The $5,000,000 Swindle

In court, his lawyer described him as "the finest type of Californian." He had been president or chairman of ten companies, a director of 16, a member of the best clubs. But last week San Francisco's backslapping, bearlike Virgil David Dardi, 57, paced nervously in Manhattan's West Street jail, unable to raise $100,000 bail. He had just been sentenced to seven years in prison for his part in one of the most ingeniously bizarre stock swindles in modern history--after the longest criminal trial in U.S. Federal Court history (TIME, Feb. 22). The activities of Dardi's United Dye & Chemical Corp. cost some 3,000 small stockholders across the U.S. an estimated $5,000,000 and involved an improbable cast of Las Vegas gamblers, Wall Street respectables and well-known swindlers.

Clean Front. Dardi's downfall began in 1953 at a Manhattan cocktail party, where he met Lowell M. Birrell, a charming but ruthless looter of companies who has since fled to Brazil and is under indictment for fraud. Birrell was then in control of United Dye, but he needed someone to give him a clean front. He saw in Dardi qualities that he admired; for one thing, Dardi had been involved in some business deals with another Birrell crony, brilliant and amoral Financier Serge Rubinstein (who was later mysteriously strangled in his luxurious home on Manhattan's Fifth Avenue). Dardi snapped up Birrell's offer to him to become chairman of United Dye.

Birrell then persuaded the board to permit the transfer of many of United Dye's assets to worthless insurance companies that he controlled. After he had managed to siphon off some $2,000,000 of the company's assets, Birrell sold his 38,500 United Dye shares. They went to another swindler. Alexander Guterma, who installed himself as chairman and Dardi as president.

The United Dye board, which controlled 90,000 of the 152,000 shares outstanding, then approved an ingenious Guterma plot to print thousands of additional shares and dump them on the public--at a profit. First it proposed a merger with little-known and profitless Handridge Oil Corp., which was controlled by Chairman Guterma and Las Vegas Gamblers Samuel Garfield and Irving Pasternak. Terms: 575,000 new shares of United Dye, worth $18 million, for 575,000 shares of Handridge, whose assets had been bought from Texas Wheeler-Dealers John and Clint Murchison Jr. for a mere $519,000. Remarkably, this deal was approved with a minimum of investigation by the New York Stock Exchange.

Stoking the Boilers. The Guterma-Dardi group then attacked the problem of dumping 575,000 new shares of United Dye stock on the market without depressing the price. Instead of selling the new shares through the New York Stock Exchange, they engaged seven boiler rooms to float the stock on the over-the-counter market, got touters to push the stock with false claims. To keep the stock up and lure more gullible investors, United Dye engaged a shady bank in Tangier to buy the old shares listed on the Big Board, which were so thinly held that a few purchases were enough to maintain the price. After the Guterma-Dardi group unloaded its stock at a total profit of some $5,000,000, United Dye crashed from $15 to less than $1.

His shenanigans netted Dardi a profit of $150,000. He still protests that he was the dupe of predatory companions. But Alexander Guterma, who made the big killing and is now serving a five-year jail term, turned state's evidence against him. Three of the boiler room operators were sentenced to jail terms ranging from four to six years, on top of stiff fines. As for Dardi, U.S. Prosecutor Gerald Walpin nicely summed up his education in finance: ''He served his apprenticeship with Serge Rubinstein, got his master's degree with Lowell Birrell and his Ph.D. with Alexander Guterma."

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