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Judge Easy on Stock Fraud Suspect

April 24, 1998

WASHINGTON (AP) _ A former Wall Street broker described as the ``mastermind″ behind a complex stock manipulation scheme received a lenient sentence from a federal judge Friday in return for his cooperation with prosecutors.

Sheldon Kraft pleaded guilty in January to criminal conspiracy to commit securities fraud and money laundering. He had been facing a maximum five-year prison term and $250,000 fine.

But U.S. District Judge Claude Hilton in Alexandria, Va., citing Kraft’s cooperation in the ongoing investigation, sentenced him to three years’ probation and six months of home detention, said Chris Bruno, one of the special assistant U.S. attorneys in the case. The prosecutors had requested a lenient sentence.

Kraft, of New York City, had acknowledged accepting some $1.4 million in bribes from Charles O. Huttoe, former chairman and chief executive of Systems of Excellence Inc.

Kraft was the fifth person to plead guilty to criminal felony charges in the case. In a related civil action in January, he agreed to pay back a portion of what the Securities and Exchange Commission said were his $3.2 million in illegal gains from the manipulation of Systems of Excellence stock. Kraft neither admitted nor denied the SEC’s allegations.

Kraft also pleaded guilty to willfully violating federal tax laws by failing to file an income tax return for 1993.

Federal prosecutors have said the case sends a message that law enforcement efforts will be aimed at the widespread bribing of stockbrokers, in order to protect unsuspecting investors.

Huttoe pleaded guilty in 1996 to criminal charges of violating securities laws and engaging in money laundering. He is serving a 46-month prison sentence.

Prosecutors said Kraft and Huttoe came up with an arrangement in December 1995 to manipulate the price of Systems of Excellence stock, and Kraft used his connections among Wall Street brokers and public relations firms to tout the company’s stock to investors. In return, Kraft’s contacts received free shares from Huttoe, the prosecutors said.

Kraft ``was really the mastermind behind the fraud,″ according to Thomas Newkirk, an associate director of enforcement at the SEC. He has said Kraft ``orchestrated″ the scheme by introducing Huttoe to a network of Wall Street contacts.

As part of his settlement with the SEC, Kraft also agreed to be barred from the securities industry and from participating in any offering of penny stock.

The case was the first in which the SEC alleged stock manipulation using the Internet.

Systems of Excellence, which made video teleconferencing equipment, is now in bankruptcy liquidation proceedings. Its offices were in McLean, Va., and Coral Gables, Fla.

Newkirk said Friday the SEC’s investigation was continuing. The criminal part of the probe is being pursued by Assistant U.S. Attorney Jack Hanly and the two special assistant U.S. attorneys, Bruno and Steve Korotash.

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