For years in the mid-1990s, New York undercover officers ran a dingy storefront social club in the Canarsie section of Brooklyn, offering mobsters a place to drink coffee, chat and fence stolen goods under the gaze of hidden cameras.
Before the club closed, police had to rent a nearby warehouse to hold millions of dollars worth of merchandise, much of it from hijacked trucks. It was a classic sting, giving people a chance to step forward and incriminate themselves. Dozens, including an alleged Mafia capo, were charged with racketeering, extortion, possession of stolen property and other offences.
Earlier this month, a similar approach yielded an even bigger crop of suspects among stock market operators across North America. Of 60 people facing charges, 22 are Canadian, including familiar and obscure figures from Vancouver, Calgary, Toronto and elsewhere.
The best known is fallen Bay Street star Mark Valentine who, not long ago, while barely into his 30s, was one of Toronto's richest brokers and head of his own firm, Thomson Kernaghan & Co.
Operation Bermuda Short was born two years ago when an FBI undercover agent opened a fake investment office in Boca Raton, Fla., with two helpers, both financial operators trying to wriggle clear of criminal charges. An undercover Mountie joined the cast as the Canadian connections multiplied.
The plan was to shut down some of the pump-and-dump operations that thrived during the tech stock craze of the 1990s, especially in the lightly supervised U.S. over-the-counter market. Promoters had been assembling blocks of obscure stocks, boosting market prices by various illegal means and then unloading the shares on the public.
According to the Federal Bureau of Investigation, the challenge was to conduct the sting without further hurting investors, so there was no actual pump-and-dump scheme involved. The bait in the trap would have tempted just about any unscrupulous operator with stock to sell. A road-company sting, taken to Vancouver, also targeted those willing to help launder drug money.
The two plot lines were as follows:
The FBI man and his helpers posed as representatives of a British mutual fund with a corrupt manager. The manager was willing to buy millions of dollars worth of questionable stock at inflated prices in return for big kickbacks to himself and his henchmen.
The FBI and RCMP agents teamed up to pose as representatives of a Colombian cocaine cartel with millions of dollars in cash - suitcases full of used bills - to invest in ways that would hide its supposed criminal source.
Special Agent Frank Figliuzzi, second-in-command of the FBI's Miami field office, says the show was a runaway hit, drawing people from far beyond the circles first aimed at.
"We started to realize that people were lining up, literally bringing friends and family to get in on this deal," he said in a telephone interview this week.
"Even on the day of the arrests, when there were people being brought to meet with the undercover agent for what they thought was a multimillion-dollar deal - yet another scam, in other words, being proposed - and they walked into the undercover business firm we set up, they still brought people that we hadn't seen before.
"At least one of the subjects, upon shaking hands with the undercover agent and then entering the back conference room, where he was confronted with agents standing there in FBI raid jackets, continued to shake hands and introduce himself around the room. He was still going to engage in this million-dollar deal."
Two men - lawyer Simon Rosenfeld and businessman Sotirios Phronimadis - were arrested in Toronto and charged with money laundering under Canadian law. All of the other defendants face U.S. federal charges in Florida under grand jury indictments kept sealed until the mid-August roundup, for which many of the Canadian suspects were lured south.
"Some of them actually lived here," Mr. Figliuzzi said, "but, yes, the ones who lived abroad believed that they they were coming to a meeting with someone they thought was a corrupt broker and there was an implication that a very high-ranking figure in this corrupt enterprise that they had heard about but never met might be present, and that a huge amount of money would be discussed in terms of of a fraudulent deal. Most of them came to Boca Raton."
An exception is Mr. Valentine, 32, who is being held in Germany after his arrest on a U.S. warrant last week as he was about to board a flight home. He is expected to waive extradition proceedings and go to the United States to face securities fraud and conspiracy charges arising from the sting.
He and his co-accused, Paul Lemmon, a Canadian financial consultant living in Bermuda, are accused of agreeing to pay $7.8-million (U.S.) in bribes to the phony fund representatives.
