"Inveterate con man" gets 85 years prison for fraud

* Irving Stitsky sought nine years prison, plans appeal

* Stitsky’s Cobalt accused of defrauding investors

* NY state court allows case against Cobalt lawyers

* Case involves an “admitted Ponzi scheme”

By Jonathan Stempel

NEW YORK, July 6 (Reuters) - A New York man convicted of defrauding more than 250 people in a $23 million real estate scam was sentenced on Tuesday to 85 years in prison by a federal judge who called him an “inveterate con man.”

Irving Stitsky, 55, was one of three men convicted in November for defrauding investors through a group of companies named Cobalt.

In a separate ruling issued on Tuesday, a New York State appeals court unanimously reinstated claims by two Cobalt victims accusing some of that firm’s outside lawyers of aiding the “admitted Ponzi scheme”.

Federal prosecutors said the scheme involved use of a Great Neck, New York-based telemarketing center in which callers made misrepresentations about investments in residential real estate developments, including many that the defendants did not own.

They said Stitsky, a former managing partner at Cobalt Capital Funding LLC, and co-defendants William Foster and Mark Shapiro diverted millions of dollars of investor funds for their own benefit.

“This was a vast securities fraud preying on individuals who were for the most part not particularly sophisticated in investing,” U.S. District Judge Kimba Wood said at the hearing, according to a statement released by prosecutors.

Adding Stitsky was “just as the government describes, an inveterate con man,” Wood said his conduct “warrants very severe punishment.”

She also ordered Stitsky to pay $22.1 million in restitution and forfeit $23.2 million. The defendant lives in the town of Milan in upstate New York, prosecutors said.

Stitsky was sentenced to 21 months in prison in an unrelated case in 2002. Four years earlier, he had been barred from the securities industry over his role at Stratton Oakmont Inc, a well-known “boiler room” operation, court records show.

Denis Kelleher, a lawyer for Stitsky, had sought a nine-year prison term in the latest case. “We are extremely disappointed in the court’s sentence,” Kelleher said in an e-mail. “We will appeal both the conviction and sentence.”

A Manhattan jury found Stitsky guilty of two counts of securities fraud, one count of wire fraud, one count of mail fraud, and one count of conspiracy after a three-week trial.

Foster, of East Hampton, Massachusetts, and Shapiro, of Avon, Connecticut are scheduled to be sentenced on July 26 and 29, respectively, prosecutors said.

In the state case, the defendants’ lawyers claimed that the Cobalt victims did not sufficiently allege their claims.

But appeals court Justice Sallie Manzanet-Daniels wrote for a five-judge panel that “this court cannot and will not endorse what is essentially a ‘see no evil, hear no evil’ approach.” The panel reinstated in the case.

“It’s a great ruling,” said Donald Chase, a partner at Morrison Cohen LLP representing the two Cobalt victims. “It’s the right message to send to lawyers at this time: you cannot turn a blind eye when your client is committing fraud.”

Lawyers for defendants in the state case did not immediately return calls seeking comment.

In a Ponzi scheme, funds from new investors are used to pay earlier investors.

The federal case is: U.S. v Shapiro et al, U.S. District Court, Southern District of New York, No. 06-cr-00357. The state case is: Oster v. Kirschner et al, New York State Supreme Court, Appellate Division, First Department, Nos. 1432, 1433. (Reporting by Jonathan Stempel, Editing by Leslie Gevirtz)