April 9, 2012 / 10:50 PM / in 6 years

Yale donor goes to prison for $110 million stock scam

NEW YORK, April 9 (Reuters) - John D. Mazzuto, former chief executive officer of Industrial Enterprises of America Inc, was sent to jail on Monday for running a $110 million stock scam.

Mazzuto, 63, a Yale University benefactor and former bank director, was the architect of a “pump and dump” scheme at the automotive chemicals company.

He was sentenced in Manhattan Supreme Court to up to 4-1/2 years behind bars. Mazzuto had faced a sentence of as long as 25 years if convicted at trial.

“He co-engineered a massive fraud against the shareholders of a public company by using their stock as an ATM machine,” Thomas Curran, an attorney for IEAM, said after the sentencing. “He got his due.”

IEAM illegally issued 43 million shares of stock worth $90 million and then used the proceeds to inflate the company’s balance sheet. Investors, including an Ohio teachers’ pension fund and the Methodist church, lost more than $20 million, according to prosecutors. Industrial Enterprises filed for bankruptcy in 2009.

Acting New York state Supreme Court Justice Gregory Carro imposed Mazzuto’s sentence on the recommendation of prosecutors.

He was a key witness at the trial of James Margulies, the company’s former finance chief and CEO after Mazzuto. In July, Margulies was found guilty of grand larceny and other charges. He is now serving a seven-to-21 year prison sentence.

At least three other people pleaded guilty for their roles in the scam.

Mazzuto graduated from Yale in 1970 and worked at Chemical Bank for two decades, becoming a managing director in the 1980s.

He created the scam by acquiring a controlling interest in a private company in 2002 then merging it into a shell company that became Industrial Enterprises of America.

Mazzuto bought expensive homes in Southampton, New York, and Palm Beach Gardens, Florida, with his ill-gotten gains.

A onetime short stop at Yale, Mazzuto gave the university shares worth $1.7 million in 2007, according to the Yale Daily News. The Ivy League school later named a field after him.

Last year, the school agreed to pay a $1 million settlement to IEAM for the value of the shares, the paper said. The school said it took the gift in good faith and had no knowledge of the fraud.

Prosecutors originally agreed to sentence Mazzuto to one to three years, but he violated the terms of his plea agreement when he was twice arrested for drunk driving.

“I intend to contribute back to society,” Mazzuto told Carro on Monday.

The case is People v. Mazzuto, 2503-2010, New York state Supreme Court.

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