed for bankruptcy but claims against hire have been ruled non-

dischargable. Arthur Bressman is his father, an "entrepreneur" who steered prospective [PO's on

other deals to Baron and advised Bressman on what to do and when to do it. Defendants Richard

Acosta, Glenn O'Hare, Joseph Scanni_ Brett Hirsch, Garvey Fox, Matthew Hirsch, Richard

Simone, Charles I'laia, Mark Goldman, John McAndris, Jack Wolynez and Robert Gilbert, were

brokers or employees of Baron, each of whom has been convicted of one or more felony counts

as a result of his participation in Baron's Criminal Activities.

(b) Bear Stearns

28. Defendant Bear Stearns was a direct participant in the scheme. Bear Stearns Was

the first clearing agent for Baron from April 1992 at least through approximately February 1993,

and again from July 1995 through Baron's bankruptcy in July 1996.

29. At all relevant times , Bear Stearns knew what Baron was doing and attempted to

channel Baron's frauds into ways which would help Bear Steams avoid loss when the inevitable

collapse occurred. Baron received needed financial supporj, including loans, from Rear Stearns

and secured those loans primarily by securities which were traded in markets dominated and

controlled by Baron. At various times, Bear Stearns directed Baron to sell large amounts of the

!=:AlloeumrntsU3car Sicamsll ' leadincs\Complaini 1-2$-99 ^qxi -12- JI N9 , OS PM1

Manipulated Securities to the investing public, which Bear Stearns knew could only be

accomplished by continuing fraudulent conduct. In many cases, when sales were needed to

satisfy rcgulaiory requirements, with Bear Steams's knowledge, 13aron created fictional sales.

_which Baron and Bear Stearns then pretended were real to deceive the regulators

:30. At times Bear Stearns assumed Baron's actual trading function with respect to

sales of securities of the Manipulated Companies. Bear Stearns determined which of plaintiffs'

purchase and sale orders it would execute and did so to benefit itself, even when that involved

reneging on executed customer orders. For all or most of the period from mid-October 1995

through Baron's bankruptcy, Bear Stearns either approved the execution of all orders, or at other

times, approved all orders over a certain size.

(c) The Broker Defendants

31. Defendants Donald & Co., First Hanover Securities, Inc., and tahnestock & Co.,

Inc., collectively the "Broker Defendants", arc joined as direct participants in the fraud. The

Broker Defendants knowingly engaged in "parking" and other fictitious transactions with the

purpose and effect of creating an artificial appearance of an active trading market with the intent

of inflating the trading prices of the Manipulated Securities and inducing investors, such as

plaintiffs, to purchase the Manipulated Securities.

(d) The Individual Defendants

32. Defendants Isaac R. Dweck, Morris Wolfson, Basil Shiblaq and Fozie Farkash, as

well as the individuals and entities affiliated with each of them as identified below (collectively

1--:U), umcnis\13ear SteamsU'kadings\Complaint 1-28-99.r.7rd -13- 2/1 99 3.0? PSi

the "Individual Defendants"), are joined as defendants because of their direct participation in

Baron's fraudulent schemes. With knowledge of Baron's manipulative conduct, the Individual

Defendants assisted Baron in numerous ways, including providing short term financing and

engaging in parking transactions with the purpose and effect of creating a false appearance of an

active trading market with the intent of inflating the trading price of the Manipulated Securities

and causing investors, such as plaintiffs to purchase the Manipulated Securities. By agreement

with Baron, as payment for their participation in helping Baron inflate the price of the

Manipulated Securities, the Individual Defendants were allowed to sell their own securities at

inflated prices before prices crashed to their true negligible values.

(c) The Apollo Defendants

33. Defendants Apollo Equities, Bang Gesser and Michael Ryder (the "Apollo

Defendants") are joined as defendants because they paid bribes to Bressman, Okin and others at

Baron to cause them to make unjustified purchase recommendations to plaintiffs and others to

cause plaintiffs and others to purchase Jockey Club and U.S. Bridge securities, LEIS and Icis_

among others.

34. In committing the wrongful acts alleged herein, all of the defendants have pursued

a common course of conduct and have acted in concert with, and conspired with, one another in

furtherance of their common plan, scheme or design. During all times relevant hereto-

defendants, and each of them, initiated andlor joined in a course of conduct that was designed to

and did, (a) manipulate and artificially inflate the market prices of the Manipulated Securities in

F:U)ocumenis\Bear Slcarns^'leadngs \Complaini I-2S-99 wpd -14- '!U99 ,:O5 I'M

excess of their market price during the relevant period; (b) deceive the investing public,

including plaintiffs, regarding the fundamental attributes, market prices and future prospects of

the Manipulated Securities; (c) cause plaintiffs to purchase the Manipulated Securities at

manipulated and artificially inflated prices; and (d) thereby caused plaintiffs danmag^e_ In

furtherance of this plan, scheme or design, the defendants, and each of them, took the actions set

forth below.

35. Moreover, by virtue of their ongoing direct and indirect control over Baron,

defendants Bressnnan, Arthur Bressman, Bear Stearns, Isaac Dwcck, Morris Wolfson, and Basil

Shabliq were all "controlling persons" of Baron who culpably participated in Baron's

wrongdoing.

JURISDICTION AND VENUE,

36. The jurisdiction of this Court is based upon Section 27 of the Securities Exchange

Act of 1934 ( the "Exchange Act"), 15 U _ S.C. 78a , and 28 U .S.C. * 1331-

37. This action is grounded on violations of Sections 10(b) and 20(a) of the Exchange

Act, 15 U.S.C. § 78j(b) and 78t(a), respectively, and Rule IOb-5, 17 C_F_R_ 240.1 Ob-5.

38. Venue is proper in this district because the events giving rise to the claims alleged

in this Complaint occurred, in substantial part, in this district, and because the principal places of

business of most, if not all, of the defendants and Baron are located in this district.

r ADocmncu,elMar S(cams\I ' IcadinE!sVContplaint I-2S-99.N I)d _15- 211/99 1 05 I'M

PARTIES

(a) Plaintiffs

39. Plaintiff Mohammed Fcy-zani is a citizen of London, United Kin,,dom and resides

at 55 Gorrins Way, ladling, London, United Kingdom D5-348- The Cirenaca f=oundation is a

foundation established by Mohammed hezzani in London, United Kingdorn-

40. Plaintiffs Lester Blank and Dr. Victoria Blank ("Dr. Blank") are citizens of

Connecticut and the United States of America and reside at 3321 Park Avenue. Fairfield,

Connecticut 06432.

41. Plaintiffs James H- and Jane Bailey are citizens of London, United Kingdom_

Plaintiff Baydel Ltd. is a corporation with its principal place of business in London, United

Kingdom. Their address is Baydel Ltd., Baydel House, Brook Way, Leatherhead, Surrey, United

Kingdom KI-22 7NA.

42. Plaintiffs Margaret and Patrick Burgess ("Burgess") are citizens of London,

United Kingdom and reside at 9 Embankment Gardens, London, United Kingdom SW3 4LJ.

The Bootlesville Trust is a trust established by Burgess, with Dr. Gerard Batliner ("Batliner") as

trustee, established in Vaduz, Liechtenstein.

43. Plaintiff Adam Cung is a citizen of London, United Kingdom, and resides at The

Rushes, SL6 I UW, London, United Kingdom.

F:1DocumcntsVBcarSicamsU'Iwdingslcomplaini 1-28-99,v -16- 211199 , 0 51'1

(b) Defendants And Their Co-conspirators

44 Baron was a member of the NASD and operated as a broker-dealer in securities

from May 1992 through June 1996. In form, it was a wholly owned subsidiary of tlhe Baron

Group.

45. Defendant Bressrnan who, on information and belief, resides in New Jersey, was

at all relevant times either the President or Chief Executive Officer of Baron , and until the fall of

1993, he shared voting control of Baron with Jeffery Weissman (" Weissman" ). After the fall of

1993, Bressman had sole voting control. Defendant Bressman has pleaded guilty to two felony

counts of Enterprise Corruption ( the State analogue of RICO ) and Grand Larceny in the First

Degree for his crimes in the operation of Baron.

46_ Defendant Arthur Bressntan who, on information and belief, resides in New

Jersey, was a de facto executive of Baron, through his influence over his son, and his value to the

firm as source of business deals.

47. Defendants Richard Acosta, Glenn O'Hare, Joseph Scaruii , Brett Hirsch , Garvey

Fox, Matthew Hirsch, Richard Simone, Charles Plaia , John McAndris, Jack Wolynez, Robert

Gilbert were all employees of Baron, and they all have been convicted of felonies, all but

defendant McAndris, on pleas of guilty (McAndris by jury verdict), to enterprise corruption and

other related charges for their crimes in the operation of Baron.

48. Defendant Bear Stearns & Co., is arid was , at all relevant times herein , a Delaware

corporation engaged in the business of investment banking, underwriting, and selling securities

P:\I) eumef,\Bcar stcamsq'IcadiagsVComptaint 1-2SAW ^%7td -17- 2/1/99 l 0 PVt

to the public. Bear Steams & Co.'s worldwide headquarters is located in New York, New York.

At all relevant times, Bear Steams & Co. was a "controlling person" of Bear Steams Securities

Corp- within the meaning of Section 20(a) of the Exchange Act.

49. Defendant Bear Stearns Securities Corp., a wholly-owned subsidiary of Bear

Steams & Co., is and was, at all relevant times, a New York-based corporation having its

principal place of business in New York, New York. Bear Steams Securities acted as the

clearing broker for Baron beginning in or about May 1992 through approximately February

1993, and re-commencing on or about July 20, 1995 and continuing until Baron ceased

operations in or about July 1996.

50. Defendant Richard Harriton resides at 524 East 72"d Street, New York, New York

10021, and is a Senior Director of Bear Steams Securities Corp. and acts as head of its clearing

operations. In addition, Harriton was, at all relevant times, an agent of Bear Steams, acting

within the scope of his agency.

51. Defendant Donald & Co., is a corporation having its principal place of business at

65 East 56th Street, 12t1i Floor, New York, New York 10022, and a broker-dealer registered with

the National Association of Securities Dealers on Form B-D.

52. Defendant First Hanover Securities Inc. ("First Hanover"), is a corporation having

its principal place of business at 100 Wall Street, New York, New York. 10005, and is a broker-

dealer registered with the National Association of Securities Dealers on Form B-D.

F:\Dowments\13ear Stearns\Pleadings\Complaint 1-28-99.wpd As- 2/1199 3:05 PM1

53. Defendant Falinestock & Co., Inc. ("Falmestock"), is a corporation having its

principal place of business at 65 East 56" Street, 12"' Floor, New York, New York 10002, and a

broker-dealer registered with the National Association of Securities Dealers on Form B-D.

54. Defendant Isaac IL Dweck is an individual residing at 46 Ocean Avenue, Deal_

New Jersey 07723. Defendants Nathan Dweck , Barbara Dwcck , Morris 1. Dkveck, Ralph I-

Dweck, Millo Dweck, Beatrice Dweck, Richard Dweck, Jack Dweck, Isaac B. DNveck and Hank

Dweck are individuals who reside in the states of New York and New Jersey- Defendants

Barbara Dweck, Beatrice Dweck, Isaac R. Dweck, Jack Dweck, Morris I. Dweck, Ralph 1.

Dwweck and Millo Dweck had customer accounts individually or jointly at Baron. Upon

information and belief control over most of the accounts was exercised by Isaac R. Dxveck

(hereinafter collectively the "Dweck Defendants")

55. Defendant Basil Shiblaq is an individual residing at 2 Castle Acre, Hyde Park

Crescent 1, London W2 2P2 United Kingdom . Defendant Iyad Shiblaq is the son of Basil

Shiblaq and resides at the same address (collectively the "Shiblaq Defendants")

56. Defendant Ken Stokes ("Stokes") is an individual and a citizen of the United

Kingdom residing at Magdapur Fosseway South Midsomer, BA 3 4AN, United Kingdom.

57. Defendant Bank Audi Suisse-Geneve ("Bank Audi") is a financial institution

organized under the laws of Switzerland with a place of business at 2 Rue Massot-DP 384, 1211

Geneva, Switzerland.

F:DocwncntsU3car steansU'leadings`'Complainl 1-7S-99.wpd -1 7- 11 1 ;99 ;:OS I'M

58. Defendant Fozie Farkash ("Farkash") is an individual residing at 33 Evans

Terrace, Swansea, SAI 6YH, United Kingdom and, upon information and belief, a client or Bank

Audi employee or is otherwise affiliated tivith Bank Audi. Over the years, Bank Audi maintained

a number of securities trading accounts in its name at Baron . On information and belief. Farkash

was the real party in interest behind those accounts and controlled those accounts.

59. Defendant Rawai Raes ("Raes") is an individual residing at 56 El Ladina

Elmanura Street, El Daga, Cairo, Egypt. On information and belief Raes is a friend of Farkash

and maintained his account at Baron as a nominee ofFarkash_ On information and belief,

f'arkash controlled Racs' account at Baron and was the true beneficial owner of-that account; the

profits of trading in that account were remitted by Raes to Farkash (Bank Audi_ Farkash and

Raes are hereinafter referred to as the "Farkash Defendants").

60. Upon information and belief, defendants Morris Wolfson, Arielle Wolfson. Aaron

Wolfson, Abraham Wolfson and Tovie Wolfson are individuals who reside in slates of New

York and New Jersey. Defendants Anderer Associates, Boston Partners, Wolfson Equities.

Turner Scharer, the Chana Sasha Foundation and United Congregation Mesarah are entities

owned or controlled by the Wolfsons (collectively known as the "Wolfson Defendants").

61. Upon information and belief, control over most of the Wolfson Defendants'

accounts was exercised by Morris Wolfson, Aaron Wolfson and Abraham Wolfson, and there

were frequent transfers of securities between various accounts.

I-.\llocmncnicfl,',r Sicams\PIcadings'Complaint l -2S-99.«cpd -20- JI/99 ?-05 I'M

62. Defendants Barry Gesser and Michael Ryder are individuals residing, upon

information and belief, in New York. Upon information and belief, defendant Apollo Equities is

a business entity beneficially owned and controlled by them.

FACTUAL BACKGROUND

(a) The History of Manipulation of Baron's

Rounders. Weissman and Bressman

63. Baron was conceived in fraud. It existed, from its first day through its last, solely

to create profits for itself and its confederates by committing fraud on its customers. Bear

Stearns was involved with Baron's criminal wrongdoing from the outset. Baron was founded by

Weissman and Bressman, two very successful salesmen from D.H. Blair & Co., Inc. ("Blair"), a

well known Wall Street boiler room operation , which has been under intensive investigation by

both the SEC and the NASD for various acts of securities manipulation since 1989 .' From its

inception, Weissman and Bressman manned Baron with brokers whose history of bad acts at

Blair made them too hot to handle, even for a firm of Blair's dubious reputation.

64. Bressman worked under Weissman at Blair as part of the "Weissman Investment

Group," also known as the "Weissman Group," a collection of brokers and cold callers who

dedicated their efforts at Blair to the manipulation of two companies, Cryomedical Sciences. Inc.

("CMSI") and Health Professionals Inc. ("HPI"). Weissman, his family, and Blair held major

On information and belief Blair is currently the target of a New York County

District Attorney grand jury investigation, NASD and SEC investigations and

millions of dollars in civil suits. Blair recently reached a multi-million dollar

settlement with state securities regulators, and was forced out of business as a

result of the impact of the multiple criminal and civil investigations and actions.

F'\.Docu+ nents\Bear Steams\Pteadings \Complaint 1 -28-99 upd -21- 211199 3:05 I'M

positions in both CMSI and HPI common stock and warrants. Neither company represented a

good investment, particularly at the extraordinarily high market capitalization to which they had

risen due to tine Weissman Group's frauds and manipulations- Yet month after month, the

Weissman Group was able to sell millions of_dollars of HPI and CMS1 stock, either by finding

and defrauding new investors or "flipping" old investors between these two stocks.

(i) The Manipulation of CMSI and HPI,

Up to The Start of Baron

(a) CMSI

65. CMSI, a company engaged in the research, development and marketing of

products for use in the field of low-temperature medicine, was founded in November 1987 bit

Weissman, his father Martin Weissman, their lawyer, and a friend, (collectiveiv contributing a

total of $ 18,900), and three unaffiliated doctors (each of whom contributed the rights they had in

certain medical products valued collectively at approximately $18.000)- Blair acquired

1,125,000 shares of CMSI (approximately 20% of the outstanding shares) for a price of

approximately one penny (10) per share or an aggregate of 811,250-

66. As of June 30, 1989, CMSI was still in the development stage, had not received

any revenue from operations , and had incurred losses of S 193.776. It had a negative tangible

book value, and it had not produced any products for commercial application and did not even

anticipate any for at least the foreseeable future. However. CMS1 had an appealing story to sell.

its development of instruments and solutions to operate on a variety of conditions- including a

device which was reputedly a breakthrough in prostate cancer surgery (a claim which was wildly

P \Uocuments \ Bcar Stearns\PlcadinEs^complaini 1-28-94.E+Td -- 2/V99 3 :US P,11

overstated). Better still, the Weissmans and Blair controlled its board and collectively owned

more than 3,300,000 shares of CMSI securities which they received in return for virtually no

in\'estiIieni

67 In October 1989, Blair offered for sale to the public 5,750,000 shares of CMSI in

the form of-1,130,000 units. Each unit consisted of five shares of common stock and warrants at

the price of $5.00 per unit (nearly 100 times the price Blair paid a little over one year earlier), an

IPO price which valued the Weissman and Blair holdings at $3,300, 000 in return for their

collective investment of approximately $30,000 - - a 10,000 percent return-

68. On information and belief, Weissman and the Weissman Group at Blair set about

to manipulate the price of CMSI to make sure that its price increased , to induce purchases by

investors in the secondary market.

