STERLING FOSTER

But the more than 10,000 victims of the deception may soon get something that defrauded investors almost never do: money. Prosecutors and regulators are putting the finishing touches on a $30 million to $35 million restitution fund that should provide some badly needed relief to victims many of whom have been waiting up to four years to recoup on their losses.

The scorecard of deceit in the Sterling Foster affair is simply stunning: Nearly $200 million in investor losses, a scam that involved three brokerage firms, scores of rogue stock brokers, and 11 tainted initial public offerings. The scam was so infamous it served as some of the inspiration for the movie "Boiler Room," last year's big-screen flick about small-time stock manipulators.

The Sterling Foster affair even caused some headaches for a rising national political star. In March 1996, Sen. Robert Torricelli, a New Jersey Democrat who was then a U.S. representative, made a $52,000 one-day profit in one of the manipulated stocks. A blind trust established by Torricelli to manage his investments quickly bought and sold shares in Compare Generiks on the stock's first day of trading. Torricelli has never been implicated in the scheme. But Lawrence Penna, a principal in one of the Sterling Foster-related boiler-room operations shut down by federal and state authorities, subsequently pleaded guilty in 1999 to making illegal contributions to Torricelli's 1996 U.S. Senate campaign. A wide-ranging federal investigation into Torricelli's fundraising and finances continues, even as the Sterling Foster matter wraps up.

But after four years of grand-jury proceedings, court hearings and guilty pleas, federal prosecutors and regulators are finally getting ready to begin returning some of the ill-gotten gains to investors who can prove they lost money in one of the 11 stocks brought to the market by Sterling Foster and its allies. The money comes from sentencing deals authorities have struck with some of the 58 defendants indicted in the Sterling Foster prosecutions. The restitution fund, currently held in a bank account controlled by the U.S. Marshal's Office and earning interest, is one of the biggest funds ever established by federal authorities in a boiler-room scam, sources say.

Within the past few months, letters have been sent to some 6,000 investors known to have been customers of Sterling Foster and the two other brokerages involved in the fraud, Investors Associates and VTR Capital. Already more than a thousand people have filed claim forms seeking compensation at a special Web site set up in the case. And several thousand more have left messages with a telephone hotline (1-800-397-4185). A legal advertisement announcing the beginning of the restitution process appeared last week in The Wall Street Journal.

As in many boiler-room scams, the corrupt brokers at Sterling Foster, Investors Associates and VTR Capital pushed virtually worthless microcap stocks on unsuspecting investors by claiming the tiny securities were destined to skyrocket. In many cases, the companies behind these stocks were barely functioning entities. But while the brokers were pumping these stocks, other brokers associated with the firms were selling thousands of shares at greatly inflated prices. The stock prices crashed when the brokers stopped pumping the shares, and they refused to honor investors' sell orders.

"This process is intended to identify the victims who were customers of the three broker-dealers and purchased one or more of the 11 stocks," says attorney Robert Romano, a partner with Latham & Watkins. (The 11 fishy stocks, most of which no longer trade at all and none of which trade on a major exchange, were: Compare Generiks, Lasergate, Embryo Development, ML Direct, D cor Group, Advanced Voice Technologies, Applewoods, Interiors, Perry's Majestic Beer, Superior Supplements and Com/Tech Communication Technologies.) A federal judge appointed Romano to oversee the claims process. Romano says he'll review all the claims and make a recommendation later this year to the judge about which ones should be paid. "We'll work out a pro-rata number," says Romano, noting the restitution fund won't have enough money to compensate investors for all their losses.

A complete list of restitution funds can be found on the SEC's Web site And more funds are on the way. Several securities lawyers say the SEC will soon announce the establishment of a $15 million restitution fund for the victims of Stratton Oakmont another infamous Long Island boiler room that served as training ground for many of the rogue brokers at Sterling Foster, Investors Associates and VTR Capital.

But it's the dogged determination of regulators and prosecutors in the Sterling Foster cases that's making even long-time critics stand up and applaud. "A $35 million fund is pretty significant in this kind of scam," says Mark Maddox, an Indianapolis plaintiffs' attorney and past president of the Public Investors Arbitration Bar. "They did a very good job shaking the pockets of the bad guys. They don't do it enough and they don't do it well enough, but they did it in this case."

Of course, one reason prosecutors have been so successful in the Sterling Foster cases is because they were able to find defendants who hadn't frittered away all the loot they'd stolen. Still, it would be nice if what's happening with Sterling Foster were to become the rule in stock-scam cases rather than the exception.