Irving Stitsky Sentenced To 85 Years In Real-Estate Ponzi Case; Judge Agrees With Prosecution, Calls Stitsky ‘Inveterate Con Man’

A federal judge has thrown the book at recidivist securities fraudster Irving Stitsky, agreeing with prosecutors that he is an “inveterate con-man” and sentencing him to 85 years in federal prison.

Separately, a New York state appeals court — acting unanimously — reinstated portions of a civil lawsuit dismissed by a judge in 2008 that alleged a New Jersey law firm aided and abetted Stitsky and others associated with the so-called “Cobalt” family of companies in perpetrating a fraud. In a lawsuit filed in 2007, Avi and Ann Oster accused Lum, Danzis, Drasco & Positan of preparing private placement memoranda (PPM) that did not initially disclose the criminal histories of Stitsky and Mark Shapiro and then backdating a PPM to disclose their histories after the FBI entered the case.

The firm countered by arguing the plaintiffs had not pleaded their case adequately — an argument the appeals panel now has rejected. The ruling does not mean the law firm has been determined to have engaged in wrongdoing. Rather, it means the state-court lawsuit against it can proceed.

In the federal criminal case, Stitsky, 55, of Milan, N.Y., also was ordered by U.S. District Judge Kimba Wood to forfeit $23.1 million and make restitution in the amount of $22 million. He was convicted in November, as were Cobalt co-defendants Shapiro and William B. Foster. Shapiro and Foster are scheduled to be sentenced later this month. Shapiro has two previous felony convictions — bank fraud and conspiracy to commit tax fraud — according to records.

Shapiro, 50, lives in Avon, Conn. Foster, 70, lives in East Hampton, Mass. The Cobalt scheme operated in part from what was described as a telemarketing boiler room in Great Neck, N.Y., that duped investors into believing Cobalt was a prominent investor in Florida real estate.

“Irving Stitsky is a recidivist fraudster who stole millions of dollars from hundreds of investors through trickery and deceit,” said U.S. Attorney Preet Bharara. “He preyed on vulnerable victims, including widows and retirees, by falsely promising guaranteed returns on their investments in Cobalt’s South Beach, Florida-based real estate scam.”

Wood said the harsh penalties against Stitsky were warranted because he operated a “vast securities fraud preying on individuals who were, for the most part, not particularly sophisticated in investing,” prosecutors said.

Stitsky has an extensive criminal history dating back to 1999, according to court filings. The passage below is verbatim from the appeal panel’s decision authored by Justice Sallie Manzanet-Daniels that reinstated portions of the 2007 lawsuit filed against the law firm (italics added):

In June 2000, Stitsky was indicted for his role in yet another securities manipulation scheme. In August 2001, Stitsky pleaded guilty to criminal charges including conspiracy to commit securities fraud and was sentenced in connection therewith to 21 months imprisonment and a 3-year period of supervised release. In the SEC administrative proceeding against him in that matter, Stitsky was again found to have violated the antifraud provisions of the federal securities laws, ordered to cease and desist from any future securities law violation, and barred from participating in a penny stock offering and associating with a broker or dealer. In August 1999, Stitsky was indicted for conspiracy to commit tax fraud, money laundering and tax fraud. In August 2001, Stitsky pleaded guilty to conspiracy to commit tax fraud. That same month, a criminal information was filed against Stitsky for making false statements, to which he pleaded guilty. In February 2002, Stitsky was sentenced to 33 months in prison and a 3-year period of probation for both matters. In November 2003, Stitsky was indicted yet again for securities fraud, money laundering and conspiracy to commit securities fraud, mail fraud and wire fraud. Stitsky was released from prison in the fall of 2004.

Meanwhile, the SEC described Stitsky as a serial securities fraudster practiced in the art of operating “boiler rooms” designed to separate investors from their money. He was banned from the securities industry in 1998 for his conduct with New York-based Stratton Oakmont Inc., which the SEC described as “a notorious boiler-room.”

In writing for the appeals panel that reinstated portions of the civil lawsuit against the attorneys, Manzanet-Daniels did not mince words.

“To say that defendant attorneys merely furnished legal services to help solicit investments in the Cobalt Multifamily entities, and did not have knowledge of the fraud they helped perpetrate, is drawing distinctions based on gradations of knowledge that are simply not tenable,” she wrote. “This Court cannot and will not endorse what is essentially a ‘see no evil, hear no evil’ approach.

“There is no principled distinction between this case and those involving auditors alleged to have falsely represented the financial health of companies and otherwise to be derelict in their duties as auditors,” Manzanet-Daniels wrote.

The law firm previously argued that the plaintiffs had not adequately pleaded their claims. Manzanet-Daniels and the appeals panel disagreed.

Read the opinion by Manzanet-Daniels.

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