Jeffery Stone and his wife Janette Diller Stone, one-time operators of a now-defunct New York investment firm called Crescent Fund, are not on any government most wanted list. And they aren't exactly hiding, either. But the former Greenwich, Connecticut, residents owe U.S. regulators nearly a half-million dollars in fines and restitution for their part in a five-year-old penny stock manipulation scheme.

The reality is that the U.S. Securities and Exchange Commission likely won't collect a dime from the couple, who have been living in Tokyo for the past four years with their three-year-old daughter. In the meantime, the enterprising husband and wife are busy with a new investment venture -- Wakabayashi Fund LLC -- and if a recent encounter with a Reuters reporter is any indication, they appear to be in no mood to cooperate with the SEC.

They'll have to beat it out of me, said Jeffery Stone, a balding 46-year-old heavy-set man with a goatee. He said he had no intention of ever paying the U.S. regulators who secured a civil judgment against him and his wife in January 2009, referring to them with an expletive involving mothers.

The former Lehman Brothers broker, who spent a year in federal prison a little over a decade ago for his part in another penny stock scam, makes no apologies for raking in more than $1 million from the sale of shares of WebSky, a tiny San Francisco broadband company. Regulators call the Stones' scheme a classic pump-and-dump, charging that they artificially drove up the price of the stock by issuing spam emails to prospective investors and then unloaded tens of millions of shares.

We did nothing wrong, said Stone, who oversees the operations of the Wakabayashi Fund out of the couple's upscale Tokyo home. We took profits and I would do it again, for crying out loud.

His wife of four years, Janette, who was raised in Hong Kong and Taiwan before moving to the United States as a teenager, is more demure: I am just tired of the SEC matter. But she too insists the couple did nothing wrong.


At one time, the idea of a husband and wife team like the Stones working in tandem to orchestrate a securities fraud might seem like a Wall Street novelty act. But that's not the case any more.

While statistics are hard to come by, the number of married couples caught engaging in insider trading, stock manipulation or running a Ponzi scheme appears to be on the rise. In the past three years, at least a dozen legally joined couples have been charged with securities fraud by U.S. regulators or prosecutors.

Some of the alleged scams authorities have busted in the past year include a Ponzi scheme targeting Cuban-Americans in Miami and a fraudulent investment fund managed by a San Diego husband and wife.

In all of these so-called sweethearts-in-crime cases, U.S. authorities say the husbands and wives were working as equal partners in conning ordinary investors out of their money or manipulating the markets to generate a profit.

That represents a change from the past, when one spouse would typically leave the other in the dark. A husband, say, might make illegal stock trades in a wife's brokerage account without her knowledge. Or a wife may talk about some deal she is involved with at work and her husband then goes out and trades on that seemingly innocent pillow talk.

In the granddaddy of all Ponzi cases, Ruth Madoff, the wife of Bernard Madoff, has not been charged with any wrongdoing and it appears unlikely she ever will be. But that hasn't stopped Madoff victims from sniping and the trustee is still seeking to recoup about $45 million from her, claiming she lived in the lap of luxury on his ill-gotten gains.

The growing number of conjugal cons challenges the conventional wisdom that securities fraud is only perpetrated by men in pinstripe suits.

The beauty of these husband and wife cases is that they take advantage of the basic sexism of Wall Street, which is that these women aren't really smart enough to do this, said Bill Singer, a securities attorney, who has defended a number of married couples in his day. But that just isn't true.

Regulators, defense lawyers and criminologists suggest the uptick in securities fraud crimes by couples who love to scam may simply reflect the fact that more women work in Wall Street jobs where they get better access to confidential market-moving information. Or it may reflect the natural ability of married couples to better win the confidence of potential victims than a male swindler acting alone or with other men.

It is pretty easy to look at a guy and be suspicious of him for being too slick, said Michael Benson, a professor at the University of Cincinnati School of Criminal Justice. But if a guy has his wife involved, for some people I can imagine that would be very reassuring.


Some people who have dealt with the Stones over the years said Jeff and Janette, who also goes by the last name Dillerstone, complimented each other well. In conversations, Janette would present a softer and more nurturing approach to business negotiations, helping to smooth some of Jeff's rough edges.

