Domestic Boiler Room Stock Scam Operations
Oct. 27, 2003 — The U.S. Attorney's Office and lawyers for Paul R. Johnson and co-defendant John Cook II rested their cases last week, eight weeks after the start of a trial that saw everyone from strippers to mob stoolies take the witness stand.
While former Link Express and Pony Express CEO Johnson scribbled notes furiously as testimony wound down last Thursday, jurors began looking forward to a two-week hiatus before closing arguments begin Oct. 29.
The securities fraud extravaganza could net both men 20 years in jail. The main part of Johnson's trial ended Oct. 16 as Brian Darrow, who said he was a Bonanno crime family associate, was led into the courtroom in shackles. He took the stand to testify against Johnson as part of a plea deal.
Blond, clean-cut and dressed in blue prison-issue scrubs, Darrow spoke deliberately and confidently about his ties with the Bonanno and Rubbo crime families as a self-admitted telemarketing fraudster. He then testified he sold Pony Express securities for Johnson under an alias.
Darrow also testified to a deal struck with the government that allowed him to plead guilty to one count in a massive telemarketing fraud and organized crime indictment while dozens more counts were dropped. Prosecutor Robin Rosenbaum was successful in getting Darrow to admit the government was under no obligation to release him, and could pull its deal at any time.
"In discovery, it showed I worked there," Darrow said of his job selling securities in Pony Express, one of Johnson's package delivery firms.
A federal indictment unsealed in March alleged 29 people - including Darrow, Bonanno underboss Anthony Graziano and Bonanno soldier John Zancocchio - of telemarketing and wire fraud, money laundering and illegal gambling. Graziano, who was arrested in March in New York, is also accused of conspiring to murder two associates from another crime family.
Darrow testified Johnson knew about his past, including his crime family connections, saying he used it to get Johnson to hire him. Darrow used two aliases working for Rubbo and two aliases working for Johnson, he testified, adding there "absolutely" was an element of deception in all his boiler room operations: He lied on the phone to entice investors.
Darrow said he raised between $300,000 and $400,000 for Johnson in cash.
Testifying he was paid $5,000 a week by the Rubbos, under defense attorney David Joffe's cross-examination, Darrow admitted he has yet to pay taxes on those earnings.
When queried as to why, the incarcerated Darrow said, "I haven't had the time."
Traficanti and Gambino crime family members were also named in his indictment, Darrow acknowledged under cross-examination. Authorities allege that suspects in Darrow's case used telemarketing firms to get money from people with a promise it would be exchanged for foreign currency. The money was pocketed in what authorities allege was a foreign exchange scam.
As part of the March indictment, Darrow, 35, of Fort Lauderdale, was accused of bilking people out of money in an mob-run, boiler room operation.
Darrow testified at Johnson's trial that he managed two of the alleged boiler rooms named in the indictment - International Exchange and New World Exchange in Boca Raton.
While he denied he was a crime family member, Johnson conceded he was "directed to" do things during the time Darrow and his crew sold Pony Express securities from an office inside Gold Key Auto on Federal Highway in Fort Lauderdale, an exotic car dealership.
Johnson would not elaborate further, noting reporters' presence in the courtroom.
On the stand, Johnson admitted he shared a bank account with the owner of Gold Key Auto "to cover invoices."
Darrow testified he sold Johnson's securities to new investors in Utah, Georgia, Texas and California. A few key investors in Link Express - the original corporate entity of Pony Express - were also tapped, but most were shunned, he said.
Johnson told him he "should stay away from them," Darrow testified, noting that checks were cashed in check-cashing stores as they came in.
But sometimes the money coming in wasn't around long enough for Darrow to pay his sales crew, he testified, suggesting Johnson was spending the money before Darrow got his 27 percent commission. Darrow also received a $10,000 fee "up front" from Johnson before selling the private placements offerings, he said.
In earlier testimony, Johnson co-defendant and former broker Cook attempted to distance himself from the Link president, claiming he warned Johnson that his alleged cocaine use and the purchase of his South Beach nightclub Bacchanalia were bad for business, especially during a pre-IPO phase - even if bought with Johnson's personal stock.
Cook, who said he never witnessed Johnson using cocaine, dated and lived with Johnson's sister, Lisa, around the time Johnson bought the nightclub. During that period, Johnson could not be reached for long spans of time either in person or on the phone, Cook testified.
That worried Cook, who wanted answers for his shareholders, he told the court.
Following Cook's testimony, Joffe repeatedly asked for a mistrial, saying he and his client agreed to team up with Cook and his attorney Bob Adler in a co-defense on the condition that no damaging testimony would be offered by Cook.
Judge Donald M. Middlebrooks denied the motions. The climax followed a two-week span where Johnson took the stand in his own defense. Alternately resolute and rambling, the 32- year-old entrepreneur sought to prove that a conspiracy by former colleagues led to the demise of his Broward-based package delivery start-up.
"When the bully wants to take your lunch money, you take a beating, but you fight back," Johnson testified. At the end of the day, Middlebrooks, who implied he had heard and seen enough of the paper trail case, rebuffed Joffe's request for rebuttal of the prosecution's rebuttal witnesses.
"I'm having a hard time following these numbers flying around," he said. "I suspect the jury is, too."
American City Business Journals Inc.