(b) HPI

69. HPI, formerly known as Professional Care, Inc., and Health Extension Services,

(hereinafter, collectively "HPI") was founded by Weissman and his father in 1975 as a company

primarily involved in providing nurses and nurses aids and certain other temporary personnel to

institutions and individuals in need of professional home health care. Martin Weissman was not

a health care professional, he had spent almost his entire professional life as a stockbroker, a

partner in registered broker/dealers, and a "deal" promoter. As later developments made clear.

HPI's real business was raising money from the investing public to benefit insiders- Its

F:^Documcros^Bcar $tcamsU'Icadincslcomplaint i-28-99.,,pd -23 '!1199 3:05 I'M

ostensible business , home health care, was useful primarily as an appealing story for high

pressure securities salesmen to sell HPI securities.

70. HPI's ostensible business started to come apart in 1956, when New Fork's Deputy

Attorney General for Medicare Fraud (the "Deputy AG") obtained an indictment against IAPL It's

executive officers and directors including, Martin Weissman (the "Criminal Fraud Action")

Thereafter, in 1987, the Deputy AG commenced a civil action against HPI, Martin '"leissman

and another officer, Israel Cohen ("Cohen") (the "Civil Fraud Action." hereinafter collectively

the "Medicaid Fraud Suits"). HPI shareholders commenced civil class actions against HPI and

its officers and directors ( the "HPI Class Actions")

71. In 1988, in the Criminal Fraud Action, HPI pleaded guilty to a felony and

multiple other counts and paid $1,250,000 in restitution and fines- Martin Weissman and Cohen

pleaded guilty to misdemeanors and agreed to pay a fine of $100,000 each (which HPI paid on

their behalf). In February 1990, partial summaryjudgment was granted against HPI in the Civil

Fraud Action in an amount of $2,000,000. Shortly thereafter, the HPI settled the Civil Fraud

Action for $3,250,000. In July 1990, a settlement of approximately $2,000,000 was reached in

the HPI Class Actions. Only a quarter of that amount was paid by insurance-

72. As a result of all these judgments and settlements , HPI owed $6,500,000 which it

could not afford to pay. It had to pay $1 .000,000 down payment on the settlement of the Civil

Fraud Action and owed $50,000 per month for nearly five years under that settlement. As of

1=:^ocu^ncats\DcarStcamsl'Ieadings\Complaint 1-20-99.i'j)d -24- 2/i /99 3:05 PM

July, 1990 , HPI had a negative net worth of $2,323, 000, a working capital deficit of $479,000,

and an accumulated deficit of $11,337,000-

In or about October 1990, Blair, as underwriter, sold 1,000,000 sliares of 141)]

securities at 53.00 per share ( the "1990 Public Offering ") pursuant to a prospectus ailed with the

Securities Exchange Commission ("SEC") on Fonn S-I on or about October 10. 1990 (the " 1990

Form S-1 "). Weissman and the Weissman Group embarked on an aggressive selling campaign,

extolling the "wonderful investment opportunity" presented by HPI, raising millions of dollars

through fraud and manipulation of HPI. Most of the money raised was used to cover

commissions and debts.

74. In December 1991, HPI acquired the Center for Special Immunolozv ("CSI")

which owned and managed medical facilities, primarily serving patients with immunological and

related disorders, including AIDS, and provided certain facilities management, lab testing and

other "back office" services to clinics involved in the treatment of AIDS patients. -I-here was a

contingent payment portion-of the CSI purchase contract in which CSI's principals received ten

times the after-tax profits earned in the year ending March 31,. 1993, and two-and-a-half times

any increase in after tax profits in each of the following two years ending March 31, 1994, and

March 3 1, 1995, a purchase deal that virtually insured bad returns for HPI investors for years to

come. Yet that did not deter the Weissman Group from making HPI the primary focus of its

manipulations.

-?5P:\Doa^mcns\f3ear stcamsU'Icadinpslcomplaint 1-28-99.-pd - 31/99 3:05 Yl`9

(b) The Founding of Baron With

Bear Stearns as Its C learing Broker

7^. Weissman and Bressman became hie.hly successful b' manipulating HP1 and

CMSI, so much so that, in the fall of 1991,they were awarded gold Rolex watches by Blair for

each earning a gross commission of one-half million dollars in one month. But that success.

combined with an opportunity to do an IPO for a new company, Cypros Pharmaceuticals. caused

them to decide to open their own broker/dealer, Baron, which was to be largely staffed by the

Weissman Group from Blair. Baron initially manipulated HPI and CMSI earning large

commissions. Later, Baron brought Cypros public, manipulated it and benefitted from

underwriter's warrants.

76. At the time Baron went into business, CMSI had over 22,000,000 shares then

outstanding at a price which was an increase of 2,000 percent in the market value of all

outstanding shares since the date of the IPO_ The ostensible business of CMSI was losing

millions of dollars per year, yet the stock market value was over $130,000,000, a stupendous

two-hundred and sixty times CMSI's total annual sales . It has no profits at all.

77. At that same time, HPI was valued by the market at over $ 100,000,000 -- due

largely, if not entirely, to the Weissman Groups' market manipulation -- or twenty-five times the

annual sales from "continuing operations". HPI had losses in the quarter ending June 30, 1 992,

of $369,000, and losses of $7,293,000 for the nine months ended June 30. 1992.

F:\Doauncnts \Bcar StcarnsU ' Icad in gsl ont plaint ]-2S 99.1a7td 26 ?'1i99 ?:05 I'M

75. However, having two successfully manipulated stocks and a group of willing

brokers was not enough . Before Baron was even able to go into business , it had to contract with

a clear int, broker" to have its trades "cleared." On information and belief, prior to April 1992-

vv'hen Baron commenced operations , Weissman approached defendant Harriton to seek to have

Bear Stearns act as Baron ' s clearing broker.

79. In order to ensure orderly and predictable securities transactions, the stock

markets are-organized to transact business through clearing organizations, which process all

transfers of securities and all payments. Brokerage firms, such as Bear Steams, which are large

enough to become members of the clearing organization , guarantee that all trades will be

properly "settled," or completed, on the "settlement date," so that the securities bought will be

delivered to the buyer and that the cash to be paid will be delivered to the seller. If the customer

does not deliver the security or the cash, the clearing member must "make good" either paying

cash from its own pocket for any unpaid cash, or delivering the required security (if need be

buying the security in the open market to have it to deliver)- This system was established so that

buyers need not worry about their sellers defaulting, nor sellers about their buyers defaulting.

Each has the guarantee of the clearing organization that the trade will be property settled: It is

the clearing members' problem to collect from its defaulting customers.

80. While most large national brokerage firms clear their own trades, many smaller

firms have neither the capital nor staff to become clearing members, nor the computer,

accounting, or other related expertise to maintain proper customer records and repons_ These

FWDocumemslr3car Steam 'J'ieadincs\Com plaint 1-28-99 xi-pd -27 2/i/9 3.O PTA

smaller firms such as Baron , known as " introducing firms" or "introducing brokers." will enter

into contracts with clearing firms , such as Bear Stearns , known as clearing brokers " to obtain

the necessary clearing and back off-ice functions_

(i) Bear Stearns's Clearing Business

81_ For many years, Bear Stearns has been one of the most active firms in providing

clearing services to introducing brokers and is known for not being very concerned about with

whom they do business . On information and belief, Bear Steams ' s head of clearina_ Harriton,

was and is close friends with Randolph Pace ("Pace"), a fabled Wall Street manipulator.

presently facing felony charges on a recent federal indictment which carries a possible sentence

of over 100 years ofjail time. Pace's indictment for various federal securities violations arise

from the operation of a corrupt firm known as Sterling Foster which Pace is allege to have

surreptitiously and illegally owned and controlled-

82. Bear Steams also cleared for Sterling Foster, as well as for Pace's earlier corrupt

firm, Rooney Pace, Inc., one of Bear Steams first clearing customers -- long since barred by

regulators from the securities industry. Harriton's own son, Matthew Harriton, has been

personally involved with Pace in several business dealings , including Embryo Development

Corp, one of the companies alleged in the Pace indictment to have been manipulated by Pace,

and Perry' s Majestic Beer, Inc. Matthew Harriton also reportedly shares an office suite v,71th

Pace-

F \llocumcntsll3ear StcamsV'IcadinesVComp 'iainl I-2S-94wpd -28- ?/I:pia ;:O PM

83. Bear Stearns also cleared for David Blecht Co., Inc., another corrupt securities

firrn. David Blecht personally, recently pleaded guilty to felonies relating to business cleared

through Bear Stearns- Bear Stearns is currently a defendant in a federal class action lawsuit

accusing Bear Stearns of being a participant in David Blecht's frauds.

(ii) Bear Stearns Agrees to Clear for Baron Despite Its Knowledge of Fraud

S4. Even for a firm of Bear Stearns rather flexible sense of business morality, taking

on Baron must have seemed quite a stretch. Baron's owners were 28 year old's who had spent

their entire, albeit limited, careers selling millions of dollars of only two grossly overvalued

stock, at Blair. Blair's unsavory reputation on the street was well known to Bear Stearns.

Neither Weissman nor Bressman had any experience running a brokerage firm or any other

business. Both Weissman and Bressman, and, indeed, many of their initial employees, had

numerous customer complaints on their records, including many for unauthorized purchases

and/or refusals to sell, which are hallmarks of manipulation.

85. Additionally, just a few months before Bear Stearns started clearing for Baron. in

Alan Abelson' s column in Baron s Magazine , one of the most widely read columns on Wall

Street and surely one read by Ham-ton and those working for him, HPI's history of fraud; the red

flags of manipulation, and Weissman's role regarding HPI, were spelled out in clear, and

humourous , detail . On information and belief, shortly thereafter the SEC opened an informal

investigation into the manipulations of HPI, which of necessity, was focused on the activities of

F:\Doc,micnls\Bear scams \Plcadings'•Compui 1 -28-99.wd -29- 117/99 3:05 PM

the Weissman Group, which essentially controlled the market for HPI and was to be the core, if

not virtually the entirety, of Baron .

,^ 6. Most striking of all is that, in agreeing to clear for Baron, from the outset Hear

Stearns was a party to a direct and flagrant regulatory fraud. On information and belief Bear

Stearns knew Baron was owned primarily and run entirely by Weissman and Bressman_

However, Weissman and Bressman remained working at, and registered through, Blair for some

months after Baron began business. The Weissman and Bressman customers had, in effect,

borrowed money from Blair to buy HPI and CMSI in margin accounts. Baron did not have the

capital to assume the debt, and Blair would not, really could not, let the accounts <go to Baron

until the debt was paid or assumed by another firm. If HPI and CMSI stock was sold to pay off

the margin debt, the value of the stocks would plummet. Weissman and Bressman had to find

many new customers who were willing to buy the stocks for cash, not on margin, from the older

customers with margin debt. That was going to take some time.

87. It was decided that Weissman and Bressman would own and run Baron while a

shill, Goldman, (a mild mannered accountant, with back office experience who no one would

believe, and on information and belief Harriton did not believe, could own or run a firm like

Baron ), would falsely appear on official filings with the NASD and SEC, as Baron ' s owner.

Goldman has since been convicted of a felony for his role at Baron and is presently serving his

sentence in a state penitentiary. With knowledge of that arrangement, Bear Steams agreed to be

a party to the sham and clear Baron's trades.

F.\llocun Isd3car S icams11'Icadings \Complain, 1-38 -99.upd -30- 2/1199 2 05 I'M

$8. Baron commenced its business of defrauding investors in or about April or May

1992, with Bear Steams ever present , extending Baron credit , clearing Baron's trades, and

otherwise facilitating Baron's fraud-

89. From the moment Baron started operations , prominent in its sales pitch was the

use of the Bear Stearns name to add an appearance ofcredibility and stability to this newly-

opened undercapitalized business. Indeed, Bear Stearns's promotional literature urged

introducing brokers for whom it cleared trades to "Throw [Bear Stearns's] Weight Around."

Recognizing the value of this association, Bear Stearns even charged a premium to Baron and

other firms for which it cleared.

90. For the first few months, Baron concentrated on manipulating HPI and CMSI, and

then it turned some of its manipulation efforts to the impending IPO of Cypros. Compared to

Cypros, HPI and CMSI were virtually members of the Fortune 500.

(iii) Baron Manipulates Its First 1PO, Cypros,

Then Changes Clearing Brokers

91. Cypros, founded in November 1990, was truly a "developmental" business in the

highly competitive bio-pharmaceutical field. It appears to have conducted no business

whatsoever until May 1992, when it received a Small Business Innovation Research Grant of

$50,000 and completed a private placement of securities in which it raised 51.329.000 and,

thereafter, acquired a few licenses of limited value for $50,000. The licenses were for products

in developmental stages, and it was unclear when, if ever, those products would become

F:\Doniments \Bcar Stcarns\1'Icadings\Complaint 1-28-99., +p<i -^ I J1L")9 i05 Pt11

marketable . Just months later, Cypros, with Baron as underwriter . sold over 57 , 000,000 of stock

to the investing public-

During the September to November 1992 time period, despite Cypros' highly

speculative and risky prospects , Baron had created widespread interest in Cvpros_ On

information and belief, the public offering was substantially over-subscribed. But to make the

stock price go even higher, undisclosed to its investors , Baron placed 20%, of the offering with

affiliates or itself. That placement violated NASD regulations concerning "hot offerings" which

applied to the Cypros offering.

93. Further, Baron entered an enormous number of unauthorized purchase orders in

the November 1992 period- On information and belief, an amazing 8.7 % of all purchases of

Cypros were unauthorized.

94 As a result of these fictitious purchases and the improper tying up of 20 % of

Cypros through unlawful placement with affiliates , the price of Cypros soared . Baron sold

Cypros to its customers at fraudulent mark-ups, sometimes reaching, forty-seven and three tenths

percent (47.3 %) of its contemporaneous cost. Baron completely controlled the market for

Cypros. Ultimately, these fraudulent practices led to an NASD investigation, a $1.5 million fine,

and temporary suspension from participating in the securities business for Bressman. Goldman

and others at Baron, but for the time being, Baron was riding high.

95. During the same period, in or about November 1992. Baron broker Okin cold-

called James Bailey and convinced him to open a small trading account in the names of himself

F:1Documcrosi13- S w n., s\ I'It^dim s\Co-plzint 1 - 28-1)9 ,Td -32- 1_1 1199 ;0511M

and his wife Jane (collectively "Bailey or the Bailey Accounts")_ Bailey engaged in trading on a

very small scale with personal funds-

96_ Okin informed Bailey that Baron cleared trades through Bear Stearns which lead

Bailey to believe that Bear Steams exercised some oversight of the transactions and dealings at

Baron and approved of Baron ' s practices. In fact; using tactics approved by Bear Stearns, Okin

often would use Bear Steams's name and reputation when speaking with Bailey to lend

credibility to Baron.

97. Throughout this period, Bear Steams was clearing Baron trades, and on

information and belief, was on notice or had actual knowledge of Baron's fraudulent acts.

Plaintiffs believe that Bear Steams may have sought to distance itself from Baron's frauds in the

Cypros of1ering- Perhaps for that reason, or for other reasons that are as yet not fulh' clear.

Baron temporarily ceased clearing through Bear Steams as its primary clearing firm and moved

most of its clearing business to Adler Coleman & Co. Inc. ("Adler Coleman")

98. On information and belief, starting in November 1992, Baron cleared with both

Bear Stearns and Adler Coleman and continued to do so until approximately February 1993.

Thereafter, it cleared through Adler Coleman until February 1995. Adler Coleman was smaller

than Bear Stearns and had a reputation, not unlike that of Bear Stearns, for its willingness to

clear for firms like Baron. Ultimately, the failure of one of those firms, Hanover Sterling, would

cause Adler Coleman's own bankruptcy in early 1995.