Her nurturing side was on full display during a deposition she sat for with the SEC in November 2007. Janette, who flew from Tokyo to New York for the interview, arrived with her then infant daughter in tow. She took frequent breaks during the nearly two-hours of questioning by an attorney with the SEC's San Francisco office to nurse her baby and change diapers.

At times during the formal interview she appeared distracted and fatigued -- much like any new mother might be. According to a transcript of the proceeding, she talked a bit about the philanthropic work she has done for orphanages in Japan and animal groups like Adopt a Dog in Connecticut.

We don't typically look at women as being offenders, said Mary Dodge, director of the criminal justice program at the University of Colorado Denver and author of the book Women and White Collar Crime. But women now are often in businesses where they have the ability to engage in financial wrongdoing, and it can often be safer to do so with your spouse.

Whatever the cause, the upswing in such cases in just the past year is striking.

Last month, SEC officials in Miami charged Gaston and Teresita Cantens, a well-known south Florida couple, with running a $135 million Ponzi scheme that defrauded hundreds of elderly Cuban-Americans. Regulators contend the high-yielding promissory notes the couple sold were part of a long-running fraudulent scheme to prop-up their failing real estate business and pay themselves exorbitant salaries.

In its civil complaint, the SEC said the couple, both of whom are in their 70s, gained the trust of investors by playing-up their connections to Miami's Cuban exile community and presenting themselves as a pious couple with ties to prominent educational and religious organizations.

Also in March, Boston securities regulators filed a civil complaint against Charles and Kathleen Dobens for their role in a $3.5 million real estate investment scam.

Mohit Khanna and his wife Sharanjit also are alleged to have duped investors with another bogus investment opportunity. Last fall the SEC's Los Angeles office sued the Khannas in federal civil court, claiming the San Diego couple raised tens of millions of dollars for a fund that planned to invest in commercial paper, foreign currencies and other assets. But the money never got invested as advertised and Mohit Khanna never told his investors he was barred from working in the brokerage industry in 2004.

Instead, regulators contend the Khannas siphoned off some of the fund's money to pay personal credit card bills, lease several luxury cars, including a Mercedes Benz and a BMW and pay the mortgages on two mini-mansions in San Diego and Virginia. The couple even used investor money to charter a $37,000 plane flight from San Diego to the Bahamas, the court appointed receiver found.

The trend is not confined to the United States.

British securities regulators recently charged Christian Littlewood, a former investment banker at Dresdner Kleinwort, now part of Commerzbank, and his wife Angie, with multiple counts of insider trading in London-listed stocks. The Financial Services Authority alleges the couple engaged in illegal trading over a nearly 9-year period, which only ended with Christian Littlewood's arrest last April.


In fact, insider trading may just be the perfect crime for the professional couple looking to make a quick score. Daniel Hawke, the director of the SEC's Philadelphia office and head of the agency's new market abuse task force, said it is becoming all too common for people with inside information to look to share it with friends and close relatives -- especially their spouses.

It is something we see over and over again, said Hawke. Maybe it is because the last person in the world you have to worry about turning on you is your spouse.

Hawke said the cases that particularly infuriate him are ones involving spouses who work on Wall Street, or in another well-paying job, and both husband and wife have an obligation to their employers not to wheel-and-deal in confidential information. Yet for some reason the couples are tempted to sully their reputations, ruin their careers and jeopardize their freedom -- sometimes for not that much money.

A case in point is the 2007 insider trading prosecution of Randi and Christopher Collotta. The husband and wife duo were both attorneys, with Randi working in Morgan Stanley's compliance department and Christopher in private practice. Federal authorities charged Randi Collotta with passing on inside information to her husband about several upcoming corporate takeovers that Morgan Stanley was serving as adviser on. Christopher Collotta was charged with sharing those tips with at least one other man in a big 13-person trading ring that generated $15 million in illicit profits.

But the Collottas, for their trouble, made less than $10,000 in kickbacks for passing on the confidential information.

In May 2007, they pleaded guilty and when a federal judge sentenced them later that year he showed some mercy, ordering them both to spend six-months in home confinement. The judge imposed the rather light sentence in part because of Christopher Collotta's poor health -- he is a cancer survivor with heart trouble. The Collottas were disbarred and neither can practice law anymore. The couple, through their attorney, declined to comment.

