On May 15, 1987, United States Magistrate Ronald J. Hedges of the District of New Jersey issued an arrest warrant for Cannistraro based on a criminal complaint alleging a conspiracy to commit securities fraud. On that day Cannistraro was arrested in California. On May 18, 1987, Cannistraro made his initial appearance before United States Magistrate Brown in the Central District of California. Magistrate Brown allowed the pretrial release of Cannistraro; bail was satisfied with $ 75,000 in cash and a $ 50,000 appearance bond secured by defendant's title to his 1985 928S Porsche automobile.
On May 28, 1987, a federal grand jury sitting in Newark, New Jersey returned a nine count indictment charging Cannistraro with conspiracy to violate the securities laws, securities fraud, mail fraud, interstate transportation of stolen property, and obstruction of justice. Specifically, the indictment alleged that between 1982 and 1983 Cannistraro entered into an arrangement with portfolio managers of mutual and bank funds whereby they agreed to assist him in manipulating the price of the securities of Liquidation Control, Inc. ("LCI") and Toxic Waste Containment, Inc. ("TWC"). According to the indictment, the portfolio managers agreed to buy large blocks of these stocks for their funds' accounts, in return for which Cannistraro agreed to establish "nominee" brokerage accounts for the fund managers to conceal their fundamental interest in the transactions. The indictment further alleged Cannistraro, who at the time was a securities analyst at Wood Gundy, Inc. ("Wood Gundy"), drafted a false and misleading Wood Gundy research investment report concerning TWC and distributed this report through the United States mails. Finally, the indictment alleged Cannistraro had provided money to a grand jury witness in an effort to have this witness lie under oath to the grand jury about the witness' stock nominee relationship with Cannistraro.
On June 12, 1987, Cannistraro was arraigned; he pled not guilty to the charges against him. Shortly before trial, however, on September 21, 1987, Cannistraro pled guilty to all nine counts of the indictment. There was no plea agreement with the Government.
On September 24, 1987, a hearing was held on the Government's motion for the detention of Cannistraro pending sentencing. After testimony from several witnesses was heard, Cannistraro was allowed to remain free on bail. In order to ensure Cannistraro's appearance for sentencing on November 2, 1987, his bail was increased by $ 450,000 and other conditions of release were imposed.
On September 25, 1987, Cannistraro executed a second appearance bond, and posted with the court various municipal bonds and certificates of deposit registered in his name which totalled approximately $ 455,000.
Cannistraro also filed with the court an appropriate document to transfer to the United States legal title of the assets he posted.
On November 2, 1987, a hearing was held for the purpose of sentencing Cannistraro. In order to make the sentencing determination, a careful review was made of Cannistraro's lengthy sentencing memorandum submitted by his attorney (the "Memorandum") which described, presumably in a light most favorable to Cannistraro, the factual basis for his guilty pleas to all nine counts of the indictment.
The Memorandum discusses each of the counts to which Cannistraro pled guilty. In discussing count one, charging conspiracy to commit securities fraud, Cannistraro explains his relationship to the companies, LCI and TWC. Cannistraro was an officer and director of LCI and also owned 975,000 shares of LCI stock. Memorandum at 4. According to Cannistraro he was not an officer, director or insider of TWC. The Memorandum notes, however, that there were some common members of the LCI and TWC management teams and boards of directors. Id. at 5.
Cannistraro was a vice president and securities analyst at Wood Gundy. In the course of his duties he became acquainted with Bynum Vickory ("Vickory"), the portfolio manager of the Calvin Bullock Fund, and Bill Fritz ("Fritz"), the portfolio manager of the Marshall & Isley ("M&I") Fund. In separate conversations, Cannistraro told Vickory and Fritz that he was an officer of LCI and that it had just gone public; according to Cannistraro, the portfolio managers expressed some interest in buying LCI stock. In other conversations with the portfolio managers, Cannistraro told them that "TWC would be going public by Monarch Funding and that TWC could be a great success." Id. at 5-6.
According to Cannistraro, his
guilty plea to count one is based upon his mentioning the possibility of getting Vickory and Fritz, or friends of theirs, an allocation of a couple of thousand dollars in a future TWC offering. This served as an added inducement for their purchase of LCI and possibly TWC shares for their respective funds.
Id. at 6. Cannistraro further admits he aided Vickory and Fritz
in opening nominee accounts at Monarch by assisting in their obtaining new account forms, and he used his friendship with Leo Eisenberg, the president of Monarch, to obtain a $ 3,000 allocation of TWC for Bill Fritz's nominee and a $ 1000 allocation of TWC for Bynum Vickory's nominee.