The testimony that follows in these hearings will relate to the formation and activities of the Zurich International Investment Corp. and to the criminal activities of several persons affiliated with it.

The staff first obtained information on this corporation from Louis P. Mastriana who will testify later in these hearings. Mr. Mastriana, at the time we first interviewed him, was known to us as a dealer in stolen securities in the Miami, Fla., area who was awaiting sentence for crimes relating to those activities.

Mastriana agreed to cooperate with the subcommittee and among other things, provided us with copies of what purported to be letters of credit in the amount of $6 million, showing undefined transactions between Credit Suisse, Zurich, Switzerland, and Chase Manhattan Bank.

He also provided copies of what purported to be separate letters of credit which were to be used as the basis for loan commitments all over the United States. Mr. Mastriana identified Dominic Mantell, an individual who had been previously identified in hearings before this subcommittee in 1963, as an organized crime figure from the Buffalo, N.Y., area, as a prime mover in the Zurich International Investment Corp., along with one Ernest Shinwell, a citizen of England.

Mastriana further identified other south Florida residents as swindlers involved in the distribution of Zurich International Investment Corp. paper. Among those were Philip M. Wilson, Neil Maloney and Harold Audsley.

Mastriana also provided documentation to show that Audsley was involved in the distribution of fraudulent loan schemes on behalf of a firm known as the First Southern Investment Corp. of Charlotte, N.C.

Mastriana further identified several victims of these schemes and the identity of several banks which had been victimized by himself and others.

About the same time as our first interview of Louis Mastriana, we were contacted by one David Slater. Slater related that while in Panama, he became acquainted with the Shinwell-Mantell group and provided us certain information regarding the movement of stolen securities in Panama and Switzerland, and provided us certain documentation which led us to certain bank and brokerage accounts in the United States which showed the flow of stolen and counterfeit securities and their use in Panama.

At about the same time, a major insurance company advised us that they had been in contact with an individual in south Florida who had provided them information concerning the flow of stolen securities in the south Florida area. This individual was identified as Herbert E. Creekmore.

Creekmore was interviewed, and he also provided information and documentation relating to the Shinwell-Mantell group and their use of stolen securities in Panama, Los Angeles, the Miami-Fort Lauderdale area, and elsewhere.

Both Slater and Creekmore will testify in these hearings.

The staff immediately began intensive investigation of the activities of Dominic Mantell, Ernest Shinwell, Philip Wilson, Neil Maloney, Harold D. Audsley, and others associated with them.

We learned that Harold Audsley had been arrested in March of 1971 on two separate occasions for attempting to place stolen securities in

two seperate banks; one in the New Orleans, La., area, and another in Tampa, Fla.

We further determined that in the New Orleans bank, Audsley had intended to fund a letter of credit issued by the Zurich International Investment Corp. in the amount of $300,000 payable to one Wayne Cantrell who was then the manager of a bank in Berwick, La.

With Harold Audsley when he was arrested in New Orleans was one William DeGironemo who was employed as a stockbroker in Bache & Co., Fort Lauderdale, Fla. DeGironemo was interviewed by the staff and after several interviews, admitted that the securities which Audsley obtained prior to his arrest in New Orleans, were provided by an individual named Pat Lepera.

At that time, Lepera was serving a prison term at Eglin Air Force Base, having been convicted in a stolen securities case in Newark, N.J. Lepera was interviewed and admitted that he had had extensive dealings with Harold Audsley and admitted that he provided Audsley with stolen securities which he had received from organized crime figures in New York and Florida. Lepera stated that the profits from these transactions were distributed between himself and major organized crime figures in Florida and New York, whom he identified to us. In addition, Lepera provided us with details which enabled us to issue subpenas for certain bank records which tended to corroborate to a great extent, certain of his transactions with Harold Audslev.

In addition to admitting numerous transactions with Harold Audsley, Lepera detailed other transactions involving stolen securities in which he was a participant. Lepera has testified before this subcommittee in executive session under a grant of immunity from the U.S. district court.

His testimony in the public session which will follow, will give the subcommittee and the Congress a clear insight into the operation of organized criminals in the field of stolen securities and will show the magnitude of the operations of persons who allegedly operated many fraudulent schemes by using such paper.