The Collottas' arrest came a few months before prosecutors and securities regulators nabbed another professional couple for insider trading. In that case, authorities charged former Morgan Stanley finance executive Jennifer Wang and former hedge fund analyst Ruben Chen with insider trading in shares of three companies. Like the Collottas, Wang and Chen also pleaded guilty in 2007.


In the case of the Stones, it was Jeff who came to the relationship bearing Wall Street pedigree, however tarnished.

When Janette and Jeff Stone began dating in 2003, it was about five years after Jeff had completed a one-year prison sentence for his part in a mid-1990s penny stock scheme. Before his conviction, Stone had spent much of his professional career working as a trader and broker in Texas. But after his release, he came north to New York where he met Janette, who was a single, working mom with a teenage son from a prior marriage.

Janette dropped out of college during her first year at San Diego State University to care for her sick father. At some point she moved east and settled in Connecticut, living first in Westport and later Greenwich. Before meeting Jeff, most of her jobs were marketing or public relations positions in the fashion industry. For a time, she and another single mother owned a toy store in Westport, Connecticut.

Still, despite having no Wall Street experience to speak of, it was Janette who was listed as the chief executive officer of the Crescent Fund -- the investment vehicle run by the Stones that would become the subject of the SEC enforcement action that still haunts them.

The Stones operated Crescent out of a so-called virtual office on Wall Street, paying about $100 a month to a company that answered phone calls and collected the mail for them. And while Janette described her husband as merely being a subcontractor for the Crescent Fund, she acknowledged during her SEC deposition that he often took the lead in negotiating investment banking deals with dozens of tiny U.S. microcap companies.

In the WebSky case, the SEC charged the Stones profited by acquiring millions of shares under false pretenses and then hiring stock promoters to hype the stock in a spam email campaign, even though it was a start-up with almost no revenues and no profits. Some of the misleading spam emails talked about WebSky being on the verge of securing a deal that would generate $40 million in revenues.

While Stone remains defiant, he does say he has one regret over the incident.

If I had one wish I would have never brought her in, said Stone, who met Janette in 2003 and married her three years later. I got my wife involved in this ugly arena. She is an extremely talented marketer, a consummate people person, and I thought we could build a good business together. It is unfortunate because she has had to pay the price.

Stone took time to reflect on the WebSky case during a phone call and an impromptu interview at the family's modern three-story house in a quiet Tokyo neighborhood that also serves as the headquarters for the Wakabayashi Fund. The couple runs the fund out of a glass-enclosed trading room, located on the first floor of the home. There is also a basement office with a small bank of phones. Stone appears to work on a regular basis with about four traders, mostly young men in their 20s.

He insists the Wakabayashi Fund is perfectly legitimate and not breaking any securities laws. And he resents people suggesting otherwise, or dredging up his past.

We're not underwriting securities. We're not going out and handling private placements. We're not out there pounding 1,000 shares up Uncle Joe's ass, said Stone, in his typically blunt way. That's not what we do.

But in many ways the Wakabayashi Fund, which boasts a slick-looking website designed by Janette's now college age son, doesn't seem all that different from the way Crescent Fund was set-up.

Wakabayashi periodically sends out blast emails to potential investors about the companies it is doing work for. Once again, Janette is listed as the fund's CEO and Jeff carries the less formal title of adviser. Stone said the fund is named after Janette's uncle, Tadaharu Wakabayashi, who is listed as its chairman.

In a January 13, 2009 ruling in the WebSky case, U.S. District Judge Harold Baer said he was wary about some of Janette's representations about the Wakabayashi Fund because on some transactions her college-age son was listed as the president and not her.

Despite that confusion, it appears Jeff is the person calling most of the shots, just as was the case with the Crescent Fund.

People familiar with the new fund said he is the lead person trying to negotiate investment banking and marketing deals with tiny U.S. companies, in which Wakabayashi gets compensated mainly in stock. The people, who declined to be quoted, said Stone almost never reveals his recidivist past unless confronted with it. Some of those people expressed surprise to learn that Stone had spent time in prison.

Stone said his past scrapes with the law are nobody's business but his. Then he added that he is trying to pull back from the fund's daily operations and pass on the reins to others.

But, by his own admission, it is not clear what else Stone would do.

This is the business and the skill set that I have, said Stone. It's what I know. And we're very effective at what we do. (Additional reporting in Tokyo by Kevin Krolicki, editing by Jim Impoco and Claudia Parsons)