Ohio Fund Manager Sentenced to 13 Years in Prison Over Stock Scam

Dec 15, 2007 - (Tip Report) Cleveland - An Ohio fund manager described as charming and personable was sentenced to 13 years in federal prison for bilking investors out of millions of dollars.

David A. Dadante, 53, was sentenced to federal prison Friday by U.S. District Judge Kathleen O'Malley following a two-year investigation by the FBI and SEC after being found guilty on two counts of securities fraud in August.

Dadante had swindled investors out of $28 million, which he had accumulated through a Ponzi scheme through IPOF investment fund which he formed in 1999. Court records indicate that Dadante had used the money invested in his fund to bankroll his lavish lifestyle, Vegas gambling trips and cocaine habit.

In reflecting on Dadante's actions Friday at his sentencing, Judge O'Malley said the stock swindler's actions were just "outright total greed."

The whistle-blower testifying against Dadante was stock broker Stephen Glantz, who helped Dadante by manipulating stock values of a thinly traded Duluth, GA-based company that provides call center services. Glantz, 54, of Chagrin Falls, received a three-year prison sentence Thursday.

Dadante had accumulated nearly 35% control of Innotrac Corp. (Nasdaq: INOC) through Glantz. At his sentencing Friday, Dadante's attorney was quoted as saying that his client was not a financial wizard as the prosecution had portrayed and that he relied on the expertise of his stock broker, Glantz, in buying INOC shares.

"He didn't know Innotrac from Krispy Kreme," defense attorney Mark Stanton told the Baltimore Sun in a telephone interview.

Earlier, the U.S. District Court in Cleveland had appointed a receiver to oversee the liquidation of stocks held in Dadante's IPOF fund. In early November, the Court granted an extension to the receiver, barring the sale of Innotrac and other securities until Feb. 1, 2008.

The SEC is looking into Gantz' trading activities at Baltimore brokerage Ferris Baker Watts where he worked.

Dadante had bilked nearly 100 investors out of $28 million in which 20 of the sore losers were in Court Friday to see the Fund Manager sentenced. The Fund had collapsed in 2005 and had been under investigation following it's downfall.

Newspaper reports portrayed Innotrac as a worthless pennystock, yet on November 13, 2007, bizjournals.com reported that INOC earned 8 cents a share in the third quarter compared to a 4-cent share loss in the same period last year.

With INOC trading on the Nasdaq at $3.50 a share and earning $1 million in the third-quarter you can hardly call the call center provider 'worthless'. Yet Innotrac's president has to be losing sleep, knowing this huge block of stock is overhanging the market. Innotrac had reported that sales grew over 60% for the nine months ending Sept. 30, 2007, yet at the same time, the company also said AT&T had decided sometime in 2008 that it would halt the outsourcing of its call center work through Innotrac - which represents 13% of the company's revenue. While Dadante's Ponzi scheme wasn't mentioned in AT&T's decision, odds are the telco giant looked twice at Innotrac's situation and may have made its decision based on the mess Dadante caused.

Perhaps in this case, Innotrac should be named 'innocent'. It is possible that Innotrac's board is looking into legal action to prevent the IPOF court appointed receiver from dumping shares in the first quarter of next year. It poses an interesting legal question as to whether Innotrac has grounds to appeal to the SEC in restricting the shares once controlled by the convicted stock swindler, Dadante, who supposedly remains free on bail.