Police Link Organized Crime to Stock Scam

Court documents allege Markham man is key in the Cosimo Commisso family
and is tied to a pump-and-dump fraud

By Tony Van Alphen & Nick Pron
The Toronto Star
February 28, 2007

Friends know him as the soft-spoken owner of a popular garden centre north of Toronto, a family man who financially supports minor hockey teams.

But in court documents obtained by the Toronto Star, the RCMP alleges Aneillo (Neil) Peluso is a key member of the Cosimo Commisso organized crime family and a major player in a multi-million-dollar Bay Street "pump-and-dump" stock fraud.

Last September, Canada's national police force charged Peluso – a tall, 47-year-old businessman with no criminal record – and two other men, with conspiring to manipulate the share price of a junior company and turn it from a penny stock into a must-have investment.

Its only real asset was a stake in a flooded mine in Northern Ontario.

The Mounties allege the scheme at Pender International could have netted players more than $360 million, but regulators stopped all trading among a group of related companies responsible for most of the action in late 2004.

Peluso's lawyer, Alan Gold, said last night that the allegations in RCMP affidavits about his client's ties to an organized crime family are worthless.

"They're not worth the search warrant paper they're written on," he said in an interview.

Gold added allegations in such affidavits and publication of them are unfortunately the price of freedom of the press.

He also said the fraud charges against Peluso in the Pender case are before the courts and his client will vigorously defend against them.

While detectives originally focused on members of "Italian-based traditional organized crime," according to the documents used to obtain search warrants, the investigation later mushroomed into a number of other areas that made headlines across the country.

In one case, a senior Toronto prosecutor resigned when he got caught up in a sting operation that ended with a prominent lawyer going to jail for money-laundering. Then there was a series of corruption charges laid against officers with the Toronto police over allegations they were extorting from bar owners in the entertainment district. Other officers faced disciplinary charges for their involvement with a used-car dealer, but when one was exonerated, he sued the force for allegedly smearing his name through leaks to the media.

Detectives also uncovered what they described as another Bay Street fraud, and are awaiting, according to the heavily edited documents, "the laying of charges."

It was expected that most of the cases, the main investigation and the offshoot probes, will be before the courts for years, all covered by traditional publication bans. But the unsealed documents used by investigators with the Combined Forces Special Enforcement Unit are open to public scrutiny, offering a rare glimpse into this city's organized crime underworld.

A potential witness in the Pender fraud case is terrified for his life, a court heard yesterday, and is asking that he be identified only as X, Y and Z. A hearing date has yet to be set on his request.

After getting a judge's approval for search warrants and wiretaps, detectives quietly began their investigation in April 2001, based out of a secret office in the north end of the city.

At the time of the charges, the RCMP did not disclose any details publicly about Peluso's background.

His alleged involvement in Pender became apparent during an investigation called Project Ora, which targeted Commisso and "his group" for their involvement in "criminal offences" and other alleged crimes, which were blacked out on the documents.

In the documents, Commisso was described as one of the heads of the "Italian-based organized crime group."

One affidavit described Peluso as "a high ranking member of Cosimo Commisso's organized crime group."

A footnote in the same police affidavit also disclosed that the special enforcement unit had been targeting "Commisso and his associates such as Neil Peluso for their alleged involvement" in criminal offences. Details of that activity are blacked out.

The affidavits are only allegations of wrongdoing by the police and have not been proven in court.

The RCMP says the charges in the separate Pender probe against Peluso represent one of the rare occasions where police have arrested an alleged top mobster for stock fraud in the half-century since organized crime groups began infiltrating stock markets.

Ontario government corporate records show Peluso owns Tree Valley Garden Centre, with operations in Stouffville and Richmond Hill. The government information and RCMP do not make any allegations against the company.

Peluso lives in a large home inside a gated enclave next to a golf course in nearby King City. Acquaintances describe him as unassuming and friendly. His garden centre has supported community activities, including the sponsorship of minor hockey teams.

Although Peluso has no criminal record, the RCMP affidavit said he experienced at least one brush with the law several years ago.

York regional police charged him with four counts of assault, including two with a weapon. But the Crown dropped the charges in 2002.

Among the criminal counts in the Pender case, the RCMP charged Peluso with assault causing bodily harm and robbing a businessman.

