Three Former Brokers Plead Guilty in Manhattan Federal Court in Connection with $140 Million Investment Fraud and Stock Manipulation Scheme

PREET BHARARA, the United States Attorney for the Southern District of New York, and JANICE K. FEDARCYK, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation ("FBI"), announced today that ARN WILSON, MICHAEL PASSARO, and ROBERT GRABOWSKI, three former senior brokers at Sky Capital, LLC, have pled guilty in Manhattan federal court in connection with a scheme to defraud investors through two successive securities broker-dealers—The Thornwater Company, L.P. ("Thornwater"), and Sky Capital, LLC. WILSON, 46, of Concord, North Carolina, and PASSARO, 47, of Delray Beach, Florida, pled guilty earlier today. GRABOWSKI, 43, of Staten Island, New York, who also served as President of Thornwater, previously pled guilty on January 25, 2011.

According to the four-count superseding indictment to which WILSON, PASSARO, and GRABOWSKI each pled guilty, and statements made during the guilty plea proceedings before U.S. District Judge PAUL A. CROTTY:

From 1998 through 2006, GRABOWSKI, WILSON, and PASSARO participated in a scheme with ROSS MANDELL, STEPHEN SHEA, ADAM HARRINGTON, and others to defraud investors through material misrepresentations and omissions that induced people to invest in private placements and other purported securities investment opportunities. In fact, 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. In connection with the scheme, the defendants, acting primarily from the offices of Thornwater and Sky Capital, LLC, in New York, New York, raised a total of approximately $140 million from investors. MANDELL allegedly controlled the operations of both broker-dealers.

As part of the scheme, brokers at Sky Capital, LLC, manipulated the market price of the stock of two affiliated entities, Sky Capital Holdings Ltd., and Sky Capital Enterprises Inc. (collectively "Sky Capital"). MANDELL, SHEA, and HARRINGTON allegedly made undisclosed payments to Sky Capital brokers, including WILSON, GRABOWSKI, and PASSARO, in exchange for their assistance with this aspect of the scheme.

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GRABOWSKI, WILSON, and PASSARO each pled guilty to all four counts of the superseding indictment, which charged them with conspiracy and substantive securities, wire, and mail fraud crimes. They each face a maximum term of 65 years in prison, a fine of $5 million or twice the gross pecuniary gain or loss on each count, and a maximum of three years of supervised release.

The charges against MANDELL, SHEA, and HARRINGTON remain pending and are merely accusations. They are presumed innocent unless and until proven guilty.

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Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation. He thanked the U.S. Securities and Exchange Commission for its assistance in this matter.

This case was brought in coordination with President BARACK OBAMA's Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a co-chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Assistant U.S. Attorneys PABLO QUIÑONES and KATHERINE GOLDSTEIN are in charge of the prosecution.