A jury in the New York State Supreme Court found James W. Margulies guilty of conspiracy, grand larceny, falsifying business records, scheming to defraud and violation of general business law. The date currently scheduled for sentencing is August 9; Margulies could receive up to 25 years in prison. Margulies served both as the CEO and finance chief of Industrial Enterprises of America (IEAM).
Between 2004 and 2008, Margulies and John D. Mazzuto illegally issued 43 million shares of stock to business associates, family, friends, Mazzuto’s alma mater and others. This number of shares greatly exceeded the 15 million shares they were authorized by the SEC to issue to employees and consultants. Furthermore, many of those who had been issued these shares sold them and re-invested in Industrial Enterprises of America, artificially inflating IEAM’s stock value. One stock fraud lawyer stated that Margulies’ and Mazzuto’s fraud cost investors $20 million and the company $90 million.
According to prosecutors, Mazzuto got $12 million from IEAM and spent $5.5 million on two separate homes (one in South Hampton and one in Palm Beach Gardens) and $500,000 on travel via private jets. Mazzuto pleaded guilty in January and agreed to a plea agreement in which he would cooperate with authorities and would receive a sentence of 1-3 years in exchange. Mazzuto testified against Margulies, but the agreement is jeopardized by his two January arrests, both for drunken driving. His sentence is pending and he will appear in court again in September. Because of his violation of the plea agreement, he could, once more, face up to 25 years in prison.
Margulies’ share of the fraud profits was $7 million, with which he paid off his $1 million mortgage, $450,000 in back taxes and other debts he had acquired. In addition, he purchased a ring for his wife which cost $350,000, a second home, and a vacation club membership which cost $500,000, according to prosecutors. Margulies’ bail was set at $1.5 million due to his flight risk, which was supported by the bank account his wife opened in Panama.
Margulies’ lawyers have asserted that his conviction was unfair and that Mazzuto was the “architect” of the fraud. However, Assistant District Attorney Garrett Lynch had this to say in response: “Yes, Mazzuto was the architect, absolutely, but James Margulies was the engineer and the builder. He is the one who figured out how to get it done and he got it done.”