Sky Capital six in fraud charge

US prosecutors announced a criminal indictment of fraud against Sky Capital’s founder and chief executive Ross Mandell and five others, while the Securities and Exchange Commission (SEC) filed a civil complaint.

The six are charged with advising investors to buy shares in two then Aim-list companies, Sky Capital Holdings and Sky Capital Enterprises. They allegedly then enforced a policy that prevented them from selling those holdings, and used the cash to enrich their own lifestyles and pay commissions to the firm’s brokers, often disguised as bonuses or loans.

“Customers were not told that they would be unable to sell their shares, and the no net sales policy helped artificially inflate the price of the Sky Entities stocks,” the SEC said. “When trading in those stocks was suspended by the London Stock Exchange in 2006, the investments were rendered worthless.”

Mandell and the five other employees charged all surrendered to FBI agents yesterday morning.

“Investor funds were substantially used to enrich the defendants and others; to pay excessive undisclosed commissions to brokers and to pay off victims who had lost money through prior purported investment opportunities,” the US Attorney in Manhattan said in a statement. It added that the defendants acted primarily from two successive securities broker-dealers, The Thornwater Company and Sky Capital, raising some $140m for the scheme between 1998 and 2006.