Over at the Journal today, you will find an amazing story chronicling an FBI sting operation called “Operation Pennypincher,” wherein an agent with the Federal Bureau of Investigation posed as a crooked hedge fund manager named John Kelly, of the fictional SeaFin Capital. Starting in 2010, Kelly (real name: John Keelan) invited people to his office, which was “tucked behind an auto-parts supplier in a Boston suburb” and asked them to “help him reel in executives of penny-stock companies willing to pay a huge kickback in return for an investment of up to $5 million by SeaFin.” (Naturally, these meetings were surreptitiously videotaped.)
One of the people with whom Kelly/Keelan took a meeting was Edward Henderson. A 71 year-old retiree from Rhode Island who previously worked as a stockbroker, Henderson was just your average guy looking for a straightforward scam with a nice little payoff. A straightforward legit scam, run by honest, hardworking criminals. So when something in his gut told him, “Hey wait a second…,” he seriously considered backing out of the whole thing, until saying “Fuck it” and going through with it anyway.
Henderson…accepted a $12,650 payment for bringing in a handful of executives even though he feared Mr. Kelly was so brazen about his wrongdoing that the whole thing “could be an FBI sting.” Yet on May 24, 2011, he drove to an upscale Burlington, Mass., restaurant to meet Mr. Kelly for lunch and discuss more deals. Mr. Henderson was busted in the parking lot. (“I never got the lunch,” he later told a court.) Faced with the stark choice of cooperating or facing arrest, a “horrified” Mr. Henderson a few days later admitted his guilt—even confessing to past, undetected insider trading—and told the FBI he would help with its sting.
One of the first phone calls he recorded was with James Prange, a 63-year-old from Greenbush, Wis., with a track record in business that included an attempt to open a bratwurst “Hall of Flame” celebrating the sausage. Mr. Prange also helped penny-stock companies raise money, a job his lawyer later described as “repetitive, frequently frustrating and disappointing.”
Prague– among others ensnared in Pennypincher– is now doing 30 months in a minimum security prison. Perhaps he can use that time to figure out how to successfully relaunch the “Hall of Flame” once he’s on the other side.