F:1)ocuments\13earStcams\I 'Ieadings\Comlaim 1-28-99.^7>d -30- 211/99 3 :05 i'A1

(c) Baron's Continued Manipulation until the Crash of.June 1993

99_ Following the fraudulent "success" of the Cypros offering, Baron continued its

fraudulent and abusive sales practices, focused almost exclusively on the three stocks, HPI_

CMSI and Cypros. Customers were flipped back and forth between the three stocks to

strengthen demand Baron needed to continue its manipulation in a specific stock. In order to

induce customer purchases, Baron brokers invented fictitious acquisition offers. During this

period, it was fraudulently claimed that Hoffman-LaRoche offered to buy HPI, First for S25 per

share, then for S40 per share, offers which were allegedly rejected because of the enormous value

of the company. It was also fraudulently suggested by Baron brokers that HP! was about to find

a cure for AIDS and was on the verge of other medical breakthroughs-

100. However, all of those claims were false. The real news on HPI was not good at

all. On January 14, 1993, the SEC opened a formal investigation of HPL Insiders started to bail

out in February and March, around the time Bear Stearns ceased all clearing operations for

Baron. Also in early 1993, a series of articles accusing HPI of fraud started to appear in Florida

newspapers. To keep the stock from crashing in light of the negative publicity, the pressure

increased to find new buyers and to convince old buyers to make new purchases. Needless to

say, none of the unfavorable news was disclosed, and "good news" was either fictionalized or

wildly overstated. Not surprisingly, complaints of unauthorized purchases or refusals to execute

sell orders came in steadily.

34F:\Docu,,i sUlcar Stcams\Pleadings\Complaint 1-2S-99...pd --3 - 211/99 3.05 I'M

101. At the end of May 1993, another article published in Barron 's Magazine, again in

the widely read column of Alan Abelson, revealed negative true facts about HPI as well as about

Maltill AVcissm.nn's criminal history and the intertwined relationship between HPL Martin

Weissman- Weissman, and Baron. The article also disclosed the fact that a substantial portion of

HPI's income was -generated through contracts with its chief executive officer, which in the

future, might be declared illegal as "fee splitting."

102. The Barron's Magazine article was devastating- Baron and its officers decided

that there was only one thing to do in order to avoid the impact on the marketplace of the

Barrons Magazine article : mount an aggressive campaign to create an artificial demand for HPI

and thereby avoid any collapse in the price of that stock - The conduct that followed contained all

of the obvious hallmarks of manipulation and fraud.

103. According to SEC findings, on Monday , May 24. 1993, starting before the

opening of trading, Baron placed orders on the American Stock Exchange (the "AMEX") totaling

approximately 780,000 HPI shares and sold only 1,000 HPI shares. Baron's Amex purchases for

the period constituted 64% of the Amex volume and absorbed much of the supply of HPI on the

Amex and prevented the price of HPI from falling precipitously.

104. The SEC had also found that Baron then placed its May 24, 1993, Amex

purchases of HPI stock in the firm trading account. Weissman and Bressman then engaged in

and directed other Baron brokers to engage in massive unauthorized transactions that transferred

F\Do ews\Sear S n s\Plcadingslcumplaini 1-28-99.,+q^d -^ 2/1/99 ?:05 PM

or parked over 200,000 shares from Baron's inventory to customer accounts. Similar activity

continued after May 24.

105 Also according, to the SEC finding, near the end of each trading day after that

period, Weissman, Bressman and other Baron brokers moved HPI stock into customer accounts

by placing unauthorized purchases, sometimes convincing customers to accept the trades alter

the fact. In addition. Weissman , Bressman and other Baron brokers aggressively solicited

customers with unfounded optimistic claims about HPI's short-term prospects,' but did not tell

their customers that Baron was making large purchases of HP1 stock on the Amex to prevent its

price from falling. The artificial inflation of HPI's price could not continue indefinitely.

(d) Baron Is Forced Temporarily Out of Business,

Causing The Crash of All Manipulated Securities

106. Despite Baron's buying efforts, HPI's stock price declined significantly, and the

decline led to customer demand for sales, causing further decline since there was no real buying

demand outside Baron. By mid-June 1993, Baron had exhausted its capacity to purchase HPI

stock on the Amex. The widespread unauthorized trading and other manipulation caused sharp

increases in Baron's trade date debits, large increases in extension requests, and other similar

negative effects of massive " panic " manipulation as described above. Eventually, Baron's

clearing firm. Adler Coleman, refused to accept further requests for extension of payment and

A frequently made false claim during the period was that HPI's stock price was

about to go up because the company would be making an important

announcement at the Berlin AIDS conference in early June 1993. Baron brokers

also repeated the false Hoffman-LaRoche acquisition story-

FADucumcros\l3 car Stcams\l1eadincslCompWnt 1-28-99. -36- 2'1'99 3 :05 I'M

required Baron to deposit an additional 5 1 million in its deposit account. In order to raise the

cash needed for its deposit , Baron became a net seller on the Amex, selling HPI shares that the

trading account accumulated from in-house liquidation of customer accounts, which drove the

price down. At the same time, Baron brokers simply refused to execute customer sell orders

which poured in as the Baron stocks continued their rapid decline.

107. On June 25, 1993, Baron was ordered to cease its market-making activities

because its net capital had fallen below the NASD-prescribed minimum level, what is known as

being taken "off the box" ("the box" is the NASD Level III computer through which market

makers are able to trade securities electronically). Baron remained "off the box" until July 20.

1993, when it resumed full trading activities. Once Baron ceased its tradint) activities, not only

HPI, but also CMSI and Cypros lost tens of millions of dollars of value . Baron customers,

whose sale orders were ignored or who were the victims of unauthorized purchases as part of the

effort to prop up HPI, suddenly found the value of their accounts wiped out. Customer

complaints poured in. The collapse of Baron and its stocks was known throughout the brokerage

community and on information and belief known to defendants Harriton and Bear Stearns.

Baron needed a new stock to manipulate in order to recoup its fortunes, and luckily for Baron.

but unluckily for its customers, it had one in the pipeline: Innovir.

FAI)ocu-ntsU3carstc-sTicadings\Complaim1-28-99..,Id -37- 2/1199 3:05 PM

(e) Baron ' s Continued Fraud, From

August 1993 Through February 1995

(i) Baron Comes Back with the Innovir IPO

10S The crash of Baron had destroyed the accounts of many customers- and decimated

Baron's capital. In order to get back into business, Baron had to raise capital. On information

and belief, 55 million was raised in loans from Weissman. Bressman and defendants Stokes and

Basil Shabliy, among others. However, some brokers, due to the problems at Baron, left during

the summer of 1993 to go to other firms. Okin left the firm for another firm, Emanuel & Co

("Emanuel"). On August 27, 1993 Weissman suffered a severe head injury from a motorcvvcle

accident. Weissman was hospitalized for a lengthy period and never went back to Baron.

Thereafter the firm was effectively owned and run by Bressman. who only a few years earlier

had been a 5250 per week trainee with virtually no experience outside selling 13PI and CNIS1.

But Bressman had Innovir, and he started to rebuild.

109. Innovir, to some extent, fit the perfect Baron mold. It was in the fashionable

biomedical area, had never earned even a penny of revenue (other than interest on investor

funds), and was hemorrhaging money. It had done plenty of research, but had not done much

"development", let alone tested, any product. As of September 30, 1992, it had less than 56.000

in the bank and a stockholder's deficit of over $3 million. It was kept alive by sort term "bridge

financing" until the time was right to convince investors to pour in money to the money lackin g

venture. It was an opportunity for Baron, whose specialty was convincing investors that risl,-\!

investments were "sure thin,-,s." Baron. therefore. became the underwriter oflnnovlr's 1110 In

F:\Documen isle' car S(carns\Plcadings)Complainl 1-28-99.^%pd -38- 2111/99 3 05 P'.1

September 1993, raising an aggregate of 59.4 million , nearly half of which immediately

disappeared into payment of underwriter ' s and selling fees, and repayment of $2.8 million of

debt_ Among the major beneficiaries of the 1110 were the Dweck Defendants. Isaac R_ Dweck

had received the lion's share - 83,202 shares - of the warrants issued in Innovir's February 199,

bridge financing. In a further lnnovir bridge financing, the next month, Isaac R. Dweck, Isaac B.

Dweck, Richard Dweck, Hank Dweck and Jack R. Dweck obtained an additional 114,162 bridge

warrants.

1 10. Throughout the fall of 1993, Baron struggled to reestablish itself using its two

IPO's. Cypros and Innovir , as its major products . Adding to Baron ' s problems , the SEC's HPI

investigation went into full gear and numerous Baron brokers were called to Washington to

testify under oath. On information and belief, the SEC was proceeding to collect trading data on

HPI trading, and Bear Stearns probably would have been contacted during this period to produce

trading data regarding Baron.

(ii) Baron Expands Its Staff and The Scope of

Its Manipulation by Adding the Hirsch Group

111. Using Weissman's disability as a weapon against film, Bressman forced a buyout

of Weissman from the firm, and started recruiting other Blair brokers to expand Baron. He re-

recruited Okin to rejoin Baron in January 1994, bringing with him the Baron clients he had

taken, like Bailey, and some new clients from Emanuel; including plaintiff Adam Cung

("Cung")

F:\DocumetsU3car Steamsll'Icadings\Com plain 1-28-99.'spd -39 - 2/1199 3 O5 PM

112. In or about April 1994, Bailey opened a new account at Baron with Okin for the

benefit of Baydel Ltd., his corporation, with corporate surpluses - Thereafter- Bailey engaged in

substantial trading in that account-

113. In the spring of 1994, a group of brokers who had worked under Defendant Brett

Hirsch at Blair, generally known as the "Hirsch Group," Joined Baron. The Hirsch Group was

separate from the Weissman Group at Blair, and had concentrated on manipulating its own <aroup

of stocks, including Mammo, Symbollon, Aqua, and Laser Video (collectively the "Hirsch

Stocks"). Hirsch and his partner, Adam Rentzler ("Rentzler"), had been barred from the

securities business in Indiana as a result of a customer complaint of unauthorized trading- Both

Hirsch and Rentzler had other customer complaints against them , all following the same pattern

They were joined at Baron by Murray Shapira, also a former Blair broker, widely known as

"Murray the Crook." The Hirsch Group brought their customers from Blair, who essentially

comprised the market for the Hirsch Stocks, and proceeded to defraud Baron customers and

manipulate the Hirsch Stocks as well as Cypros and Innovir . Baron ' s sales force swelled from

about 25 to approximately 60 brokers. In or about August 1993, Rentzler, first cold-called Dr.

Blank and convinced her to open an account with Blair.

114. After Dr. Blank 's account was moved from Blair to Baron. Cliff Bernstein

("Bernstein ") became Dr. Blank ' s account executive . Bernstein was one of the "Hirsch Group."

From the time Dr. Blank's account (the "Dr. Blank Account") was moved to Baron in or about

FiDocumcnts \Reir stcarnsU ' lcadings\Complaini I-28-99.'pd -40 21I/99 3:05 PM

June 1994- Bernstein accelerated the pace of calls to Dr. Blank. calling her both at home and at

the office-

1 I i Over time, 13ernstein . Hirsch and Rentzler used manipulative and lraudulent

tactics to induce Dr. Blank to invest in more and more Mammo- Svmbollon. and Laser Video_

Bernstein made false statements to Dr. Blank, including statements that Mammo's technologies

and equipment were beinz installed and tested at the Sloan Kettering Institute and that Mammo's

executives had promised to personaliv call Dr. Blank and explain to her the details of Mammo's

technologies.

116 The expanded staff and additional customers from absorbing the Hirsch Group

increased Baron's revenues. it also increased Baron's exposure to customer complaints and

regulatory action. IThrouithout 1994 the SEC' s formal investigation into manipulation of NPl

continued . In May 1994 , a federal civil suit was commenced against Baron and others seeking

over $2 million in damages for fraudulent practices. In June 1994, Baron was informed by the

NASD of its formal investigation into the misconduct and fraud surrounding the Cypros offering.

In July 1994, an arbitration was commenced seeking over $ 1,000,000 in damages . Numerous

smaller and some larger actions were commenced, and by the end of 1994, Baron's auditors

reported that the various litigation actions against Baron sought damages in excess of $10

million, more than 3 times Baron's total net worth.

117. But that number, as dramatic as it is, only gives a small part of the picture,

because all customer complaints did not result in immediate legal action. In or about October or

FAD...... isl { 3car slcams^ ' Ica^ii^^s\Complaim 1-2S-99-pd -4 1- 1!P99 3 05 I'M

November 1994, Parsons & Whitmore, a large Baron customer with approximately $12 million

in securities at Baron, insisted on liquidating its entire position. Parsons & Whitmore's owner.

George Lande,_,gcr, personally went to Baron ' s office to complain that the securities transactions

ciiteied into 1w Parsons S-, Whitmore's managing director, Oliver Haynes. were totally

unauthorized. Landegger said that the liquidation should be orderly, and could take a period of

lime, but it trust be done.

118- The need to liquidate $12 million of stock put enormous pressure on Baron,

particularly when combined with the demands required to manipulate price increases in not only

Cypros and Innovir, but also the Hirsch Stocks. In November 1994, Baron had another new IPO_

Voxel, which it had to sell. True to form, Voxel was in the hio-medical field, but despite being

in existence for 6 years, it had no revenues , high debts and crushing short - term cash needs. An

investment of 53.50 in Voxel instantly lost $3.22 -- its net book value after the offering was 28c

per share. Over $7 million was raised, but even that was expected to last only 12 months-

119- Despite Voxel's bad financial condition, the lure of its IPO was what Baron sold

to its investors, and Baron hid or deceptively explained, the bad financial results . In the same

period Baron arranged a private placement of securities of Cardiac Sciences, Inc. ("Cardiac")

However, while Baron made money on the Voxel IPO and the Cardiac private placement, many

of its customers' available investment dollars were soaked up by those new offerings, and were.

therefore, not available to prop up the other Baron stocks. Baron faced another crisis and started

another round of fraudulent and desperate action to prop up its stocks. During this time Okin

1 -VDocuments `d'icar St^ams'd'Icadum_sVC, r plain) I-?S ^19 .^^7^d -42- ?-1 '1Q9 3:05 I'M

pressured Bailey into buying securities in Voxel in late 1994, and later convinced him to

purchase shares of Innovir.

(iii) In an Attempt to Avoid a Crisis, Baron Engages in Widespread Illegal

"Parking" with the Broker Defendants and the Individual Defendants

120. In addition to its wholesale execution of unauthorized trades, at this point, Baron

was creating fictitious trades with co-conspirators. In those cases, Baron would report a "sale" to

its confederate, but Baron, by agreement, always kept for itself the risk of any loss. Such

transactions are referred to as "parking" stock.

121. Baron' s parking of stock took several forms . Most commonly, Bressman , Okin or

another member of Baron would agree with a customer or a broker at another firm to hook a

trade to a customer's account with the understanding that, if the position could not be sold for a

profit by the settlement date, the customer would not have to pay for the trade. Frequently.

Baron would agree that the customer would not have to pay for the trade until the securities had,

in fact, already been sold at a profit for the customer's account. In similar transactions, Baron

would place securities in a customer's account having agreed to buy the securities back from the

customer at a guaranteed profit. Baron asked other brokerage firms to make purchases of the

Manipulated Securities with a promise by Baron to repurchase those securities at ", or'/. of a

point per share over the price paid. When profits could not be generated on the parked securities

themselves, Baron arranged other ways to give value to the customers, including sending direct

payments and permitting profits on later transactions.

P:\Documents'J3ea, steams\Plcadings\Coplaint I-28-99 ,Td -43- 2/1/99 3.05 I'M

122. Parking mislead regulators and customers about the amount of Baron Stocks in

Baron's own inventory, and improved Baron's net capital. The placement of such stock also

artificially maintained the price of the Manipulated Stocks_

123. Upon information and belief, from at least 1994 and until Baron went out of

business in July 1996, traders and brokers at defendants First Hanover, Fahnestock, and Donald

& Co., conspired with Baron , Bressman , Okin, and other Baron traders, including but not limited

to Nicholas Marino and Charles Plata, to create an artificial appearance of trading activity

through repeatedly "parking" of Baron securities in customer and proprietary trading accounts at

each firm - At Duke & Co., which is not a defendant, securities were "parked" in customer

accounts. The "parking" was done with the purpose and had the effect of inducing other

customers to make investments based on Baron's illusion of trading activity.

124- Upon information and belief, and based upon court documents filed by Baron, the

Broker Defendants and the Individual Defendants obtained profits through this scheme. The

amount of such profits is to be determined at trial but believed to exceed $100,000.00 for each of

the Broker Defendants.

125. Upon information and belief, the Dweck Defendants entered into, acquiesced in,

and profited from parking arrangements of the types described in the several preceding

paragraphs. Among other forms of parking, Bressman arranged regularly to park stock overnight

in Dweck Defendants' accounts at Fahnestock, coordinated by Philip Lipschitz, who was the

Dweck Defendants' broker. Bressman would cause Baron to purchase the Manipulated

FVDocuments \L3carSuamsV ' IcadinptsVComplamt I-2S-99.uT)d -44 211/99 3:051'M

Securities back from the Fahnestock accounts the next day with a guaranteed profit- The Dweck

Defendants' parking profits came directly from Baron, generally via the Baron trading account.

126. Upon inforniatiou and belief, in or about November 1994, Isaac R. 1)vwweck

introduced Baron to one or more of the Wolfson Defendants- 1-hereafter, the Wolfson

Defendants, entered into, acquiesced in, and profited from parking airangernents of the types

described in the several preceding paragraphs . Among other forms of parking, Bressnian

arranged regularly to park stock overnight in Wolfson Defendants' accounts at Fahnestock,

coordinated by the Wolfson Defendants' hahnestock broker, Philip Lipschitz. Bressman would

cause Baron to purchase the Manipulated Stocks back from the Wolfson Defendants' Fahnestock

accounts the next day with a guaranteed profit. The Wolfson Defendants' parking profits came

directly from Baron, generally via the Baron trading account.

