Almost every month for two years, some 250 investors received monthly statements from an investment partnership indicating that the partnership, Michael Starbuck Inc. and Associates, had made money investing in stock options.
It was only in January of this year that the investors, many of them Christian Scientists, found out their investment of $2.4 million was nearly a complete loss.
Those monthly statements, charges an indictment filed in Albany, N.Y., were part of a complex and elaborate fraud.
The indictment, filed by a grand jury, charges Michael Starbuck, John Starbuck, his brother, Robert Starbuck, his father, and Paul Carmel with over 100 counts of grand larceny, conspiracy, and scheme to defraud, all felonies; and securities fraud, issuing false financial statements, and hypothecating securities, all of which are misdemeanors. Hypothecating securities is the crime of selling or pledging as collateral securities owned by someone else without that person's authorization.
According to Robert Abrams, attorney general for the State of New York, the prosecution is the largest securities fraud case brought in upstate New York in nearly a decade. It was entered in upstate New York because many of the investors in the Starbuck partnership were members of a local church there. However, there were also investors from Florida, Ohio, Arizona, and New York City.
According to a spokesman for Mr. Abrams, the Starbuck case is part of an intensified effort his office is taking toward white collar and organized crime. The special prosecutor's office has been augmented and the attorneygeneral has asked in Albany, the state capital, for stricter legislation regarding securities.
Previously, Michael Starbuck had agreed to a federal court injunction prohibiting him from future violations of the fraud and securities laws.
The Starbucks and Mr. Carmel were arrested in Albany. During their appearance before Albany County Court Judge Joseph Harris, bail was set for $100 ,000 for Michael Starbuck and $50,000 apiece for the other three. The Starbucks and Mr. Carmel all entered pleas of not guilty. They were not available for comment.
At the arraignment, Special Deputy Attorney General David E. Robbins described Robert Starbuck "as a member of a church, [who was] using church membership and ties of friendship with fellow church members to obtain investors in Michael Starbuck Inc."
According to the indictment, the company guaranteed investors profits of 10 to 30 percent, but lost the investors' money speculating in the fast-paced stock options market. The Starbucks were also accused of telling investors there was no risk involved in the investments and their money was completely protected against loss by fidelity bonds, a form of insurance.
The grand jury also charged that the Starbucks had told investors that management fees would be charged only when profits were actually realized, when in fact, "excessively high management fees were charged based on fraudulent profit figure.
The Starbucks had also told investors that their investments would be returned any time they asked. The indictment says this was a false statement.