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.

Inside One of the U.S.’s Biggest-Ever Investment-Fraud Stings [WSJ]

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Comments (15)

  1. Posted by Quant me maybe ... | July 7, 2014 at 1:17 PM

    The FBI later revealed that Prange, 63, was relieved to find out that not only would he not have to take early parole but once released from prison his tennis elbow would soon fade and he would immediately qualify for the full social security benefit.

    >This is one way to take early retirement, I guess.

  2. Posted by Guest | July 7, 2014 at 1:24 PM

    Worst codename since Operation "Insideryay Adingtray"

  3. Posted by Short, But Long | July 7, 2014 at 1:32 PM

    Conjugal visits…? I don't think so.

  4. Posted by InfiniteGuest | July 7, 2014 at 1:55 PM

    Which part of this financing scheme is illegal?

    (Asking for a friend)

  5. Posted by The 90s Calling | July 7, 2014 at 1:59 PM

    A 50% kickback for raising $5.0mm for a penny stock company you say?… I'll raise you the 7% "underwriting" fee for theGlobe.com IPO

  6. Posted by Danker_Banker | July 7, 2014 at 2:41 PM

    30 months in prison will definitely make him a sausage expert

  7. Posted by E. Texas Gas Trader | July 7, 2014 at 2:41 PM

    "…….A straightforward legit scam, run by honest, hardworking criminals………."

    When I read that I recalled my pleasant lunches with Enron back in the day…….

  8. Posted by Snicklefritz | July 7, 2014 at 2:51 PM

    Prague ……Prague ……..Prague

  9. Posted by Guest | July 7, 2014 at 4:19 PM

    Even my two-year old knows not to traffic in penny stocks.

  10. Posted by KingCo | July 7, 2014 at 4:56 PM

    Pro-tip: when a "hedge fund" manager has a wicked Southie accent and offices above Advance Auto Parts, it's time to leave.

  11. Posted by John | July 7, 2014 at 5:25 PM

    I'm glad we are sweeping up the retired stock brokers who are trying to scam people out of a few thousand dollars. That is getting right to the heart of corruption in the financial industry

  12. Posted by friv 3 | July 9, 2014 at 5:26 AM

    Those of the interesting information you always bring out the best that I know, thanks.

  13. Posted by minecraft 7 | July 9, 2014 at 5:29 AM

    A good informative post that you have shared and appreciate your work for sharing the information.

  14. Posted by Cheesehead | July 11, 2014 at 10:29 AM

    The FBI has been trying for decades to crack the Greenbush Wisconsin organized crime syndicate.

  15. Posted by RichT | July 12, 2014 at 5:00 PM

    Perhaps if the Boston office of the FBI/DoJ had been paying attention to real criminals and not "PennyPinching", during this same timeframe, they might have caught the Boston bombers before they were able to explode their devices, and save the death and bloodshed visited upon many innocent citizens due to the authorities' incompetence.