Federation of Connecticut Taxpayer Organizations

HARTFORD - The link between a Windsor-based investment partnership backed with state pension money and a convicted stock swindler tied to organized crime is stronger than had been suspected by the state treasurer, who last week asked federal investigators to probe the connection.
The partnership known as Pioneer Ventures Associates, which included friends and campaign contributors of Gov. John G. Rowland, pumped more than $9 million from the state pension fund into a now-defunct company called America's Shopping Mall Inc.
The investment, which consultants hired by state Treasurer Denise L. Nappier now value at just $178, represents the single-biggest loss among the companies in the Pioneer portfolio.
A report that America's Shopping Mall filed with the Securities and Exchange Commission four years ago - months after Pioneer made its initial investment in the business - reveals that the company's stockholders included the convicted stock promoter, Abraham Salaman of New Jersey, as well as several members of his family and a firm said to be under Salaman's control.
The majority of the common stock in America's Shopping Mall was owned by its senior executives and their families, according to the company's report to the federal regulatory agency, called an SB-2.
Nevertheless, the Salamans held thousands of shares and stood to benefit from a proposed stock sale the company was "registering" with the report.
Nappier had learned that Pioneer had an indirect link to Salaman, her spokesman, Bernard Kavaler said this week.
But he added that Nappier hadn't been aware Salaman and his family owned stakes in America's Shopping Mall.
Salaman, of Cherry Hill, N.J., was one of 19 people indicted by a federal grand jury three years ago in a stock-manipulation scheme that The New York Times described as "Goodfellas meets Boiler Room."
Prosecutors in the U.S. attorney's office in Brooklyn, N.Y., alleged it was a "pump and dump" ploy in which partners secretly bought big blocks of stock in four companies, boosted the stocks' value by spreading false information, and then quickly sold out.
The gangsters, who included the brother-in-law of Mafia hitman-turned-informer Salvatore "Sammy the Bull'' Gravano, furnished protection from irate stockholders not in on the scheme, they added.
Authorities also said $60 million in profits was skimmed from the illegal stock sales from 1993 to 1996 and then laundered, often though offshore bank accounts, the Philadelphia Inquirer reported.
Salaman, then 65, was charged with three counts of racketeering conspiracy and securities fraud. He pleaded guilty in 2001 to "knowingly and willfully conspiring to defraud the United States."
Salaman was sentenced to a year in home confinement to be followed by five years' probation and ordered to have no further involvement in the securities industry "in any way."
He also was fined $25,000 and required to pay restitution of $25 million over his probationary period, but the government later agreed to having the restitution order vacated.
Salaman reportedly also was associated with a 1970s stock fraud scandal involving the former New Jersey-based Magic Marker Corp. The value of that company's shares had been inflated in an illegal scheme said to be orchestrated by Harry Blumenfeld, a business associate of legendary Mafia financier Meyer Lansky.
America's Shopping Mall, which was based in New Jersey but incorporated in Nevada, had an unusual corporate history, in which Pioneer often played a significant role.
Another company incorporated in Nevada, Initio Inc., had used money from Pioneer in 1998 to buy the "Deerskin Trading Post" and "Joan Cook" catalog operations, which sold leather items, housewares, jewelry, and gift items. That purchase caused Initio's stock price to spike, a development that allowed one of Pioneer's founders, Robert A. Lerman of West Hartford, to do some profitable insider trading on the day after its announcement by selling 6,400 of the Initio shares he held personally.
Initio, however, soon decided sell its new mail-order division to a company incorporated in Virginia called Advanced Medical Services, which purported to manufacture blood drugs before abandoning the health-care business in 1996.
Advanced Medical Services in the sale also assumed about $2 million of Initio's debt to Pioneer.
Advanced Medical Services subsequently incorporated America's Shopping Mall as a new subsidiary and sold $4.2 million in preferred stock to Pioneer.
By July 1999, Advanced Medical Services had changed its name and actually merged itself into America's Shopping Mall. It also put the second of Pioneer's founders, John F. Ferraro of Southwick, Mass., on its board of directors.
