Wednesday, 15 March 2017 06:34

Internet Search Would Have Revealed Past Probe Into Alleged Broadway Scammer


One of the men accused of running the Hamilton Ponzi scheme is no stranger to criminal probes.

In January, the U.S. Securities and Exchange Commission charged Joseph Meli and Matthew Harriton with perpetrating a $97 million Ponzi scheme involving tickets for Hamilton and the planned Broadway run of Harry Potter and the Cursed Child. Over 138 individuals, including billionaires Paul Tudor Jones and Michael Dell, invested in the suspected scam.

According to the government, the defendants claimed to have an agreement with Jeffrey Seller, the producer of Hamilton, to procure 35,000 tickets to the Tony Award-winning musical. Investor funds were sought in order to purchase the block of tickets, which the two men said would be resold at a profit. The backers were promised the return of their investments within eight months, as well as a 10% annualized return and 50% of residual profits.

In addition, federal authorities allege, the defendants purported to have a similar agreement to buy 250,000 tickets to the planned Broadway production of Harry Potter and the Cursed Child. Cash was raised in order to purchase the block of tickets for $62.5 million, and investors were promised the return of their investments and a pro rata share of certain profits.

However, federal authorities insist that the defendants never had a deal with either show, and no investor money was ever used to purchase blocks of tickets. Instead, less than 14% of the funds were used to pay entities engaged in the ticket sales or live entertainment business, and over $74 million was diverted to “to perpetuate a Ponzi scheme and to enrich themselves and certain family members and others.”

The complaint indicates that the entrusted funds were spent on expensive jewelry, private school tuition, summer camps, automobiles, private club memberships, travel expenses and casino bills. One of the men also bought a $3 million house in East Hampton using cash from the scheme.

Paul Ryan, a former government lawyer, told Bloomberg that “the idea that there were blocks of Hamilton tickets available for purchase should have been a giveaway.” No one could get their hands on a large set of tickets.

But, exercising simple due diligence should have revealed another potential red flag. One of the defendants, Matthew Harriton, was reported to be a subject in a large white-collar criminal investigation two decades ago.

His father, Richard Harriton, was banned from the securities sector back in 2000 for helping a boiler-room business stay afloat while evading its net capital requirements. He served as the president of Bear Stearns' clearing subsidiary firm, and the government found that, “[t]o protect [the subsidiary] from having to absorb large losses, [the subsidiary], at Harriton's direction, charged unauthorized trades to [A.R.] Baron customers, liquidated property in customer accounts to pay for unauthorized trades, refused to return customer property that had been liquidated to pay for unauthorized trades and disregarded customer instructions.” But, like most defendants, Richard Harriton did not admit or deny the findings in his settlement with the U.S. Securities and Exchange Commission.

One of the other brokerage firms which cleared its trades through Richard Harriton at Bear Stearns was Sterling Foster, which defrauded thousands of customers, and inspired the popular crime film Boiler Room. Rooney Pace, an old friend of Richard Harriton who was banned from the securities business, secretly controlled the firm and crafted illegal arrangements that allowed insiders to sell their restricted shares in small companies when the firms went public.

The government also alleged that Sterling Foster engaged in rampant stock manipulation, and The New York Times reported that “Mr. Harriton's son Matthew was closely involved in three of the five companies whose shares, prosecutors say, were manipulated by Mr. Pace and his colleagues.” One of the firms, where Matthew Harriton served as the Chief Financial Officer, for instance, raised $5 million in its initial public offering before its stock price plunged from $13.25 to $0.03.

The Manhattan District Attorney’s Office launched an investigation into Matthew Harriton. “One question has been whether Mr. Pace and some associates granted business favors to the younger Mr. Harriton as part of an effort to get Bear Stearns, through the elder Mr. Harriton, to clear trades for Sterling Foster,” observed The Wall Street Journal.

Nothing ever came of the investigation, and Matthew Harriton was never charged with a crime.

Yet, some of the most sophisticated investors on Wall Street should have taken a moment to peek into his past. Reports of the probe might have made them more skeptical of him and his investment offer that apparently was too good to be true.

Author : Marc Hershberg

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