Furthermore, the RCMP said Peluso and his alleged partners, Michael Lee Mitton and Michael Ciavarella, used accusations, threats or violence in efforts to induce a Pender public relations officer to do "one or more things" relating to the company for their own financial gain.

The force did not provide any further details about the alleged extortion, robbery and assault.

In the allegations, the RCMP charged the trio with fraud over $5,000 and conspiracy to commit fraud in connection with manipulating the public market price of Pender in Canada, the U.S. and elsewhere between May 2004 and July 2005.

Police say individuals in the case artificially boosted Pender's stock through phoney promotion and trading among related companies and then sold shares at a profit before investors discovered they had been duped.

Ciavarella, 44, and Mitton, 48, also face money-laundering charges. Police allege they possessed $243,991.39 (U.S.) with knowledge that some or all of it was obtained directly or indirectly from crime.

Police declined to elaborate on how they calculated the amount of the alleged $360 million fraud but some brokerages lost money.

For example, HSBC Securities claimed in a lawsuit it advanced funds to the trading account of one company with ties to Pender and found itself short $2.6 million (U.S.) when cheques for stock didn't clear. HSBC said it also issued loans of about $900,000 to parties with possible links to the alleged fraud.

Peluso and Ciavarella, a former Pender president, are free on bail with restrictions. In Peluso's case, three relatives, including his wife and father, pledged $1.2 million (Canadian) in sureties to ensure he was freed on bail.

As conditions of his release, the court ordered Peluso to surrender any guns, resign from senior corporate positions and refrain from contact with more than 84 specific individuals who could be witnesses in the case.

One unsealed affidavit describes a phone call between Peluso and Ciavarella in which they discuss issuing press releases to explain Pender's meteroic rise on the stock markets, worrying that the public might not believe that a penny stock worth 10 cents one day went up "all of a sudden" to $5 a share.

Mitton eluded police for nearly four months after they charged him. They finally took him into custody last month in downtown Toronto.

He remains in custody, but is no stranger to jail after racking up more than 100 criminal convictions during his career, primarily relating to stock market frauds in British Columbia.

The short, portly built man has been described by a judge as a "professional swindler." The B.C. Securities Commission called him a "classic financial predator." Securities regulators in B.C. and Alberta have imposed permanent trading bans on him in recent years.

He owes more than $425,000 in fines and penalties to the B.C. commission and several million dollars in restitution orders to brokerages and investors.

Before heading to B.C. in the mid-1980s, Mitton had spent time in prison on several fraud convictions in Montreal.

He was out on parole again when the Ontario Securities Commission found suspicious trading at Pender in late 2004.

Pender, which traded on the electronic NASD over-the- counter board, originally started as a furniture importer in 1998 but later turned itself into a "merchant bank."

Pender's share price shot up from 30 cents (U.S.) on Oct.14, 2004, to $11.35 within 35 trading days despite no significant corporate developments. The company's only tangible asset was an indirect stake in a flooded mine in Northern Ontario.

The commission halted trading in Pender stock by Mitton, Ciavarella and related companies in December 2004 and the RCMP's Integrated Market Enforcement Team stepped in. The RCMP team began a probe and executed more than a dozen search warrants on banks, brokerages, phone companies and Mitton's penthouse in Markham over the past two years.

Another police affidavit said the penthouse had the same address as one of the companies that traded heavily in Pender stock.

After the Ontario Securities Commission halted trading by companies in the alleged fraud, phone records showed numerous phone calls between Mitton and Peluso, the documents said.

Another RCMP affidavit said HSBC Securities indicated it appeared Ciavarella, the head of Pender, purchased and sold its shares between related accounts at different brokerages.

Meanwhile, investigations that arose from the original project remain before the courts.

One case involves allegations of corruption against two Toronto police officers accused of shaking down bar owners in the entertainment district. A second case involving a used-car dealer ended up with several Toronto officers charged internally under the Police Services Act.

One of them, Robert Correa, eventually exonerated at a police tribunal, later sued the force, alleging that officers with internal affairs, along with then-chief Julian Fantino, deliberately fed misinformation to the media to discredit him. Those allegations, hotly denied, have not been tested in court.

Another probe, called project "OJUST," ended with prominent lawyer Peter Shoniker pleading guilty to money-laundering. A judge sentenced him to 15 months in jail.

A senior Toronto prosecutor quietly resigned from the Crown attorney's office after police disclosed his role in the case – directing an undercover officer with stolen union funds to speak to Shoniker.

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