127_ Upon information and belief, the Shiblaq Defendants entered into, acquiesced M.

and profited from parking arrangements of the types described in the several preceding

paragraphs . These profits came directly from Baron, generally via the Baron trading account.

128. Upon information and belief, the parking of the stock described above enabled

Baron to continue to trade and remain in business without sufficient net capital and to incur

liabilities to customers and creditors that it could not afford to repay.

r:ADocumcros Vncn, Sicams\Plcadingslcomhlainl 1-29-99, ,,pd -45- ?11199 3:05 PM

(iv) Baron is Saved From Collapse When Adler Coleman, Fails

129_ Parking, however, was true short term solution. Unlike customers who were

victims of unauthorized trades who sometimes could be talked into keeping them, those who

agreed to "parking" often received a commitment to have the stock repurchased within days.

130. Throughout the fall of 1994, Baron found itself having to create purchases

sufficient to meet unavoidable sales and other pressures of any particular day's manipulation. In

addition, Baron had to take care of previous parking. The fraudulent transactions multiplied, like

a snowball rolling downhill. Baron's trade date debit ballooned, its inventory swelled, and its

capital sank. Cancellations, liquidations, sell-outs, customer rejections of unauthorized trades

called "D.K." for I "don't know" the transaction, extension requests, all indica of rampant

manipulation, skyrocketed. Baron was headed for a collapse, but luckily for it, Adler Coleman

collapsed first.

131. In late February 1995, Adler Coleman was forced out of business by its losses

resulting from the sudden and highly publicized collapse of Hanover Sterling, a corrupt

brokerage firm like Baron . As a result, Baron was "off the box" for three or four weeks.

(f) Baron ' s Final Year And a Half of Fraud And Manipulation,

February 1995 Through Jung 1996

132. In the wake of Adler Coleman' s demise , other clearing firms were sought to take

on Adler Coleman's introducing brokers. A small clearing firm, Hanifen, Imhoff ("Hanifen"),

indicated that it was willing to do so. Baron entered into an agreement pursuant to which

Hanifen agreed to serve as Baron's clearing agent.

F V^ocumcn^tVBca, Sic ii Ie dings\Compl ,Su 1-2S-99,,7x1 -46- 2A/99 3:05 1'M

133- On information and belief, at the time of Adler Coleman's bankruptcy, Baron's

trade date debit had ballooned to approximately $22 million, far more than larger firms who

cleared Through Adler Coleman. A substantial portion of the $22 million represented

unauthorized trades or other schemes by Baron which created fictitious purchases. Had Adler

Coleman stayed in business, those "purchases" would have to be covered by true purchases or

absorbed into Baron's error or trading accounts. But when Adler Coleman failed, it was taken

over by a trustee appointed by SIPC. Adler Coleman's SIPC trustee froze all securities at Adler

Coleman for several months. Ironically, this freeze saved Baron from immediate failure and

gave it time to re-group-

134. The freezing of securities at Adler Coleman not only protected Baron from having,

to cover the unauthorized purchases, but also took a large number of the Manipulated Securities

off the market, leaving a much smaller float of securities to be bought and sold. That made

Baron's continued manipulations much easier, for a time. With the freeze prohibiting most

holders from selling fewer fraudulently generated purchases were needed to force the stock up.

In the period in and after March 1995, Baron set about, aggressively, to do just that, as plaintiffs

personal experiences show.

135. In the period from February to June 1995, Okin persuaded Bailey to buy more and

more Innovir stock, so that as of June 1995 he had a position of more than $1,000,000. In

telephone conversations with Bailey, Okin repeatedly stated that the stock's price was sure to rise

to at least $15 per share , far higher than what Bailey paid. He also misrepresented that the

F:\Documenls'd3carSteams\i ' leadings\Complafnt 1-28-99^' -47- M199 1 .05 i'M

company was soon going to announce the successful results of its clinical trials for an AIDS

drug, which would cause the stock's price to rise - Okin had no reasonable basis for those

statements and knew them to be false when he made them-

136_ Prior to January 1995. Fezzani was first contacted by a cold-caller from Baron

who convinced him to open a small account with Baron with an initial investment in Cypros of

approximately $2500. Shortly after the initial contact, Okin took over I ezzani's account and

began to contact Fezzani more frequently.

137_ Fezzani opened two accounts at Baron , one in his name and one in the name of

the Cirenaca Foundation (collectively the "Fezzani Accounts"). The Fczzzani Accounts were not

discretionary accounts; however, Okin regularly traded in both accounts without prior

authorization or even discussion with Fezzani. Only after the transactions had been completed

and often only after Fezzani discovered the transactions did Okin talk to Ferzani about the

transactions, convincing him to accept the transactions.

138. In that period and later, Okin repeatedly told Fezzani that the investments in the

promoted companies were "magnificent purchases" and otherwise convinced Fezzani to continue

to invest more money in the Manipulated Securities. Both Bressinan and Okin met personally

with Fezzani on occasion at different locations in Europe to help convince him to accept trades

and continue his association with Baron.

139. On May 22, 1995, Okin made an unauthorized trade in the I.ezzani Accounts

buying 20,000 shares of Mammo for $292,570, which were sold in June for a $30.000 loss

F^VJocumcttts\dcar SteamsV'Icadings\CompI int 1-2&99. 7)d -40- ?:I,199 3 05 PM

140. In or about January 1995, Baron broker Matthew Keo first cold-cal led Burgess,

told Burgess that a friend had recommended the contact, and convinced him to open a small

trading account with Baron in his name to purchase of S4,437.50 of Innovir ('Patrick Burgess

Account"). Within a few days, Roman Okin telephoned Burgess and proceeded to tell 11,1Ilovv'

the amount of the first investment was "embarrassing," and that he really needed to invest larger

amounts of money if'he wanted to invest with Baron . Okin continued to pressure Burgess into

increasingly larger investments.

141. Within a few months, Okin had persuaded Burgess to open an account in his

wife's name, Margaret Ann Burgess ("Margaret Burgess Account"), a joint account in the name

of both Margaret Ann Burgess and Patrick Burgess ("Burgess Joint Account"), and an account in

the name of the Bootlesville Trust with Batliner as Trustee ("Bootlesville Account") (collectively

"the Burgess Accounts".)

142. In or about February 1995, Okin induced Batliner to purchase 10,000 Innovir

shares for the Boollesville Account at a cost of $96,250. In or about March 1995, Okin further

induced Batliner to purchase a 5,000 units of Cypros shares for. the Bootlesville Account at an

approximate cost of $68,750.

143. In or about June 1995, Batliner requested that Okin sell the Innovir and Cypros

shares; however, Okin refused to sell immediately and instead informed I3atliner that he would

sell the shares within seven days. Okin further induced Batliner to agree to purchase shares of

PtAllocumaits\I3c:^rSicamsV'IcadfncsVComplaini 1-28-99,,'pd -49- 2/1/99 3 05 PM1

Voxel that Okin stated were "undervalued." Okin stated that the Voxel shares would be held for

no longer than a tiw'eek_

144. On or about June 2%_ 1995, Okin convinced Burgess to purchase 29,000 shares of

I nnovir and 25,000 shares of Cypros for $582,895 for the Margaret Burgess Account_

145. Not long thereafter, Okin finally sold the shares of Innovir and Cypros as had been

instructed, the Bootlesville Trust realized a gain of approximately $52,000. However, Okin then

immediately rolled over both the principal and the "gain" by an unauthorized purchase of 10,000

shares of Voxel and an unauthorized purchase of 10,000 warrants of Symbollon Corporation

Class 13 for the Bootlesville Account.

(i) Baron Gets Kicked out by its Clearing Broker Hanifen, But Despite

Overwhelming Evidence of Fraud, Bear Stearns Comes to its Rescue

146. The unauthorized purchases and related misconduct in plaintiffs' accounts and

accounts of other Baron customers quickly showed in Hanifen's monitoring of the accounts.

Baron had only started clearing through Hanifen in the middle to end of March 1995, but upon

information and belief, within weeks, or less, Hanifen's president George Johnston was on the

telephone almost daily with Baron complaining about the ballooning trade date debit, increasing

inventory, cancellations, extension requests, liquidations and sell-outs. It took only a few weeks

for Johnston to realize Baron's true colors. Finally in May, after only a few months of clearing,

Hanifen sent Baron a notice that it must find a new clearing broker within 30 days.

r:\Lkxumcnls\F3car Slcams\I'leading <\Complaint 1 -28-99.wpd -_^0- 2!1,99 3:05 I'M

147. There were not many good choices . The premier clearing brokers would he hard

to convince to take a firm like Baron . I ndeed , the industry was in somethin g like a state of shock

alter the Adlei Coleman collapse and was gun shy of boiler rooms like Baroii

148. Baron wanted the prestige of clearing through a firm like Bear Stearns_ After

effectively being forced out of business several times , Baron needed -the prestige of alnajor Wall

Street firm behind it. Bressman used the Wolfson Defendants to help sell Baron to Bear Stearns.

149. The Wolfson Defendants were prominent and wealthy customers of Bear Stearns-

where they had a number of separate accounts, including several accounts at Bear Stearns's

Boston branch office. The Wolfsons Defendants' accounts at Baron were , until October 1995,

among the most actively traded Baron customer accounts and were among the largest Baron

customers. Morris Wolfson, Aaron Wolfson and Abraham Wolfson all spent considerable time

at Baron's offices, and were in close contact with Bressman, the account executive for the

Wolfson Defendants.

150. In return for their support, Bressman and other members of Baron treated the

members of the Wolfson Defendants as highly-favored customers. They participated in Baron's

most profitable bridge financings, private placements and other corporate finance transactions.

They received substantial allocations of shares from the initial public offerings underwritten by

Baron, and they were permitted to realize substantial profits from parking and trading in the

Manipulated Securities.

r \DocumcntsU3carStcams \Plcadings\Complaini 1-2S-99.%.pd -51- 2/1199 3^Oi PV

151. At Bressman's request, the Wolfsons attended one or more meetings between

13ressman and Harriton of Bear Stearns. Thereafter, Bear Steams agreed to commence clearing

for l3aron commencing in Jul), 1995- Plaintiffs do not yet know what inducements were given

from Baron or the Wolfson Defendants to Bear Stearns or Harriton. Without some form of pay-

oft. Bear Stearns's agreement to clear for Baron is simply inexplicable.

152. Bear Stearns clearly was aware of the existence of problems and fraudulent

activities at Baron at the time that Bear Steams resumed its relationship with Baron. As a result

of having been Baron ' s clearing broker in 1992 and the start of 1993, Bear Stearns had first hand

experience and knowledge of the inner workings at Baron. Bear Stearns also must have known

about the 1993 SEC investigation and the overwhelming appearance of fraud in connection with

HPI, facts which were publicized in Barron's Magazine. Bear Steams was probably contacted

directly by the SEC to provide information in connection with its HPI investigation , and by the -

NASD to provide information in connection with its Cypros investigation. Bear Stearns also had

access to confidential non-public information concerning the financial condition, operations, and

activities of Baron which must have provided overwhelming evidence of fraud and market

manipulation by Baron. Bear Stearns may also have contacted Hanifen and learned of its reasons

for canceling Baron as a clearing customer.

153. Further, Baron 's most recent financial statements (for its fiscal year ending 1994)

contained the auditor's opinion, that based upon numerous customer arbitrations and other

complaints brought by Baron's customers and the SEC and NASD proceedings, all arising from.

r:\Docu ncnis\ I3car Stcams\J ' Icadings\Complaint I-28-99.%^Td -52 2/1/99 3 :05 I'M

among other things, allegedly improper sales activities by Baron, there was "substantial doubt"

as to Baron's ability to continue as a going concern_ Baron's financial condition was so

precarious That Baron was unable even to quality for an Exxon gasoline credit card- Baron's

application was rejected by Exxon because Dun & Bradstreet reported that Baron had a negative

net worth, a low composite credit appraisal, and a low paydex rating (which measured how many

bills were paid late)-

154- In addition, the 1995 Central Registration Depository ("CRD") report with respect

to Baron's President, Bressman, Okin and other Baron brokers, all of which could be readily

obtained through computers at Bear Stearns offices, and on information and belief were obtained

and reviewed by Bear Steams, disclosed a breathtaking and growing number of complaints by

customers relating to their sales activities, as well as a New York Stock Exchange investigation

under Rule 477 against Hirsch and Rentzler for unauthorized trading and threatening customers.

155. To add icing to the cake, just before Bear Stearns decided to renew its clearing

relationship with Baron, on or about July 17, 1995, in a widely publicized settlement, the NASD

imposed sanctions on Baron based on, among other things, significant unauthorized trading in

Cypros. Baron, Bressman and Goldman were ordered to pay fines and make restitution of more

than $1.5 million. Bressman was ordered suspended for one week from association with a

member firm and was required to become re-qualified as a securities principal- Goldman and

another employee, Burton Blank, respectively Baron's Chief Financial Officer and Chief

Operating Officer, were suspended for 60 days each. In short, the entire senior management of

F^\llocumcros\I3e rcicams\Pleadings\Complaini 1-39-99.avpd -5 3- 2/1/90 3:05 P?7

Baron had been accused of fraud by their primary regulator, the NASD, perpetrated while Baron

was clearin' through Bear Stearns. Rather than denying the charges (which were undeniable)

Baron had aerecd to a huge fine to settle.

(ii) Bear Stearns's Strong Support Lulls

Investors into Further Business with Baron

156. Yet even given the seriousness of those events, not only did Bear Stearns agree to

clear for Baron, it went to great lengths to show Baron's customers how strongly Bear Stearns

supported Baron_ Bear Steams approved a 1995 "welcome letter" from Baron, which cited Bear

Stearns's massive capital reserves and "S5 million insurance protection" for customer accounts,

pledging that the link between the two firms should leave clients "confident that this relationship

will provide you with a deep feeling of security." Baron was able to use this letter to convince its

clients of its prestige and solvency, and it blamed prior unauthorized trades, cancellations and

other problems on Hanifen and Adler Coleman_ Bear Stearns's strong support played an

important role in convincing plaintiffs and others to continue to invest with Baron after July

1995.

157. Okin repeatedly used the Bear Steams name and reputation to bolster the

reputation of Baron, telling Fezzani that Bear Stearns provided the stability and backup that the

smaller clearing houses like Adler Coleman and Hanifen could not provide. Okin stated that

Baron had a very close relationship with Bear Steams and its chairman . In Jul), 1995, Fezzani

wrote to Baron directing it not to execute any trades unless it had prior written authorization.

r:\Documcnts\Bear SicamsU'Icadings\Complaint I ?S-99 wnd -54 2/1/99 3:05 PM

Based on that letter and the promised role of Bear Stearns, Fezzani believed he was assured his

account would be properly handled-

158. When Baron moved its trading business to Bear Stearns, Okin assured Burgess

that the move to Bear Stearns was " great for Baron" and its customers . During his involvement

with Baron , Burgess and Batliner relied on the names they saw the most, that of Bear Stearns- the

only name with which they were familiar-

(iii) Baron Steps up its Fraud with Bear Stearns's Help

159. While we do not know what consideration was paid to Bear Stearns , we do know

at least part of what the Wolfsons Defendants received. According to court papers filed by

Baron's SIPC trustee, defendant Aaron Wolfson received 30,000 warrants in the PaperClip

bridge financing, as did Defendants Abraham and Arielle Wolfson. Defendant Chana Sasha

Foundation received 10,000 Paper-Clip bridge warrants. In October 1995, the Wolfson

Defendants sold out their Baron stocks through accounts at the Bear Stearns Boston branch

realizing profits totaling in excess of $1,000,000. All of those sales took place during the last

year of Baron's existence. On information and belief, some or all of those profits were a "pay

off" for helping secure Bear Stearns as a clearing firm.

160. On information and belief, and based upon court papers and admissions by

Baron's SIPC trustee, despite the enormous regulatory and financial pressure Baron was under

during 1995, it continuously siphoned money off to its other co-conspirators-

r:\Do umcnt-,\Dca Stcams\111 adings\Complaint I-75-99-pd -55- 311/99 3:05 I'M

161. In January to April 1995, defendants Farkash and Banque Audi received payments

totaling $695,732- 53, from Baron . These payments , designated "settlement payments ," were in

fact made in outer to siphon profits from Baron and were made with actual intent to hinder, delay

and defraud Baron's customers and creditors. Those transfers were made at a time when Baron

had insufficient funds to meet its obligations, including its obligations to defrauded purchasers -

such as plaintiffs-

162 In the same period, defendants Farkash and Banque Audi also realized profits

from trading in the Manipulated Securities in accounts held in their names, or over which they

had a beneficial interest, at broker-dealers other than Baron.

163. On information and belief, Baron made a $500,000 wire transfer in June 1995 to

Stokes via Robert Fleming & Co.

