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May 26, 2010 1:10 PM

Prominent Yale Donor and Former Outside Counsel Charged with Fraud

Posted by Brian Baxter

[Correction - The original post misidentifed John Mazzuto, in the first paragraph below, as James. We regret the error.]

The New York County District Attorney's Office has charged John Mazzuto, former CEO of Industrial Enterprises of America, and James Margulies, an outside lawyer, with running a $60 million stock scheme.

Margulies, a founding partner of Cleveland-based Margulies & Levinson, served as outside counsel to Industrial Enterprises and briefly was its top executive in 2008. He also served on the company's board of directors and worked as its CFO and general counsel.

Prosecutors claim that both Margulies and Mazzuto conspired to make phony stock grants in an effort to boost Industrial Enterprises's share price, which would allow the defendants to sell their worthless stocks in the company and its subsidiaries at inflated prices.

Mazzuto, who donated $1.7 million to Yale's baseball program (the money helped put his and his wife's names on a field at the school), is accused of using proceeds from his illicit stock sales to fund a lavish lifestyle. According to the indictment, the Palm Beach Gardens, Fla., resident also owns houses in Southampton, N.Y., and has spent more than $500,000 on private jets.

Mazzuto earned roughly $15 million from the scam, while investors lost $60 million. Margulies, 45, is alleged to have reaped $6 million from his role in the fraud. The New York Times reports he spent $350,000 on a Harry Winston diamond ring for his wife.

Guy Petrillo, a former head of the criminal division at the U.S. attorney's office in Manhattan and a founding partner of New York's Petrillo Klein, is representing Margulies. Petrillo, who did not immediately respond to a call seeking comment, was a partner at Dechert until January 2008 when he replaced Lev Dassin as head of the criminal division. He set up his own shop with former federal prosecutor Joshua Klein in January.

Mazzuto, 61, has turned to Richard Asche of New York's Litman, Asche & Gioiella for counsel. Asche, who did not immediately return a phone call requesting comment, once represented Israeli-American lawyer Shamai Kedem Leibowitz, recently suspended from practicing law in New York for disclosing classified government information to a blogger.

At a hearing in state court in Manhattan on Tuesday, a judge set bond for Mazzuto and Margulies at $2 million and $650,000, respectively, according to a report by Bloomberg.

The D.A.'s major economic crimes bureau, a unit created in February by new Manhattan district attorney Cyrus Vance to fight financial fraud, is prosecuting the case. Senior investigative counsel Harold Wilson and assistant district attorney Garrett Lynch, a former associate at Keker & Van Nest, are leading the team handling the case against both defendants.

 

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It was John Mazzuto not James. Please correct the article. Thanks

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