That panel also included several individuals who had been associated with either Advanced Medical Services or its catalog businesses, along with a man the company described to the SEC as the owner and manager of "a sandwich shop'' who "also manages a real-estate partnership.''
America's Shopping Mall identified Salaman as a shareholder when it informed the SEC of a proposed sale of $5 million in common stock in December 1999.
That was seven months after Pioneer became the owner of all of the preferred shares in America's Shopping Mall through its initial $4.2 million investment.
Pioneer put another $2.7 million in state pension money into the company in 2000, when America's Shopping Mall also confessed in another report to the SEC that it had taken $1 million from the proceeds of its sale of preferred stock to Pioneer, opened an account with a brokerage firm, and began buying and selling and putting call options on common stocks.
It admitted that the move violated its agreement with Pioneer but added that one of the companies in which it invested was Initio, where Ferraro is also a director.
America's Shopping Mall lost a total of $441,006 on its securities trading that year, according to the report.

The company's former chief executive officer, Irwin Schneidmill, last year told a trade publication, Catalog Age, that it had been "foreclosed by its secured creditors and liquidated by outside sources.''
The state pension fund is the sole limited partner in Pioneer, which is owned equally by two entities, Pioneer Ventures Corp. of Windsor and Allied Management Partners of West Hartford.
Lerman and Ferraro run the former group while principals in the latter include lawyer Jon C. Peters of Hartford, real-estate developer William B. Collins of West Hartford, Meriden lawyer and former state prosecutor Thomas P. Cadden, and James Mengacci, a Naugatuck funeral director whose sister-in-law is Rowland's executive secretary.
Pioneer has focused on privately traded preferred shares and convertible securities in a curious clutch of companies, rather than on common stocks bought and sold on the stock exchanges.
Overall, the Pioneer portfolio has performed very poorly, according to the treasurer's consultants, now worth $31,633,730 - a $19,043,600 loss.
The partnership, however, was controversial before Silvester committed first $50 million, then another $25 million to it - the latter as a lame duck - because Rowland had forwarded a Pioneer "offering memorandum" to Silvester's predecessor, former state Treasurer Christopher Burnham.
Burnham ignored the proposal, but Silvester - whom Rowland named treasurer after Burnham acquit to take a private-sector job - has said he was "pressured" to make the deal because Pioneer's backers promised to contribute to the governor's 1998 re-election campaign.
Rowand, Lerman, and Peters have adamantly denied that there was such a scheme.
But state campaign-finance records show 13 people linked to Pioneer gave Rowland $34,000 in that campaign, including Lerman and Ferraro, Lerman's wife and son-in-law, and investors like Geoffrey C. Rowntree of West Hartford.
Meanwhile, Silvester, who was convicted on federal racketeering and money-laundering charges in 1999, testified in a corruption trial last summer that Pioneer was the only "bad deal" he did.
who say the partnership's total investment of $50,666,330 in state pension funds is Nappier, who as treasurer oversees the pension fund, demanded that Pioneer return the $25 million Silvester authorized after she defeated him in the 1998 election, She also has tangled repeatedly with Pioneer over its valuation of "unrealized" assets and at one point formally forbade the partnership from making more investments.
Nappier last week asked Connecticut's U.S. attorney and the SEC's regional director in New York to investigate the circumstances surrounding "at least one investment" Salaman was said to have brought to Pioneer.
The treasurer also said she wanted prosecutors and the SEC to check out a New York Post business columnist's claims about criminal connections between Pioneer, Salaman, and Michael Lauer's Connecticut-based Lancer Management Group, a purported billion-dollar group of hedge funds that was shut down in July by the SEC, which said they were essentially worthless.
Nappier's call drew a quick rebuke from Rowland, who said the treasurer "shouldn't be impugning people's reputations and, you know, slurring people who haven't done anything wrong."
Rowland also suggested that Nappier's comments were politically motivated since she had said in a Journal Inquirer interview two weeks before that she was considering running for governor.
Kavaler, Nappier's spokesman, responded that she had a responsibility to bring to the appropriate authorities "information of serious concern." He also noted Lerman had confirmed that the partnership had "business relationships" with firms and individuals linked to organized crime.