164. On information the Dweck Defendants, the Wolfson Defendants, and the Shabliq

Defendants and others also profited as favored customers in the sale of Manipulated Securities

either at Baron or at other broker-dealers, including for example, Fahnestock and Duke & Co.

The Wolfson Defendants may also have traded in this period through accounts maintained by

them in the Bear Steams Boston branch office.

165. In or about the third week of July 1995, Bear Steams began accepting transfers

and new account applications for Baron customers and again performing clearing services for

Baron. If Bear Stearns initially had any doubt about Baron's corrupt practices, any such doubts

would have been quickly shattered. On information and belief, when its employees and agents

P\DocumentsUI3earStcamsU'Ieadings\Complaint I-29-99.wpd -56- 2/1/99 3:051'M

reviewed Baron's incoming accounts (as Bear Stearns was required to do by regulations and its

internal policies), Bear Steams's representatives found that many Baron accounts were holding

unpaid securities in violation of Regulation 1("Reg. T") and other margin rules.

166. Moreover, immediately upon commencing trading through Bear Stearns. Baron

was in another serious crisis . The huge quantities of previously frozen stock held by Adler

Coleman started to be released by Adler Coleman's SIPC trustee. Many customers who were

victimized by unauthorized trading were talked into ratifying the purchases. Since Baron's

interim manipulation had raised the prices of the Manipulated Securities, customers were faced

with disavowing the purchase and a possible legal fight, or affirming the trades and getting their

money back or even a profit. Once those customers got their shares back, they started to demand

sales. For example, when Adler Coleman collapsed, Baron forced Fezzani to accept

unauthorized purchases in Cypros which he later transferred to an account at Merrill Lynch and

sold. Adler Coleman's insolvency had also frozen a portion of Baron's capital, therefore further

hurting its financial position. Baron was back into panic mode, and its illegal activities were

quickly increased.

167. In the summer of 1995, as part of Baron's efforts to prop up the Baron stocks,

Okin induced Bailey to buy 168,000 shares of Cypros at an aggregate price of $1,369,020. Okin

induced Bailey to purchase that stock by misrepresenting to Bailey in telephone conversations

that Cypros was going to release news of important contracts in the near future and guaranteed

P\Documcnts\Bcar Stearns\Plcadings \Cnmplaint 1-25-99.%Yo -57- 2 1099 3-05 P11

that the stock's price would rise to more than $9 per share. Okin had no basis to make those

statements and knew them to be false.

168. During August 1995, there was an on-site examination of Baron by NASD

District 8 from August 7 through August 25, 1995. In the midst of the examination, on or about

August 18, 1995, Baron had a capital deficiency of approximately $1 ,000,000 and could not

make markets or conduct a brokerage business until its capital deficiency was cured. Once again

it was "off the box."

169. On September 1, 1995, Baron sent the NASD and Bear Stearns a net capital pro

forma reflecting a new capital infusion . The NASD in turn informed Baron and Bear Stearns

that Baron ' s net capital deficiency, even after the infusion of new funds, was still $437,185.

170. Once Baron put out that fire, just before the Labor Day weekend, Baron was

advised that certain funds then held at Adler Coleman could not be counted for net capital -

purposes and Baron had to raise an additional $1.5 million of capital over the weekend. Baron

engaged in frantic fund raising over the weekend. Okin called Cung and by promising favorable

treatment on future IPOs, and by making fraudulent statements regarding Baron's bright future,

convinced Cung to invest $250,000 in Baron. Okin and others raised the additional needed

capital and another death knell crisis was averted- Because it took a few days to have the

committed funds delivered, Baron was "off the box" from September 5 to September 7. On

information and belief, Bear Steams was aware of all the above facts.

' \Doc,unenu\Bcar StcamsU'leadines\Cumplainl I-2£-99 m7x1 -s8- 211199 3:05 1'\1

171. As a result of Bear Steams's monitoring of Baron customer transactions. Bear

Stearns learned that Baron engaged in an extraordinary number of liquidations (i.e., the use of

securities a customer already owns to pay for additional securities), sell-outs (i_e when a

customer refuses to pay for a transaction and the security is sold), cancellations, "DK" or "Don't

Know" objections, and other evidence of unauthorized transactions purportedly made on behalf

of Baron customers. The large number of problem transactions plainly signaled to Bear Stearns

that Baron was engaged in massive unauthorized trading. Bear Stearns knew that the

unauthorized trades meant that Baron was in trouble -- it could not get sufficient investment to

create the needed demand for its stocks and therefore had to do so artificially- Bear Stearns also

clearly knew about Baron ' s continuing capital problems . On information and belief, Bear

Stearns monitored Baron's trade debit daily, as well as its inventory of house stocks, and clearly

saw how virtually-every day Baron "sold" what it needed to "sell" to keep within the trade date

debit and inventory limits. It also clearly knew that many of the sales were phoney- Further, on

information and belief Bear Stearns saw that Baron was actually earning two or three times the

commissions which were being reported to their customers. Bear Steams's confirmations that it

sent to Baron customers showed the lower rate, while its internally generated reports to Baron

showed the true higher rate-

172. On information and belief, also during this period and later, Bear Stearns

repeatedly called Baron at the end of the trading day to inform Baron that its inventory was too

high and out of compliance . That failure had to be corrected by the close of business or reported

P:\llocumcrosU3carStcamsU ' lcadings\Complaim I-28-99.wpd -59- ?/I/99 3h05 PM

to the regulators. Often after the market closed , Baron would find "purchasers" for the needed

amounts, sometimes using order tickets time stamped during the day, but not reported until after

the call (Baron's traders kept an inventory of such tickets to be filled out when needed) or b-,

plain sales with customers who would "DK" the trade the next day or would send complaint

letters to Baron or Bear Stearns . On a number of occasions , Baron ' s trader , Charles Plaia, would

book a trade to another brokerage firm, bring Baron into compliance, then the "purchasing"

broker would "DK" the trade the very next morning. On others occasions, Charles Plaia would

book a "sale," with no real purchaser at all, what Charles Plaia has referred to in sworn testimony

as a "space shot."

173. Bear Stearns's supervisory personnel must have seen that Baron repeatedly,

almost daily. was in actual violation of its inventory limits and avoided reporting that fact by

allowing illegal fictitious end of day trades. Each trade that was D_K.'d or every "space shot"

without an actual buyer must have shown up on computer reports received by Bear Stearns the

next morning. Bear Stearns should have reported the fraud, but instead Bear Stearns treated the

known fictitious trades as real. Soon thereafter, several complaints by large customers would

bring the situation directly to Bear Stearns 's door.

174. One of the largest and most blatantly illegal customer problems arose out of one

single, large trade in Mammo. During August and early September, the Hirsch Stocks became a

huge problem. Mammo, in particular, was dropping fast, and Baron had to focus its fraudulent

energies on propping up Mammo and the other Hirsch Stocks. The Hirsch Group had succeeded

r VDocumcnlstl3car SteamsU'teatiingzVComplain^ 1-28-99..7>d -60 7/1 (99 3:05 I'M

in driving the prices of its securities to absurdly high levels; those prices simply could not be

maintained- investors were insisting on getting out, and new investors could not be found in

sufficient quantity to halt the slide.

175. There was no real market for any of those stocks outside of Baron and its

affiliated manipulators. Mammo fell from $15 to $9, or 40%, in a short period. Baron brokers

were instructed to sell as much Mammo as they could, as quickly as they could to bring the price

up- As part of Baron's manipulation 300,000 to 400,000 shares of Mammo were " sold," but

there were no buyers. The shares were kept "floating" by various means, including fictitious

sales, extensions, or cancellations and rebillings between different customer accounts, all without

customer authority. In this period Fezzani lost nearly $30,000, in two separate unauthorized

trades of 2,000 shares each.

176. On or about August 22, 1995, Dr. Blank authorized the purchase of 500 shares of

Mammo to be paid for by the sales of Symbollon shares that were, at that time, in her account.

Because Symbollon also needed to be propped up, Bernstein failed to execute the sale of the

Symbollon shares, but proceeded with the purchase of Mammo shares. Dr. Blank only became

aware of the unauthorized purchase when she received a Reg. T notice from Bear Stearns

demanding money to fund that purchase. Dr. Blank refused to fund the account with the amount

necessary to cover the unauthorized purchase. Instead of reversing the unauthorized Mammo

purchase, on or about August 29, 1995, Baron caused the Mammo shares to be sold at a loss of

$2.45750.

r:\Documents\I3earSteanis\J'Ieadfngs\Complaim 1-2S-99. s d -61- 21/1199 3 :05 PM

177_ Shortly thereafter, on or about September 7. 1995. Baron, in an attempt to cover

the deficit in Dr. Blank's account caused by the unauthorized purchase and sale of Mammo

shares, caused an further unauthorized sale of 3,815 shares of Laser Video then held in the

account to cover the remaining deficit. The unauthorized sale created a further loss of

510,361.2.5.

178. When Dr. Blank became aware of this trade she attempted to contact Bernstein,

Bressman , Hirsch, Rentzler, and others at Baron, but to no avail _ All of Dr. Blank's calls to

Baron went unanswered. No one was ever available to take her calls, and no one ever returned

her calls.

179. At that point, Dr. Blank repeatedly attempted to contact Bear Stearns, but no one

would give her any information. Time after time, Bear Steams would tell her to contact someone

else either inside or outside Bear Steams, only then to have that person or department refer her -T"

again elsewhere. Dr. Blank complained that she did not consistently receive the account

statements and confirmation slips as required, often finding out about unauthorized transactions

only after receiving demands for funds to cover the transactions- Those complaints were

ignored.

180. Similarly, in the fall of 1995, after frustrating attempts to address his concerns

with Baron, Burgess wrote a letter to Bear Steams inquiring about his accounts with Baron and

detailing the difficulties he was experiencing with Baron. Burgess received no reply.

F:\DocumcntsakarStcans\P1cadings\Co,,plaint 1-28-99_wpd -62- 2/1/99 3:05 I'M

181. Mammo was not the only problem. Innovir was running out of money and needed

more cash, but the chances of raising money and saving the company were virtually non-existent

if the stock collapsed. On information and belief, in August 1995, Baron again started makinh-1

massive unauthorized purchases, parking stock and other desperate attempts at manipulation.

Bressman agreed with Baron broker Murry Shapira to park $1,000,000 of lnnovir shares in the

account of Shapira's client Manar Kees with a guaranteed profit after a few days. But when the

time came to take Manar Kees out of the deal, Bressman reneged. Shapira objected strongly and

repeatedly, and as a result, was forced to leave Baron because lie was not a "team player."

Shortly thereafter, the Hirsch Group was asked to leave Baron. The pressure of trying to keep

propping up the Hirsch Group stocks was simply too much. When Baron stopped supporting the

Hirsch Group stocks, there were a few loose ends to tie up, in particular, there was the 300,000 to

400,000 "floating" shares of Mammo that needed to be placed somewhere.

182. However, despite the enormous daily pressure on Baron, in August and

September 1995 Baron and its co-conspirators decided they should cash out of their profits while

the market was still high. On information and belief, Baron wired $530,000 to Isaac Dweck in

two separate transfers in August 1995.

183. On information and belief, starting in August 1995, Raes, individually or

alternatively as nominee for Farkash, also realized profits from trading in Baron Stocks in

accounts held in their names, or in which they had beneficial interests , at broker-dealers other

than Baron.

F:\Documcnts\13car SteamsJ'Icadings\Comptaim i-2-99'd -63- 2/1/99 3 :05 PM

184. In a series of transactions on August I and September 1, the Farkash Defendants

sold 250,000 shares of Cypros and 100,000 Innovir Class B warrants for a total of nearly

53,000,000

185 On September 1 I , 1995, Baron was still trying to find a purchaser for the

300,000-400,000 shares of Mammo via serial cancellations and re-bills. After running out of

other alternatives, in desperation Okin made an unauthorized purchase of 250,000 shares of

Mammo at an aggregate price ofjust over $2.3 million in the account of its customer Diaward

Steel Works Limited ("Diaward"), a Hong Kong steel manufacturing company. When Diaward

received a confirmation of the fraudulent purchase, it immediately complained and asked that the

transaction be rescinded.

186. To lure Diaward into accepting the trade , in a letter dated September 12, 1995.

Okin fraudulently told Diaward that the security already had been re-sold in several transactions

at a profit of $250,000, and followed up with forged confirmation dated September 12, 1995,

purporting to have been issued by Bear Stearns, showing the sale and the profit. Okin had

whited out the word "purchase" on his copies of the purchase confirmations and typed in the

word "sale" and made similar whiteout changes in the prices to "show" a profitable sale. Okin

asked that Diaward send Baron $2.3 million, and promised that he would return $2.55 million.

In reality, Okin was buying time, desperately trying to find something to do with the Mammo

stock and hoping to use the $2.3 million to gain a few days to raise more funds.

I\Docincnts \Bcar Steams \ I'Icadings^Complaint 1-28-99 'pd -64- 211199 ?:OS PM

187. On information and belief, Diaward Steel and or the family of its owners, the Hsu

family, had been substantial and long term customers of Bear Stearns through its Hong Kong

office- Diaward took the confirmations to their Bear Stearns broker who identified the

confirmations as forgeries, and further identified the alleged trading prices on the "sales" as

above the amount of any sale made in the period . The confirmation also showed that the

forgeries were made on the "A.E_ copy," of each confirmation which was the copy of the

confirmation given to the Account Executive, Okin, irrefutable proof that the forgery was made

by Okin or someone else at Baron.

188. On information and belief, during the week of September 18, Okin traveled to

Hong Kong to try to talk Diaward into accepting the unauthorized trade . On September 20,

1995, the Bear Stearns New York office mailed a Reg. "F Notification to Diaward, stating that it

would liquidate the 250,000 shares of Mammo if they were not paid for by September 25.

189. The prospect of liquidation pursuant to the Reg. I 'Notification did not remove

Bear Stearns's concern. The equity in the Diaward account was chiefly the Mammo stock, which

was still dropping rapidly, and other Baron stocks of questionable value. Liquidation might not

make Bear Stearns whole. Apparently Harriton, or one of his senior employees, asked Bressman

where the money was to pay for the securities. Bressman informed him that it looked as if the

customer would refuse to pay. Bressman tried to make it sound as if the customer had reneged

on an order it had placed-

1 :V)ocumcnisU3car StearnsV'Icadings\Complaint I-2S-99.wpd -65- 211 /99 3 05 PM

190. Without waiting to hear from the customer, or even giving Diaward any notice

they were acting, Bear Steams ordered a sellout and liquidated the Manuno stock on or about

Friday, September 22, to avoid a further decline which might expose Bear Stearns to a risk of

loss.

191. On information and belief, Harriton was personally aware of or directly

participated in the discussions with Bressman_ Harriton became angry with Bressmnan, not

because of the fraud Harriton knew or strongly suspected was being perpetrated on the customer,

but as a result of the magnitude of the trade and the lack of assets in the account, the trade had

exposed Baron to a loss it could not cover, and therefore, exposed Bear Stearns to a potential

loss. Harriton informed Bressman that if he had another large sell-out like that, Bear Steams

would drop Baron. Apparently smaller frauds were with acceptable limits.

192. Diaward was unaware of these events- The Reg. T Notice was received by

Diaward on September 25. Unaware that, contrary to the Notice, Bear Stearns had already

liquidated the trade, Diaward immediately wrote back by fax and Federal Express, disavowed the

trade, described the communications with the Bear Stearns Hong Kong office, and enclosed both

Okin's letter which claimed to have sold the stock and a letter dated September 18, 1995 from

Bressman to Diaward promising to repay over $2.55 million upon receipt of the $2. 3 million

purchase price, thus clearly implicating Bressman in the fraud. The letter to Bear Stearns urged

it to investigate Baron ' s conduct . Because of the 12-hour time difference between New York

and I long Kong, the Diaward letter would have been received by Bear Stearns before the

F \DocumcntsUBcer Stcams\J'icadirrgs\Complaim 123-99 -7>d -66 2l1 l99 1 :O ru

opening of the business day on September 25th. On information and belief, Harriton was

personally informed of this letter on or about the day it was received.

193. On information and belief, despite the overwhelming evidence of raild, Bear

Stearns did nothing to investigate and never once had anyone talk to Min or Bressman about

their roles in the fraud. Harriton had little or no doubt that Diaward was telling the truth and that

the transaction had been unauthorized, but Harriton also knew that Baron simply did not have the

capital to allow the purchase to be reversed, and if Baron went out of business, Bear Stearns

would almost certainly lose millions . So Bear Stearns pretended no fraud had occurred-

194. On information and belief, at about the same time as the fraud against Diaward,

Baron client Jose Mugrabi, trading either in his own account or in an account under the name of

Jombihis, Ltd., was subjected to an unauthorized trade of over 100,000 Innovir shares arranged

by Bressman while Okin was in Hong Kong meeting with Diaward. When Mugrabi refused to

accept the trade, Okin tried to lull him into accepting it by promising to pay for the Innovir stock

by using profits Okin claimed would immediately occur when PaperClip went public in the next

few days and Okin was able to sell that stock. Okin assured Jose Mugrabi that there was no risk.

and he would not have to put any more money into the account.