By studying the Zurich International Investment Corp. case, certain principles common to all such frauds will become apparent, but most of all, it will show how a group of swindlers aligned with organized crime suppliers of stolen and counterfeit securities, are able to reap huge illegal profits by using legitimate banks, both in the United States and abroad, to act as props for their schemes.

Since the close of our 1971 hearings, the Department of Justice has successfully prosecuted several major cases involving the type of frauds that we have under investigation.

In the case of the Transcontinental Casualty Insurance Co., Ltd., the Government convicted more than 12 defendants in what was described as the biggest mail fraud case in history.

At one point, Transcontinental Casualty had issued a financial statement reflecting assets of over $290 million, most of which, it claimed, was held in trust in an offshore bank called the Bank of Sark.

The operators of this scheme divided their activities into "domestic" and "foreign" and successfully functioned from September 1968 to roughly September 1971.

The domestic facet of Transcon consisted of issuing worthless loan commitments for advance fees while reinsurance from Lloyds of London member firms, was the best source of foreign revenue.

During its lifespan, it is estimated that the operations of the Transcontinental Casualty Insurance Co. filched over $40 million from the public.

One of the main operators of this scheme, Philip M. Wilson, has since his conviction been cooperating with the Government and is scheduled to testify in several major fraud cases which have been indicted by the Department of Justice.

Wilson has also cooperated with this subcommittee and will testify in these hearings. His statement will add additional evidence to the nature and scope of this type of white-collar crime.

In another major prosecution since the close of our 1971 hearings, the Department of Justice convicted eight individuals for their activities in issuing and manipulating the stock of the Picture Island Computer Corp., using false and fraudulent balance sheets and by sophisticated manipulation in the over-the-counter market, the operators of Picture Island Computer Corp., who included several major organized crime figures, were able to reap profits in the millions of dollars.

The Department of Justice has also recently returned an indictment against Ernest Shinwell, Dominic Mantell, and 12 others in a case involving the movement and placement of some $18 million in stolen and counterfeit securities. This case, in some respects, parallels the subcommittee's investigation of the activities of Shinwell and Mantell. The Department of Justice has also indicted Ernest Shinwell and others for transportation of stolen securities to Europe for placement in various banks. These securities were a part of a multimillion-dollar theft from the Jefferies Bank Note Co. of Los Angeles, Calif.

It should be noted that Shinwell was arrested in Luxembourg on or about June 15, 1971, for attempting to place stolen securities in the Investors Bank of Luxembourg. His arrest in Luxembourg evidently aborted a plan of the Shinwell-Mantell group to transfer some £20 million worth of assets to the Banco Exterior, just around that time. The staff obtained by subpena from Bank of America, San Francisco, copies of certain Telex messages between Investors Bank of Luxembourg and Banco Exterior, Panama, showing that Shinwell's company, Intercopa, S.A., was planning to transfer assets in that

amount.

We also, by subpena, obtained records from the Chase Manhattan Bank, New York, regarding the alleged transfer of some $6 million in the form of a letter of credit from Credit Suisse in Zurich.

Chase Manhattan stated they had no record of ever receiving such a letter of credit nor did they have any accounts of either Zurich International Investment Corp., of Intercopa, S.A.

They did provide documents which showed that Chase Manhattan had received inquiries from various individuals and corporations who had purchased letters of credit of Zurich International Investment Corp.

The information obtained from Chase Manhattan seems to indicate a massive fraud was attempted with the swindlers trying to use the name of that bank as a prop for their fraud. The same type of fraud may have been attempted against Credit Suisse in Zurich, however, the bank secrecy laws of Switzerland have to date, prevented us from obtaining any records which would definitely show whether the Shin

well-Mantell group had accounts at that bank and whether they deposited stolen securities in that bank.

However, through information and documentation developed by David Slater while he was in Panama, it shows that stolen securities were placed in Credit Suisse by the Shinwell group and later transferred to Banco Exterior in Panama.

It should be understood that both the Bank of America and the Chase Manhattan Bank were fully cooperative with our investigation and there is no evidence to suggest that they were in any way a part of any fraudulent scheme involving the Zurich International Corp., or Intercopa, S.A., the corporate vehicles which were used by the Shinwell-Mantell group.