In return, the fictitious fund was to buy $29.4-million worth of shares in three small tech companies - SoftQuad Software Ltd. of Toronto, C Me Run Corp. of Hudson, Mass., and JagNotes.com Inc. of Boca Raton - from Mr. Valentine and his brokerage firm, the indictment alleges.
The payments were not actually made, and whether anyone agreed to make them has yet to be proved in court. Mr. Valentine's lawyer has said that his client will mount a vigorous defence.
Dealing with smaller sums, the indictment also claims that Mr. Valentine and Mr. Lemmon agreed to pay a $20,000 kickback on a $25,000 stock purchase in a sort of test run, and that, by mistake, the brokerage firm sent back the whole $25,000. The indictment says Mr. Valentine told the FBI agent "to hold the $5,000 as a credit toward the kickback on the next securities fraud deal that they would execute."
Mr. Valentine's career was already in tatters, his right to do business having been suspended by the Ontario Securities Commission amid charges that he acted against clients' interests and led his firm into what the OSC calls a culture of non-compliance with market rules. The once-proud firm has been closed. It is not clear what he was doing in Germany.
Separately, Mr. Lemmon, 39, is charged along with other men in two sting indictments alleging they promised bribes of $5-million in proposed deals worth $14-million in shares of two other obscure enterprises, New Anaconda Co. of Salt Lake City, Utah, and CTC Cosmetics Holdings Co. of Hamilton, Bermuda.
According to the FBI, Mr. Lemmon was an early target of the sting and his island address was one reason it was called Bermuda Short. The name also refers to short selling, a practice sometimes found in the end stage of a pump-and-dump scheme as players bet against the falling stock by selling borrowed shares.
Along with the Canadians, dozens of brokers, promoters and company executives from Florida, New York, Pennsylvania, Colorado and elsewhere allegedly took the phony mutual fund bait. As the FBI tells it, more than $200-million in corrupt stock sales were proposed. Those deals never took place, but the undercover crew is alleged to have extracted hundreds of thousands of dollars in preliminary bribes as it strung the targets along.
As Canadians began showing up, the operation morphed into a joint forces money-laundering sting, the FBI's Mr. Figliuzzi said. "We realized that we were now entering a circle of people that was of great interest to the RCMP."
Including the two Toronto men arrested last week, eight people have been charged with offences related to money laundering. One is American; the rest are British Columbia residents. Some had unblemished reputations, some not.
They include Les Price, a onetime Vancouver chartered accountant expelled from the profession in 1990 for his role in a stock scheme that defrauded two clients; and Martin Chambers, a former Vancouver lawyer who gave up his right to practice after being charged with conspiring to import cocaine in 1981. The drug charge was stayed after two trials and two appeals.
Mr. Rosenfeld, the Toronto lawyer, has had problems too. A U.S. federal judge last year ordered him to pay $2.8-million in civil penalties, interest and disgorged profits relating to a pump-and-dump scheme investigated by the U.S. Securities and Exchange Commission. The scheme involved shares of Atlanta-based Synpro Environmental Services Inc., of which he was once president.
Superintendent Garry Clement, director of the RCMP's national proceeds-of-crime branch, said the targets of the sting were offered piles of $5, $10, $20, $50 and $100 bills.
"It was made well known to them that it was dirty cocaine money and they were told that they wanted this money laundered. In essence, what they wanted to do is have it moved offshore and brought back in a way that it could be transferred to an account which was provided to it and it would appear legitimate."
Like his U.S. counterparts, Supt. Clement maintains that no one was persuaded to do anything out of character.
"There was background done on the individuals as far as bringing them in. The one thing they made absolutely sure of was that these people had a volition to do this, because the one thing we didn't want is to be accused of an entrapment-type scenario. . . . These people, as I said, were willing and able."
That has yet to be proved in court. It will almost certainly be a major issue, along with questions about just what the defendants thought they were agreeing to do. Although most have been released on bail, their responses to the charges remain unclear.
With files from reporter Wendy Stueck in Vancouver