(iv) Bear Stearns Agrees to the Fraudulent PaperClip " Bait and Switch"

195_ At the end of in September 1995, Baron was serving as an underwriter in

connection with an initial public offering of PaperClip. The terms of the IPO provided that it

would not go forward unless at least $7,981,500 (the minimum offering amount) was raised, and

1':\Documcros \ 13car Stcams \I'Icadings\Complaint 1-28-99 "i -67- 2/1199 3:435 I'M

further provided that there would be a maximum offering amount of $9,178,725. Prospective

buyers of PaperClip securities, referred to as subscribers, were to send their money to an escrow

account at Citibank, which was to return the money to them, pro rata, for any shares the

subscribers sought to buy, but were not allocated.

196. Baron and others agreed that they would oversell PaperClip securities - that is,

they would obtain subscriptions far in excess of the maximum offering amount - and use the

excess proceeds to support the Manipulated Securities . By September 22, 1995, the maximum

amount of money had been raised for the PaperClip IPO, but Baron fraudulently continued to

solicit new investments with the false promise of participation in the IPO_ By late September

1995, approximately $20 million had been raised in the PaperClip II>0, more than twice the

maximum offering amount.

197. On information and belief, Harriton had been told by Bressman that Baron would

straighten out its problems with Bear Stearns once the PaperClip IPO was completed and the

oversubscribed escrow funds were released, an event which was about to occur- In repeated

conversations with Harriton, Bressman told him of the overselling of Paper-Clip and promised

that once the PaperClip deal was closed, he would use the excess $10 million he had raised to

clear up the trade date debit.

198. Bressman's promise to Ham-ton was, in essence, a bald admission of an intent to

deceive investors to benefit Baron and Bear Stearns. What Bressman was admitting, and what

Harriton must have understood, was that Bressman would deceive customers into sending in cash

F:UJocamcnts\$ carS(cams\1 ' Icadines\Cemplaint I-28-99.wpd -68- 2/1/99 302I'D1

in the mistaken belief that the cash would be used to buy the PaperClip IPO. Then, once

Bressman had control of the cash, through further deception, Bressman would either use the cash

for unauthorized trades or fraudulently convince customers to purchase stocks which Baron had

to sell either to cover prior unauthorized trades or to reduce excessive inventory. In effect,

Bressman was telling Harriton that he was using the Paper-Clip IPO as the bait in a fraudulent

"bait and switch" scheme.

199. Since the high trade date debit, the high inventory of Baron stocks, and the

existence of numerous unauthorized trades which might ultimately, and properly, be reversed

created exposure for Bear Stearns as the clearing broker, an exposure both Harriton and Bear

Stearns wanted to reduce, on information and belief, Bressrnan's offer to use the PaperClip "bait

and switch" fraud to benefit Bear Steams, as well as Baron, was readily accepted by Harriton and

Bear Stearns_ Harriton thought that if Bear Steams went along with the frauds against the _^-

PaperClip subscribers Diaward, and others, Baron might be able to dig itself out enough to cover

Bear Stearns's losses. On information and belief, Harriton agreed that Bear Stearns would go

along with the plan.

200. To maximize the effect of the "bait and switch," Bressman directed Baron brokers

to accept only "new money" for the PaperClip IPO -- customers were forbidden to sell other

securities at Baron to raise funds for the IPO_

201. Despite the over-subscription of Paper-Clip, Baron still made sure to take care of

its "insiders." For example, Basil Shiblaq received the largest allocation of any Baron customer

F1A)mumenls\l3earSteansTleadings\Complaint I-28-99 wrpd -69- 2/1/99 3:175 I'M

in the PaperClip IPO - 89,000 shares of common stock, and the same number of A Warrants. In

fact, Basil Shiblaq was the only Baron customer to receive a larger allocation than that for which

he had subscribed-'

202 On information and belief, because Harriton realized the risks of this approach

and knew Baron was essentially insolvent, particularly in light of the liability for the fraud

Harriton knew had been committed against Diaward, Harriton sought extra protection for Bear

Stearns and insisted on a guarantee of Baron's liabilities to Bear Stearns as a price for giving

Baron time to pull off the PaperClip deal. On September 27, Bressman delivered his personal

guarantee to Bear Stearns_

203. On October 3 , 1995, Goldman , Baron ' s Chief Financial Officer , sent a letter to

Citibank falsely stating that customer instructions were attached and directing the transfer of

$1,903,320 to Bear Stearns- A follow-up letter was sent on October 4, and the funds were

transferred by October 6-

204. On October 9, 199 5 , Goldman sent another letter directing the transfer of

$241,690 from the Citibank escrow account to Bear Stearns , falsely stating that he had obtained

permission and authority from the customers to do so.

205- Baron used the money transferred from the Citibank escrow account to buy stocks

from the Baron inventory and to cover customer debits. Bressman directed Baron to use excess

Before the PaperClip IPO, defendant Basil Shiblaq subscribed for 40,000

PaperClip bridge warrants (18,000 exercised June 7, 1996). In earlier years, he

had received, 50,000 Voxel bridge warrants (exercised May 5, 1995), and 55,468

Innovir Bridge Warrants (exercised 1994).

I':0 cumcntsU3car Stcarns 'd'Icadings\Complaint I-2 -99.""Td -70- 2/1/99 3:05 I'M

cash in their customer accounts to support Baron stocks . The majority, if not all of these

transactions, benefitted Bear Steams by reducing the risk of loss to Bear Stearns.

206. Even given the massive amounts of other people's money that Baron had

fraudulently transferred from the Citibank escrow account for its own use, on October 11, 1995,

Baron fell below net capital , and Bear Steams gave Baron notice that it would. stop clearing for

Baron in 30 days. Given Baron's regulatory record, financial position and history of unpaid

trades, it is hard to believe that Baron could have been able to secure a new clearing broker, and

thus, would have been permanently out of business.

207. On October 13, 1995, Baron gave the NASD and Bear Stearns formal notice of its

capital deficiency of $61,000 as of October 11, 1995. Also on October 13, 1995, the NASD

issued a formal complaint alleging that Baron had failed to provide information requested during

the on-site examinations-

(v) Bear Stearns Assumes Control over Baron's Trading

208. On information and belief, at about this time or shortly thereafter, Bear Stearns

assumed control of all trading activities at Baron, and sent several Bear Stearns employees to

Baron to enforce that control . Every trade ticket was required to be checked and approved by a

Bear Stearns official. Bear Steams had one single guiding principal: if the trade benefitted Bear

Stearns, it would be allowed. In effect, and without notice to customers, all Baron accounts were

put on a cash only basis for purchases, and as to sales, no sales were allowed to be executed

unless the purchaser put up cash. If that did not occur, rather than seeking the best execution of

F:\Documcnts \ncar Stcams\I'Icadines\CompIaint I-28-99.wrpd -71- 211"9 3:05 I'M

the sale, as the laws and regulations require, Bear Steams would simply cancel the sale. Indeed,

in several instances, customers with completed and confirmed sales had those sales subsequently

canceled because Bear Stearns believed that to allow the sale to be effective would increase Bear

Stearns's exposure.

209. The Bear Stearns employees who were present at Baron 's offices included, among

others, Dan Mulholland (formerly an Adler Coleman margin clerk responsible for the Baron

account), Alan Finkelstein , and Keith Brigsley . Other Bear Stearns employees, including Darryl

Wallace, continuously monitored Baron's operations, among other things, receiving continuation

tickets on a daily basis by facsimile.

210. Bear Steams turned a blind eye to such acts because it knew that Baron's selling

method involved massive, timed , unauthorized purchases and after-the-fact attempts to get

customers to ratify those trades based on the very appearance of trading interest which Baron's

illegal conduct had created . Bear Steams was willing to go along with that conduct, but only so

long as it did not involve unnecessary exposure to Bear Stearns , and to that end , it effectively

took control of Baron's day to day operations and participated in Baron's continuing efforts to

manipulate the markets for the Baron stocks. Bear Stearns kept Baron in business for one reason,

to protect itself from debts it knew Baron could not repay.

211. Evidence of Baron's fraud kept pouring in. On information and belief, Jose

Mugrabi, who knew the chairman of Bear Stearns, Alan C. Greenberg ("Greenberg") personally,

complained to Greenberg when his PaperClip stock was not sold, but Bear Stearns demanded

F: Documentstl3ear Stearns\Pk dings\Complaint 1-28-99.'nA -72- 2/11199 3;0' 1'M

payment for an unauthorized purchase of Innovir shares. Greenberg went to Harriton with Jose

Mugrabi_ His story of unauthorized trading fit the same mold Bear Stearns was seeing time after

time, as in the case of Diaward. Yet Harriton pretended it was an isolated event, and liquidated

the Jose Mugrabi account. For its own reasons, Bear Stearns wanted Baron to collect as much

new money as it could, through whatever means were necessary. Jose Mugrabi's account had

lost millions in value.

212_ Despite Bear Steams's efforts, as of October 18, 1995, Baron had unpaid general

trade liabilities of approximately $1,200,000. On or about October 19, 1995, Diaward Steel

commenced a Federal suit against Baron, Okin and Bressman, laying out in detail the fraud

perpetrated on them and seeking $1 million in compensatory and $5 million in punitive damages.

Ultimately, Bear Stearns forced Baron to settle the dispute with Diaward by agreeing to full

payment. Bear Stearns guaranteed a part of the payment, but made Baron deposit the full amount

in a special account at Bear Stearns_ Somehow however, Diaward was never paid in full. It

appears that Bear Stearns retained part of the escrow fund for itself.

213. On October 20, 1995, Baron ' s registration in South Carolina was terminated "at

the request of the company-" On information and belief, the reason for the "request" was to

avoid potential termination of its registration in the state.

214_ On October 23, 1995, Baron submitted a net capital pro forma to Bear Stearns and

the NASD. The October 23, 1995 net capital pro forma showed that Baron had a net capital

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deficiency of approximately $5,000,000. Baron's net capital deficiency had increased eight-fold

since the October 13, 1995 notice, a mere 10 days earlier.

215. That extraordinary increase in Baron ' s capital deficiency was the result of Bear

Stearns allowing Baron to continue trading both with negative capital and without paying for

trades. During the month of October 1995 alone, Baron lost approximately $5,500,000; and

much of that loss resulted from unauthorized and unpaid for trades. Approximately $2,500,000

of those losses were absorbed by Bear Stearns.

(vi) In Return for $3 Million Bear Stearns Agrees To

Keep Clearing for Baron and the Fraud Continues

216_ On information and belief, Bear Stearns decided to allow Baron to continue

operations hoping that Baron's $2,500,000 debt to Bear Stearns could be paid off by public

customers , such as plaintiffs , who Bear Stearns knew Baron was defrauding. Accordingly, on

October 23, 1995, Bear Stearns notified Baron that it would rescind the October 1 1, 1995,

termination notice upon receipt of $3,000,000, of which $1,100,000 would be used to pay off the

unsecured portion of the $2,500 ,000 unpaid-for trades debt and the remainder of which would be

applied to an increased clearing deposit of $2,000,000. Bear Stearns agreed to continue to clear

for Baron for a period if Baron met its financial terms. In effect, Bear Stearns agreed to

participate with Baron in committing continued fraud if Bear Stearns was paid.

217. In order to raise the capital it needed to pay Bear Stearns, Baron went to its

investors and sought money for itself. In raising those funds it turned, in some cases- to its co-

participants, but in other cases, it fraudulently obtained investments from innocent investors such

r:\Doauncnts \[3car Stearns\Plc:adings \Com plaint 1 -2 -99.^Td -74- 2!1/99 3 CS PM

as some of the plaintiffs, including $250,000 from plaintiff Bailey, and $500,000 from plaintiff

Cung who were defrauded into believing their investment would be safe and that they would

avoid losses which would occur if Baron failed- Once back in business, Baron continued its

fraudulent activities including, in particular, massive frauds committed on the plaintiffs. Baron

made the promised payments; and Bear Stearns continued to clear for Baron-and participate in its

frauds.

218. Allowing Baron to continue to manipulate the Manipulated Securities avoided, or

at least postponed, Baron's financial collapse, which would have imposed significant financial

liability on Bear Stearns. In the criminal proceeding involving Baron, the Supreme Court of

New York County captioned People of the State of New York v. John McAndris, Baron

employees described, in sworn testimony, the result of defendants' actions: Baron was granted an

"extra life" and a "stay of execution."

219_ After Baron temporarily went out of business in the fall of 1995, Okin reassured

Burgess, saying, in substance, that Bear Stearns's continued relationship with Baron was a sign

of stability and confidence. However, after repeated attempts to contact Okin, a task further

complicated by Baron's financial difficulties and Okin's refusal to take telephone calls, and after

fruitless discussions with Baron's compliance officers, Batliner transferred the Bootlesville Trust

account to Lehman Brothers in late 1995. After the shares had been transferred, Okin quickly

contacted Batliner and promised to recover the losses in the Bootlesville Account. Okin told

Batliner that Baron's difficulties had been solved and that the firm was under new management.

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Okin convinced Batliner that, if he sold the shares then at Lehman Brothers, Okin would be able

to make up any losses.

220_ Consequently, Batliner directed the sale of the Voxel and Symbollon holdings

then at Lehman Brothers at a loss of $109,000. Batliner then requested that the balance of the

account be returned to Baron_ Once the funds had been returned, Okin proceeded to induce

Batliner to make purchases and sales in the Bootlesville Account. Innovir shares were bought

and sold for a loss of $14,500. Innovir A warrants were bought and sold for a loss of $25,475-

I nnovir B warrants were bought and sold for a loss of $22,770.

221. On or about November 24, 1995, Dr. Blank's account was transferred from Baron

to First United Equities, Inc., ("First United") another boiler room, also cleared by Bear Stearns.

and where the Hirsch Group went after Baron . The transfer of Dr_ Blank ' s account was reflected

on her account statement having been done pursuant to a letter of authorization , or "LOA ." which

is a customer directive to its clearing broker. The LOA was a forgery, not signed by Dr. Blank.

On information and belief, it was not the only such forgery. The Hirsch Group used many

forgeries to move Baron accounts to First United, even moving accounts of Baron customers

who were not Hirsch Group customers- On information and belief, Baron produced to Bear

Stearns letters from those customers that denied their signatures on the LOA' s. Bear Stearns

then moved those accounts back to Baron.

222. On information and belief, Bressman complained to Harriton that First United

was stealing its business through forged LOAs and asked Harriton to tell First United to slop

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stealing its customers. Harrison did, but despite the irrefutable evidence of forgery by former

Baron and present First United brokers, Bear continued to clear for both Baron and First United.

223. In or about the beginning of November 1995, Bear Stearns directed that Baron

employees could no longer execute customer trades directly on Bear Steams's computer system.

Instead, Baron's employees were directed to fax every trade order to Bear Stearns, which in turn

reviewed every such order and, at its discretion, determined whether to execute the trade.

224. Because of capital deficiencies, Baron was again "off the box" and engaged in

only liquidating trades from November 1 through November 7. 1995, and did not trade at all

from November 8 through 21, 1995. Starting November 20, Baron was the subject of another

on-site examination by NASD District 8 . On November 21, 1995 (in the midst of an

examination ), NASD District 8 issued a new complaint charging Baron with new violations for

further failure to provide information to regulators.

225. Nonetheless, the very next day, November 22, Baron was allowed to resume in

business - When it did , for the next several weeks and possibly up to a month, Bear Stearns had

its employees remain on the site, reviewing and approving each and every trade.

226. In the midst of its unrelenting financial troubles, Baron still continued to do its

best to take care of its insiders. In two transfers, on November 16 and 21, it sent $1,000,000 to

Isaac Dweck, at least $750,000 of which came from an escrow account used to met its capital

requirements.

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227. On December 1, 1995, in an effort to deflect regulatory inquiry, Baron falsely

represented to regulators that it no longer made unauthorized transactions and that it had

compliance personnel and procedures in place to prevent recurrence of unauthorized trading In

fact, however, Baron continued its prior unlawful activities and branched out into new unlawful

acts.

228. On December 8, 1995, Baron's parent, the Baron Group, transferred to Isaac

Dweck a warrant to purchase 1,000,000 shares of CSI, and a warrant to purchase 100,000 shares

of lnnovir. The CSI warrant had been issued to Baron in compensation for a CSI private

placement. The Innovir warrant had been given to Baron to assist it in securing capital- lnnovir

knew full well that the price of its stock depended entirely on Baron's continuing its

manipulation efforts.

229. On information and belief, neither the transfer of those warrants from Baron to the

Baron Group nor the transfers from Baron Group to Isaac Dweck were recorded on Baron's

books as transfers for value, nor were they reported in any Baron or Baron Group tax return.

230. In or about December 1995, Okin persuaded Burgess to purchase 75,000 Innovir

shares for the Patrick Burgess Account. In several sales over the following few weeks, the shares

were sold at an aggregate loss of $10,910-

231- On December 19, 1995, the State of Alabama issued an order to show cause why

Baron's license should not be suspended for failure to report claims and proceedings against its

principals. Baron was out of capital compliance on at least two dates during December 1995.