That concludes my statement, Mr. Chairman. At this time I would like, with the chairman's permission, to include in the record certain bank records and other documentation we have received in this investigation relating to the placement of stolen or counterfeit securities in the places I have mentioned.

Chairman JACKSON. Will that be all one exhibit?

Mr. MANUEL. Yes, sir.

Chairman JACKSON. Without objection, that will be marked for identification as exhibit No. 30.

[The documents referred to were marked "Exhibit No. 30" for reference and may be found in the files of the subcommittee.]

Chairman JACKSON. Mr. Manuel, I would like to commend you for an excellent statement. It is well reasoned. It is obvious that you have been on top of this one.

We are most appreciative for the foundation that you have laid here in connection with the testimony that we will receive from the other witnesses during the next 3 or 4 days.

I would just like to ask one question: Much of the role of the swindler, to use a general term, relates to that part which gives him a base overseas, does it not, in this kind of an operation?

Mr. MANUEL. That is correct, Mr. Chairman.

Chairman JACKSON. Without overseas connections and without the overseas laundering process, much of this could not be accomplished. Mr. MANUEL. That is correct.

Chairman JACKSON. This is something that the committee, as we take the testimony, will want to go through very carefully.

The other thing that impressed me in your statement is that after putting together these phony financial statements, then they always seem to find a CPA who will verify a fraudulent financial statement.

Do you find that the laws in most States are inadequate in this regard, or will a CPA get around it by some fine print down below saying that they have not verified the detailed representations that appear in the financial statement?

Mr. MANUEL. Usually there is very fine print in the auditing procedure and in what purports to be a certification. We have studied many of these balance sheets and found that the auditor involved very often qualifies what he says by language which would indicate that he hadn't actually examined the assets, or in the alternative that they were presented to him in such a fashion that he is not going to comment.

Chairman JACKSON. Sort of an equity funding type of audit.

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Mr. MANUEL. But the purpose, as far as the swindler is concerned, is to have a verification which he can present.

Chairman JACKSON. Once the CPA's label is on there, then there is immediately attached some credibility to the audit.

Mr. MANUEL. Correct.

Chairman JACKSON. What have you found thus far with the local officials, because most of it relates to local law? What have they done about these fraudulent audits?

Mr. MANUEL. In general, Mr. Chairman, I would have to answer that question by stating that in the past I believe local law enforcement has been very ineffective against this type of crime for the simple reason that, as I pointed out in my statement, these types of crimes are not limited to any one jurisdiction.

It is very confusing to local law enforcement officials to have one part of a fraud in their jurisdiction but the part where they can really investigate and prosecute is in somebody else's jurisdiction.

I think I would have to conclude that local law enforcement has been ineffective in this type of crime because of the well planned nature by the swindler in laying the groundwork for his companies.

Chairman JACKSON. Which means that once again this committee will probably be called upon to make recommendations about Federal legislation dealing with this situation in which the Federal Government does have jurisdiction through interstate commerce power and

so on.

Mr. MANUEL. Most of this type of crime, Mr. Chairman, is interstate in nature.

Chairman JACKSON. So there is no question about Federal jurisdiction.

Mr. MANUEL. I would think not.

Chairman JACKSON. Senator Huddleston?

Senator HUDDLESTON. Mr. Manuel, your investigation indicates that there is a developing and growing group of professional confidence men involved in these schemes.

Do you have an idea just when this type of operation began to reach such large scale?

Mr. MANUEL. An educated guess, Senator, would be it started to snowball since the late 1960's. Activities of this kind certainly were in existence prior to that date, but I think the development of an organized concept of swindling, where swindlers cooperate with each other, take advantage of each other's swindles. I think this has been developing since the late 1960's, and coincides, in my view, with the development of massive traffic in stolen and counterfeit securities.

Senator HUDDLESTON. And the rate of development has been, would you say, very rapid since that time?

Mr. MANUEL. I would say so.

Senator HUDDLESTON. Does the investigation indicate that there are integrated operations, that is, does one group participate all the way through the scheme from the stealing of the securities or the developing of the fraudulent securities on up through placing them in the banks and developing the credit references and so forth?

Mr. MANUEL. It varies. We found that it varies with the particular scheme that you are talking about. The one that we are going to present in testimony with the witnesses who follow shows that there is a con