Embattled baseball donor arrested

Updated, May 25, 5:30 p.m. After months of allegations that John Mazzuto ’70, who gave at least $1.7 million to Yale’s baseball program, had made his fortune through accounting fraud and insider trading, Mazzuto was arrested Monday at his home in Palm Beach Gardens, Fla.

A representative of the Manhattan District Attorney’s office confirmed that Mazzuto was arrested Monday after a yearlong investigation, as was his longtime business partner, attorney James Margulies. Both men have been charged with conspiracy, grand larceny, fraud and falsifying business records in a 57-count indictment that includes stealing more than $60 million from their corporation and its investors.

Mazzuto did not resist extradition from Florida to New York when two officers came to collect him Monday morning, according to the Palm Beach Post.

The company Mazzuto ran when he donated to Yale, Industrial Enterprises of America, declared bankruptcy in 2008. Now under new leadership, the company is trying to recover all the stock Mazzuto took for himself, gave to friends or spent illegally.

Mazzuto and Margulies illegally issued millions of shares of IEAM stock to family, friends and their alma maters, then used creative accounting and securities practices to cover up the scheme, according to Manhattan District Attorney Cyrus Vance, Jr.

“This was the wholesale looting of a public company for greed and self-enrichment,” Vance said. “These defendants defrauded the market, the regulators and their investors to line their pockets.”

IEAM approached Yale in October about returning the gift to the baseball program, which purchased a baseball practice facility and endowed the team’s head coaching position in 2007. But the months of negotiations never led to the money’s return; in April, IEAM’s lawyer said the company was preparing to sue the University for Mazzuto’s money, which it needs to settle its debts in bankruptcy court.

Calling Mazzuto the “architect” of the fraud, the indictment and other court documents show that Mazzuto obtained more than $15 million from IEAM between 2002 and 2009 — when he was legally bankrupt — and used it to pay for lavish homes, vacations and other expenses. He bought a $3 million home in Southampton, N.Y., and a $2.5 million home in Palm Beach Gardens, and spent more than $500,000 to fly on private jets.

Margulies illegally garnered more than $6 million from his involvement, according to the District Attorney.

The two men issued 15 million shares of IEAM stock for profit through a Securities and Exchange Commission filing, even though that specific filing only permitted them to issue stock to employees as part of an employee benefit plan. Selling the stock generated cash for IEAM, inflating its stock price, according to the District Attorney. Margulies and Mazzuto were allegedly able to dupe investors and shareholders by lying to auditors, creating sham transactions and consulting agreements, and misrepresenting profit from stock sales as revenue.

In December, University President Richard Levin said Yale would “do the right thing” regarding Mazzuto’s gift to Yale. Vice President for Development Inge Reichenbach said in February that Yale would not act while Mazzuto was simply under investigation, adding that Yale was cooperating with investigations into Mazzuto by the Manhattan District Attorney and the SEC.

“He’s innocent until proven guilty,” she said at the time. Reichenbach said Tuesday that she had not heard of the arrest until then.

At Yale, Mazzuto was a shortstop on the baseball team and a member of the Delta Kappa Epsilon fraternity.

See previous coverage:

Donor faces scrutiny,” Dec. 4, 2009

Company asks for donor’s money back,” Feb. 1, 2010

Donors researched, not vetted,” Feb. 1, 2010

Baseball gift going to court,” April 7, 2010

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