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and, on information and belief, was out of compliance on many other occasions during the month

of December 1995-

(a) The "Brown Bag" Bribery Deals

232. The business world in which Baron existed, the NASDAQ "micro cap" brokerage

business, was a surprisingly small one . On Wall Street in general , and in the "micro cap"

brokerage business in particular, information about other stocks or brokers, along with rumors,

and even jokes of the day, spread throughout the community like wildfire. Brokers are in

constant contact with each other through telephone, e-mail or otherwise. Traders are constantly

reviewing the bids and purchases of other traders on the NASDAQ Level III machine. On

information and belief, Baron's reputation as a manipulator was well known.

233. Because of its reputation, on information and belief, in or about December 1995,

the Apollo Defendants approached Bressman and Okin with a proposal pursuant to which they ---

would conspire to defraud Baron customers . Upon information and belief, the Apollo

Defendants, through their business vehicle defendant Apollo Equities, had obtained 3,000,000

shares of stock in the Jockey Club, for little or no money. Shares of Jockey Club were then

trading on the open market for pennies per share . The Apollo Defendants proposed that Baron

purchase their Jockey Club shares for prices in excess of $1.00 per share and cause the shares to

be sold to the accounts of Baron's customers . The Apollo Defendants offered to split the

$3,000,000 they would gain through this arrangement equally with Okin, Bressman and certain

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other Baron employees. Bressman and Okin readily agreed to the arrangement. Such secret

payments to a broker to push a stock are known in the trade as "brown bag" deals or "cash deals."

234. Upon information and belief, the scheme was effectuated in accordance with

agreed terms. Bressman and Okin caused the Baron trading desk to offer prices of $1.00 to S 1.50

for Jockey Club shares , acting as a market maker- The Apollo Defendants caused their Jockey

Club shares to be sold to Baron, via its trading desk, at the artificially inflated prices, thereby

realizing a profit of, upon information and belief, $3,000,000. These prices were entirely

unrelated to the true worth of Jockey Club and only offered to "paint the tape" with these sales

(i.e., show artifi cial prices on the stock ticker-tape) so that later purchasers would be defrauded

into believing that that was the true value.

235. Thereafter, Baron caused certain Baron customers to purchase Jockey Club shares

in new accounts they opened with Murphy Marseille, the Apollo Equities ' clearing firm . Those

stocks were then transferred into Baron. The Apollo Defendants delivered "brown bag" cash

payments to Bressman, Okin and other Baron employees totaling $1,500,000. During the period

December through June 1996, Baron customers, including plaintiffs, were defrauded into buying

Jockey Club shares for their accounts at Baron.

236. In December 1995, Bailey was targeted to participate in the Jockey Club fraud.

Bailey was induced to purchase 125,000 shares of stock in Jockey Club by Okin's telephonic

misrepresentations regarding prospects for the company's business and tales of Okin's alleged

but false personal, close relationship with Jockey Club's president.

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237_ Fezzani bought 56 ,000 shares of Jockey Club on December 29, 1995, and lost

$47,625, when it was sold in January.

238. In or about December 1995, Okin persuaded Burgess to purchase a total of

230,000 shares of Jockey Club, Inc., for approximately $345,000 in the Burgess Joint Account_

On or about January 8, 1996, an additional 10,000 Jockey Club shares were purchased.

239. On or about January 16, 1996, 40,000 Jockey Club shares were sold, with an

additional 68,000 shares being sold on or about January 19, 1996. The 132,000 shares remaining

in the joint account, were transferred to the Margaret Burgess Account, where they ultimately

created a huge loss.

240. In February 1996, Okin made an unauthorized purchase of 120,200 shares of

Jockey Club stock in Bailey's personal account . Okin had attempted to persuade Bailey to

purchase those additional shares in Jockey Club, but Bailey had expressly declined to do so. The

purchase of those shares for more than $180,000 was totally unauthorized. Bailey only

discovered the unauthorized trades after his accountants closely scrutinized and investigated the

accounts. Immediately after Bailey discovered the trade, he. called Okin and complained of the

unauthorized transactions. However, Okin had been able to conceal the unauthorized

transactions from Bailey until the value of the stock had plummeted.

241. Bear Steams was on notice of Baron's unauthorized transaction with respect to the

brown bag stocks. Specifically, Bear Stearns, as Baron's clearing agent, generated customer

confirmations and a daily tally of commissions which placed Bear Stearns on notice of Baron's

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fraudulent activities. Bear Stearns, which was closely monitoring Baron's activities, on

information and belief, noticed that Baron, a firm which had struggled and failed to meet its net

capital requirements and had always charged excessive commissions in the past, was not

charging commissions at all for selling shares of the brown bag stocks- For example, Baron did

not charge commissions for the significant number of shares of Jockey Club securities it

purchased on behalf of its clients.

242. Moreover, on information and belief, the fact that Jockey Club was a brown bag

stock was widely rumored among firms like Baron, therefore Harriton and Bear Stearns were

likely to have been aware of Jockey Club' s reputation in the community . Similar corrupt sales

were made of U_S. Bridge, CEIS, and Icis. All of this criminal conduct did not hurt Baron's

relationship with Harrison and Bear Stearns- Harriton celebrated his 6l" birthday with his

girlfriend as guests of Bressman at a Knick's game.

(b) Baron Continues its Manipulation

And Fraud until Forced out of Business

243_ In addition to the "brown bag" deals, Baron continued its fraudulent activities

regarding other Manipulated Securities, including in particular, PaperClip, Voxel, and lnnovir.

From October 1995 to July 1996, when Baron went out of business, Baron succeeded in inflating

the price of PaperClip common stock from a low of $2.00 per share to as much as $1 1 3/8 per

share. The PaperClip A warrants underwent a parallel inflation in price. in the months after

Baron went out of business, the price of PaperClip stock fell below $1 per share. It currently

trades at about 2^ per share-

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244. From November 1995 to July 1996, Baron succeeded in inflating the price of

Voxel common stock from a low of $1'/s per share to a high of $8j/16 per share. Once again, after

Baron collapsed, so did the market for the Voxel shares. Upon information and belief, Voxel is

no longer in business and the stock is virtually worthless.

245. From October 1995 to July 1996, Baron fought to prevent Innovir common stock

from declining to its true value . Baron, through the fraudulent and manipulative tactics described

herein, succeed in inflating the price of the Innovir stock from a low of $2V2 per share to as high

as $4'SJIo before it eventually sank to below $2 per share when Baron went bankrupt in July

1996. After Baron's bankruptcy, the price of Innovir stock remained below $2 per share. Today

the Innovir stock is worth less than 40 per share-

246_ Throughout this period, more and more evidence of Baron's frauds poured in to

Bear Stearns. Baron had ever increasing problems with regulatory authorities, its customers filed - -

complaints and actions in almost unheard of numbers. Baron was on the verge of collapse, saved

only, and repeatedly, by Bear Stearns.

247. According to Baron's audited financial reports for 1995, apparently delivered

during the first quarter of 1995, by December 31, 1995, Baron had a net capital deficiency of

$1,110,675 before its capital requirement of $292,727. In addition, Baron was facing customer

complaints amounting to approximately $80 million. Baron's independent auditors concluded

that there was "substantial doubt as to the ability of the company to continue as a going concern."

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248. Baron has admitted to not being in capital compliance on January 15 and 25,

1996, and was, upon information and belief, in capital deficiency on many other occasions

during January 1996- On January 16, 1996, the Illinois Department of Securities issued a

complaint against Goldman, for excessive mark-ups on trades cleared by Bear Stearns.

249. On or about January 16, 1996, Okin caused an unauthorized purchase of 27,000 -

Innovir shares at a cost of $94,510 in the Patrick Burgess Account. When Burgess refused to

authorize the purchase and refused to provide funds needed to cover the unauthorized purchase,

the shares were sold less than a week later, on January 22, 1996, for $74,240, creating an

aggregate loss of $20,270. Because Burgess refused to further fund the account and refused to in

any way adopt the unauthorized trades, Okin thereafter caused monies to be transferred from the

other Burgess Accounts to cover the losses.

250. On or about January 22, 1996, Okin caused an unauthorized purchase of 20,000 -_"

Innovir A warrants and 56,500 Innovir B warrants. After Burgess refused the purchase, Okin

caused an unauthorized sale of the warrants at an aggregate loss of $63,500-

251. On February 23, 1996, Baron again notified Bear Stearns and the NASD that it

was not in capital compliance on numerous days in January 1996. On February 29, 1996,

Goldman consented with the Illinois Department of Securities to a fine and 60 day suspension.

252. During April 1996, Baron and Bressman were fined and censured for failure to

provide infonnation to the NASD. Also, in April 1996, Baron reported to Bear Stearns and the

NASD that it was not in capital compliance as of December 31, 1995.

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253, Baron once again began to experience financial difficulties and it became

impossible for Burgess to contact Okin. Although Okin had strict instructions to sell the Burgess

securities if adverse factors or movements indicated that a sale of the shares would be the

appropriate course, Okin did not take any such action- As Baron experienced difficulties and was

unable to control the Manipulated Securities , the values of both Innovir and Cypros fell quickly

and drastically.

254. On or about April 30, 1996, Okin caused an unauthorized purchase of 15,000

PaperClip shares in the Margaret Burgess Account. The PaperClip shares were later sold in

unauthorized transactions on or about May 7, 1996, for an aggregate loss of $11,400.

255. On or about April 30, 1996, Okin caused an unauthorized purchase of 15.000

Paperclip shares in the Burgess Joint Account for a cost of $90,010- After Burgess refused to

provide the funds to cover the unauthorized purchase, the shares were sold on or about May 7, -

1996, for $78,740. Okin promised Burgess that, as the transaction was unauthorized, there

would be no loss recorded on the transaction. Only later was it discovered that Okin had

deceived Burgess and caused the loss to be recorded.

256. On May 8, 1996 Baron and John McAndris, Baron's Chief Financial Officer,

were censured and fined $20,000 for conducting business while not in compliance with net

capital rules. During May, 1996, Baron defaulted in making payments to public customers who

had filed complaints against Baron and with whom Baron had settled. On May 23, 1996, the

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SEC issued an Order to Show Cause against Baron seeking to have Baron, Bressinan and others

enjoined from further violations of the Federal Securities Laws_

257. Yet throughout this same time period, the participants in the fraud continued to

receive enormous benefits- On or about February 6, 1996, Isaac R. Dweck received from Baron

a warrant granting the owner the option to purchase 100,000 shares of Gypros Pharmaceutical,

Inc- (the "Cypros Warrant") or a comparable security that was substituted as agreed upon by the

Baron Group and Isaac R. Dweck_

258. Baron transferred the Cypros Warrant or comparable security to Isaac R. Dweck

in connection with the investment schemes and criminal enterprise set forth above and in the

indictment- The transfer was not recorded in the books and records of either Baron or the Baron

Group as a transfer of value. Nor was the transfer recorded in the tax reporting documents

prepared for or by Baron, the Baron Group or Bressman-

259_ Isaac R. Dweck had received 50,000 warrants in the 1994 bridge financing of

Voxel, which he exercised on June 19, 1996 - the week before Baron went out of business. Isaac

R. Dweck subscribed for 40,000 PaperClip Bridge warrants, and Jack Dweck 20,000, in the 1995

PaperClip bridge financing. When Paperclip went public, Beatrice, Isaac, Jack, Morris, Nathan

and Ralph Dweck were allocated a total of 73,800 shares of the offering. Plaintiffs are presently

unaware of whether those shares were sold.

260. The joint account of Isaac and Barbara Dweck (No. 119-30053) realized a profit

of over $43,000 on trading in the Manipulated Securities, while the account of Morris I. Dweck

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and Isaac Dweck (119-01423) realized over $ 150,000, and Barbara Dweck's individual account

(1 19-30054) also realized profits. The Dweck Defendants transferred and held substantial

positions in the house stocks away from Baron.

261. During the final year of Baron's existence alone, Defendants Farkasli and Banque.

Audi realized a net profit on trading in Manipulated Securities of at least $661,492-50 in Baron

account nos. 119-05658, 119-05391 and 119-30872.

262. Defendant Farkash's and Banque Audi's profits from trading in Manipulated

Securities include , but are not limited to , over $730,000 realized on the sales of PapcrClip on

December 15, 1993 and January 3, 1995, in Defendants ' Baron Account No. 1 19-05658.

263. Defendants Farkash and Raes also profited from trading in the Manipulated

Stocks in securities accounts other than the Banque Audi accounts, including the account in

Raes' name at Baron. During the final year of Baron's existence alone, Raes, individually or

alternatively as nominee for Farkash, realized a net profit on trading in the Manipulated

Securities of at least $157,460.

264. Defendant Raes and Farkash's profits from trading in Manipulated Securities

include, but are not limited to, the nearly $350,000 realized on the sale of l'aperClip warrants on

March 25, 1996, in Raes' Baron Account No. 119-30935.

265. Upon information and belief, in addition to approximately $ 1.5 million on Jockey

Club, the Apollo Defendants also made substantial profits in the last year of Baron ' s existence

through short selling Baron's Manipulated Securities. The Apollo Defendants executed short

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sales of the Manipulated Securities , in accounts at other broker dealers, at prices inflated by the

activities of Baron.

266. Th e combined impact of bailing, out insiders and the predictable effects of

continuing its fraudulent ways placed Baron in financial jeopardy and Bear Steams was there to

help. As of June 20, 1996, Baron owed Bear Steams $176,000 for a cash loan, and as of June 21,

1996, Baron owed Bear Stearns an additional $2,298,000 for an unspecified debt. Baron's total

liabilities were $17,386,000 which exceeded Baron's assets by, at least, $955,000. With full

knowledge of the foregoing , Bear Stearns continued to clear trades for Baron.

267. While plaintiffs are unaware of the amount of Bear Stearns 's profits from the

fraud, Bear Stearns received millions of dollars in commissions as a result of Baron's

unauthorized trades in the period. In addition, Bear Steams was motivated to inflate the market

prices of the Manipulated Companies' securities in order to decrease its own risk of loss in the

event that the Manipulated Companies' securities declined in value.

THE REGULATORY AND CRIMINAL FINDINGS OF FRAUD

268. In July 1996, in the midst of several regulatory investigations and after receipt of

countless customer complaints, Baron filed for bankruptcy. Shortly thereafter, Bressman, Okin,

and Goldman, also filed for bankruptcy.

269. In March 1997, the National Association of Securities Dealers filed a complaint

against eighteen registered representatives of Baron, alleging violations of Association Conduct

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Rules, based, in part, on the registered representatives ' failure to execute requested trades and

unauthorized trades during the relevant period.

270 On or about May 13, 1997, Baron and its former employees were indicted by a

New York State Supreme Court Grand Jury on charges that they created and ran a criminal

enterprise that cheated thousands of investors out of more than S75 million over several years.

271. Thereafter, the creditors' committees for the bankruptcy of Bressman and Okin

were actively seeking documents and testimony. One focus of their activities was Bear Stearns.

On information and belief, the New York County District Attorney's office was also seeking

documents from Bear Stearns. On information and belief ,at least one employee for Bear Steams

was told by an executive at the firm to destroy documents sought as part of the investigation into

its relationship with Baron. Bear Stearns stonewalled and fought producing documents every

step of the way_

272. As of the date of the pleading, all of the criminal defendants have pleaded guilty

to the indictment or been convicted, as follows: Andrew Bressman (pleaded guilty to Enterprise

Corruption and Grand Larceny in the First Degree); Roman Okin (pleaded guilty to Enterprise

Corruption); Richard Acosta (pleaded guilty to Enterprise Corruption); Glenn O'Hare (pleaded

guilty to Enterprise Corruption); Joseph Scanni (pleaded guilty to Enterprise Corruption); Brett

Hirsch (pleaded guilty to Enterprise Corruption); Garvey lox (pleaded guilty to Enterprise

Corruption); Matthew Hirsch (pleaded guilty to Enterprise Corruption); Richard Simone

(pleaded guilty to Grand Larceny in the Second Degree); Charles Plaia (pleaded guilty to

r:U)ocumentsll3 car Stcarnsl)lcadines \Complaint 1 -2 S-99.\^rd -89- z1 1903:05 I'M

Attempt to Commit Enterprise Corruption); Mark Goldman (pleaded guilty to Enterprise

Corruption); John McAndris (convicted of Enterprise Corruption (one count). Scheme to I_)efisiud

in the First Degree (one count); Violation of the Martin Act (eight counts), Falsifying Business

Records in the First Degree (1 I counts); Offering a False Instrument For Filing (two counts). and

Perjury in the Second Degree (two counts); Jack Wolynez (pleaded guilty to Scheme to Defraud

in the First Degree); Robert Gilbert in a separate proceeding also pleaded guilty; and Baron

(pleaded guilty to Enterprise Corruption).

FIRST CLAIM FOR RELIEF(Securities Fraud - Section 10(b) of the Exchange Act and Rule 10b-5)

(Misrepresentations and Omissions)

273. Plaintiffs repeat and reallege each and every allegation contained in paragraphs I

through 272 of this Complaint as if fully set forth herein.

274. Each of the plaintiffs in this action traded in the Manipulated Securities as a result

of the above described fraudulent activities and was injured in multiple ways. First, Baron's

widespread fraudulent misrepresentations and fraudulent omissions, including in particular the

omission to disclose the operation of the manipulation volume, caused each and every purchase.

275. Second, because of the widespread manipulative acts by defendants, at the time of

each of their purchases, plaintiffs were deceived into believing there was an active, independent

market for the Manipulated Securities. Defendants' fraudulent and manipulative activities as

described herein created the appearance that the price at which the Manipulated Securities traded

reflected bona fide supply and demand in a freely functioning market- The increasing prices of

F:\Docw icnts\Bear Stec nsU'Icadings\Complainl I-2S-99 wpd -70- 2/I!99 3.O I'M

the Manipulated Securities appeared to indicate increasing value, placed by the market, on the

businesses underlying the securities. Thus, along with defendants' fraudulent misrepresentations

and material omissions, the appearance of an active, rising market induced plaintiffs to purchase

those securities in reliance upon the "wisdom of the marketplace." Instead, the values placed by

the market on the Manipulated Securities were fictitious and solely a result of defendants'

manipulative practices. That deception played a material role in each plaintiffs' decision to make

each purchase of the subject securities.

276. In engaging in the actions and course of conduct alleged, defendants each, on

more than one occasion, used a manipulative and deceptive device or contrivance in connection

with the purchase and or sale of securities; made untrue statements of material facts and omitted

to state material facts necessary in order to make the statements, in light of the circumstances

under which they were made, not misleading; and engaged in acts and manipulative practices

which were intended by defendants to operate and did operate as a fraud or deceit upon plaintiffs,

all in violation of Section 10(b) of the Securities Exchange Act and Rule i Ob-5.

277. In committing the aforesaid actions, misrepresentations, and omissions, including

in particular, the specific misrepresentations , omissions and deceptive practices referred to

above, as well as in the recommendation of securities known to be unsuitable in that they were

highly speculative and risky and thereby did not fit plaintiffs' investment objectives, defendants

each acted with knowledge of the false or misleading character of the statements or were reckless

with respect thereto.

r:oocumenis\3ear SteamsWIeadines\Compiaint 1-28-99 N%•pd -91- 21I/99 3:05 I'M

278. The violations of Section 10(b) and Rule I Ob-5 include the following:

(a) Numerous fraudulent misrepresentations and fraudulent material omissions in

connection with plaintiffs' purchases of the Manipulated Securities in the period January 1, 1992

through July 1, 1996, as identified with greater particularity above,

(b) The misrepresentations were communicated and information was

fraudulently omitted from telephone calls which were made by the means or instrumentality of

interstate or foreign commerce, and the transactions were created using the means or

instrumentality of interstate commerce or the mails or of a facility of a national securities

exchange.

(c) Each of the defendants is directly liable as a principles for "directly or

indirectly" violating Section 10 ( b) and Rule lOb-5.

279. In the alternative, by virtue of the acts, practices, loans, supervision, day-to-day

control over trading, and agreements with Baron and Bressman , both formal and informal, some

of which are particularized above, defendants Bear Stearns, Harriton, Stokes, Farkash

Defendants, the Dweck Defendants, the Shiblaq Defendants, and the Wolfson Defendants all had

the power, direct or indirect, to cause the direction of activities of Baron, including indirect

means of discipline or influence short of actual direction, which allowed them to exercise

control, directly or indirectly, over the activities of Baron in making misrepresentations and

failing to state material facts and engaging in deceptive conduct in connection with the sale of the

Manipulated Securities. Those defendants acted with the actual intent, or to induce the wrongful

f:U)ocumem+\I3ear SicamsU' Ieadings\Complaim I-2S-99 %^1 d -92- 2/1199 3:05 I'M

conduct of Baron reckless disregard of Baron's deception of investors , including plaintiffs, and

in had faith. By virtue of the foregoing, those defendants are controlling persons of Baron, under

Section 20(a) of the Securities Exchange Act of 1934, 15 U.S-C_ §78. Bressman was a control

person of Baron, identified as such on Baron's broker dealer registration statement, on Form

13-1)-

280. In addition, on information and belief, with the actual intent to cause investors,

including plaintiffs, to purchase the Manipulated Securities based on material misrepresentations

and omissions or the reckless disregard of whether misrepresentation or fraud would be used, all

defendants intended to and did, directly, in the case of the Baron Defendants, or indirectly, in the

cases of all other defendants, through or by the means of the acts of Baron, violate Section 10(b)

and Rule I Ob-5, and thereby are liable as controlling persons under Section 20(b), 15

U.S.C_§78(b)

281- In reliance upon the actions, misrepresentations, omissions and deceptive

practices of defendants and their instrumentality, Baron, plaintiffs purchased the Manipulated

Securities. Were it not for the actions , misrepresentations , omissions and deceptive practices of

defendants and Baron, plaintiffs would not have made the purchases they did.

282. At all times when plaintiffs purchased , manipulation had forced the price of the

Manipulated Securities above their true value, although prices varied as described above. As a

result, at the time of each of the plaintiffs' purchases of the Manipulated Securities, the price they

paid was substantially higher than the price they would have paid in a non-manipulated market-

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Many of those securities were sold after the manipulation ceased to be effective resulting in

substantial losses, in amounts to be proven at trial. In other cases interim "profits" were earned.

but such profits remained invested in one of the other ofthe Manipulated Securities until Baron

failed and substantial out-of-pocket losses were incurred-

253. The total out-of-pocket loss for the Bailey Accounts , and the investment in Baron

is in excess of $2,600,000.

284. The total out-of-pocket loss for the Burgess Accounts is in excess of $890,000.

255. The total out-of-pocket loss for the Dr. Blank Accounts is in excess of $90,000.

286 The total out-of-pocket loss for the Fezzani Accounts is in excess of $500.000.

287 The total out-of-pocket loss for the Cung Accounts and from the investments in

Baron is in excess of $2,500,000.

288. As a proximate result of the aforesaid actions, manipulative practices, misrepre-

sentations, and omissions, plaintiffs have suffered damages in an amount to be proven at trial,

not less than $6,500,000.

SECOND CLAIM FOR RELIEF

(Securities Fraud-Section 9)

(Market Manipulation)

289. Plaintiffs repeat and reallege each and every allegation contained in paragraphs I

through 288 of this Complaint as fully set forth herein.

290. For the purpose of creating a false or misleading appearance of active trading in

the stock of the Manipulated Securities. or a false or misleading appearance with respect to the

F:\Docwncnts\ l3car StearnU'Icadings\Coinplaim 1-28-99 . %%7xi -94- 211199 1:05 PM

market for such security, defendants each directly or indirectly (a) effected transactions in such

security which involved no change in the beneficial ownership thereof, or (b) entered orders for

the purchase of such security with the knowledge that an order or orders of substantially the same

size, at substantially the same time , and at substantially the same price, has heen or would be

entered for such security by or for the same or different parties, or (c) effected alone or with one

or more other persons , a series of transactions in such securities creating actual or apparent active

trading in such security or raising or depressing the price of such security, for the purpose of

inducing the purchase or sale of such security by others, and (d) in selling or offering for sale or

purchasing or offering to purchase such securities, for the purpose of inducing the purchase or-

sale of such securities, defendants themselves or through others, made statements which were at

the time and in light of the circumstances under which they were made, false or misleading with

respect to material facts, and which defendants knew or had reasonable ground to believe were so

false or misleading.

291. Plaintiffs relied on the integrity of the market, the appearance of purchasing

activity, and prices at which the Manipulated Securities were being purchased in making their

decisions to purchase the Manipulated Securities.

292. In committing the aforesaid actions, misrepresentations, and omissions, including

in particular the manipulation of the market in the Manipulated Securities, through the acts and

deceptive practices referred to above, defendants each acted with knowledge of their

manipulative and deceptive character or were reckless with respect thereto.

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293. The Manipulated Securities were each traded on the NASDAQ National Market

or Small Cap Market each of which , during the relevant time periods were an organization.

association, or group of persons, whether incorporated or unincorporated, which constituted-

maintained and provided a marketplace or facilities for bringing together purchasers and sellers

-of securities or otherwise performing the functions commonly performed by a stock exchange.

Accordingly, the NASDAQ National Market and the NASDAQ Small Cap Market are national

securities exchanges within the meaning of Sections 3 and 9 of the Securities Exchange Act of

1934-

294. By virtue of their willful participation in the above described manipulative acts,

defendants each violated Section 9 of the Securities and Exchan ge Act, 15 U.S.C- §781.

295. As a proximate result of the aforesaid actions , manipulative practices . misrepre-

sentations, and omissions, plaintiffs have suffered damages in an amount to be proven at trial of

not less than 56,500,000.

THIRD CLAIM FOR RELIEF

(Securities Fraud - Section 10(b), Rule I Ob-5)

(Market Manipulation)

296. Plaintiffs repeat and reallege each and every allegation contained in paragraphs I

through 295 of this Complaint as fully set forth herein.

297. In engaging in the actions and course of conduct alleged in the mid Claim for

Relief, defendants each, on more than one occasion, used a manipulative and deceptive device or

contrivance in connection With the purchase and or sale of securities: or made untrue statements

F:''Docu, ol,U3carSlcams\] ' Icadings\Complamt 1-28-99...pd -96- 211/99 3:05 PM

of material facts and omitted to state material facts necessary in order to make the statements, in

h . l i t of the circumstances under which they were made not misleading; or engaged in acts and

nlanihulative practices which operated as a fraud or deceit upon plaintiffs, all in violation of

Section 10(b) of the Exchange Act and Rule 10h-5. Each defendant individually and

collectively, directly and indirectly, and therefore violated Section 10(b) and Rule I0b-5.

298. In committing the aforesaid actions, manipulation of the market in the

Manipulated Securities, through the acts and deceptive practices referred to above, defendants

each acted with knoNvIedge of their manipulative and deceptive character or were reckless with

respect thereto.

299. In reliance on the integrity of the market, and the appearance of purchasing

activity and the prices at which the Manipulated Securities traded, plaintiffs purchased the

Manipulated Securities. Were it not for the manipulative acts ofdefendants, plaintiffs would not

have made the purchases that they did_

300. As a proximate result of the aforesaid actions , manipulative practices , misrepre-

sentations, and omissions, plaintiffs have suffered damages in an amount to be proven at trial.

not less than 56,500,000.

FOURTH CLAIM FOR IZCLIEF(RICO)

301. Incorporates each and every allegation in paragraphs i through 300 of this

Complaint as fully set forth herein.

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302. Defendants, individually and acting for one another and in concert with each

other, have committed the following predicate acts of "racketeering activity" within the meaning

of 18 U.S.(. ^ 1961(1).

(a) securities fraud , as outlined below, in violation of Section 9 and 10(b) of

the Securities Exchan ge Act and Rule 10(b)-S promulgated thereunder , 15 U.S.C § 781, 78j(b)

and 17 C.F_R_ § 240.10( b); and

(b) mail fraud, as outlined below, in violation of 18 U.S.C § 1341; and

( c) NVII-e fraud , as outlined below, in violation of 18 U.S.C. 1343;

(d) defendants have engaged in a "pattern of racketeering activity" within the

meaning of 18 u.S.C § 1961(5) by numerous acts of racketeering activity over a several year

period, at least in part as follows:

(1) tens of thousands of separate acts of securities fraud in making or

causing to be made numerous separate false and fraudulent statements and fraudulent material

omissions in connection with the separate purchases by plaintiffs of the Manipulated Securities,

thousands of separate acts of similar securities fraud in connection with thousands of separate

purchases by other investors of the Manipulated Securities, some of which arc particularized

above. In addition, the manipulation of the market for the Manipulated Securities were each

accomplished by still more predicate acts of securities fraud;

(ii) tens of thousands of acts of mail fraud in that as an expected and

inevitable result of the above-described frauds, and in furtherance thereof, copies of confirmation

t aUocumcnlsV3carstcamsU ' Icadiags\Co + nplaint 1-28S-99whd -98- 2/ 1/99 3:05 PM

slips for each trade were mailed to each purchaser on or about the trade date , copies of monthly

statements were mailed to each investor each month,

(iii) tens of thousands of acts of wire fraud in the use of wire

communications in interstate and foreign commerce for the purpose of defrauding plaintiffs, and

others.

303. The wrongful acts alleged constitute a pattern of racketeering activity which

occurred after January 1, 1992, and are within a 10 year period of each other and this action as

prescribed by IS U.S.C § 196](5)-

304, Throughout the relevant time period, Baron was an "enterprise" within the

meaning of 1$ U-S.C. § 1961 (4 )_ In addition , the individual defendants , acted as an association-

in - fact and "enterprise " within the meaning of ] Ii U-S.C § 1961(4).

305- Defendants have conducted and participated in, directly or indirectly, the affairs of

the enterprises described above through the pattern of racketeering activity described above in

violation of 18 U.S.C § 1962(c). All defendants , exercised control over the above mentioned

enterprises through the acts of each other and in agreement and conspiracy with each other, as

part of their ii-audulent scheme.

306. Defendants have conspired to violate 18 U .S. C. §1 1962(a ), and 1962 ( c) through

a pattern of racketeering activities, in violation of 1 b U.S.C § 1962(d)_

307. Plaintiffs have been injured in their businesses and property by purchasing shares

of the Manipulated Securities in reasonable reliance upon the false and fraudulent

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misrepresentations and omissions to state material facts by defendants, including, those set forth

and referred to above.

308 Defendants Bressman, Richard Acosta, Glenn O'Hare, Joseph Scanni, Brett

Hirsch, Garvey Fox, Matthew Hirsch, Richard Simone, Charles Plaia, Mark Goldman, John

McAndris, lack Wolynez and Robert Gilbert, (hereinafter the "RICO Defendants") have each

been convicted of one or more felony counts in connection with his participation in the above

described frauds and in connection with and related to his participation in two or more of the .

above-described predicate acts.

309. Defendants have violated 18 U_S.C § 1962(c) and 1962(d) and as a proximate

result of-the aforesaid violations, plaintiffs have suffered damages in the amounts of not less than

$6,500,000, plus consequential damages, in an aggregate amount to be proven at trial.

310. By reason of such violations, the RICO Defendants are liable to plaintiff for treble

the damages sustained by plaintiff, plaintiff's costs of suit and reasonable attorneys' fees

pursuant to RICO § 1962(c)-

31 1. Plaintiffs expressly reserve their rights to supplement this claim With RICO

claims against any other defendant who subsequent to the date hereof is convicted of a crime in

connection with the above described frauds, including but not limited to defendants Bear Stearns

and l-larriton.

312. As a proximate result of the aforesaid actions, misrepresentations, and omissions

of defendants, plaintiffs have suffered damages of not less than 56,500,000.

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313- By reason of such violations , defendants are liable to plaintiffs for threefold the

dama<ecs sustained by plaintiffs, plaintiffs' costs of suit and reasonable attorneys fee pursuant to

RICO 1 962(C)

FIFTH CLAIM FOR RELIEF

(Aiding; and Abetting Breach of Fiduciary Duty)

31-i. Plaintiffs repeat and reallet^e each and every allegation contained in paragraphs I

throu gh 313 of this Complaint as set forth herein.

315. As a matter of law. Baron and its brokers , Okin and Bernstein , owed a duty to

pla-lilt iu s to recommend investments which were suitable for plaintiffs consistent with plaintiffs

investment objectives.

316. In engaging, in the acts and practices detailed above , and causing, plaintiffs to

invest in unsuitable securities , Baron. Okin and Bernstein violated their fiduciary duties to

plaintiffs. The defendants aided and abetted the breaches of fiduciary duty.

317. As a proximate result of the aforesaid actions , misrepresentations, and omissions

of defendants. plaintiffs have suffered damages in the amount of not less than $6,500,000.

SIXTH CLAIM FOR RELIEF

(Common Law Fraud)

31'i. Plaintiffs repeat and reallege each and every allegation contained in paragraphs I

through 317 of this Complaint as fully set forth herein.

319. As a proximate result of the aforesaid actions, misrepresentations, and omissions,

plaintiffs have suffered damages in the amount of not less than $6,500,000.

1-:lllocurnans03cv StcamsV' Icad.nce\Cornplaint l - 28-99.wpd -101 - 2/l/') 3 :O5 P;11

WHEREFORE, plaintiffs pray for an award and judgment against defendants jointly and

severally, ( a) on all claims for relief in an amount to be proven at trial , but no less than

x;6,500_000, for costs, plus interest, plus such other and further relief as this Court deems just, (b)

on the Fnu11h claim for relief, for treble damages in an amount not less than $19,500,000, plus

attorneys' fees. (c) on the Fifth and Sixth claims for relief, because defendants' acts were

wanton, willful, and amount to a criminal indifference to their civil responsibilities and were acts

directed at the public generally, for punitive damages in the amount of $6,500,000, as to each

defendant other than Bear Stearns, and $130,000,000 as to Bear Stearns and for such other and

further rclicfas the Court deems just.

Dated: February 2, 1999 Rcspcctfully submitted,

Ncw York- New York

FOLKFNFI_1K & McGl3Rl'l Y

Max I olkenilik 1'-29

Attorney for Plaintiffs

1370 Avenue of the Americas

New York_ New York 10019

(212) 757-0400

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