Wednesday, June 4, 2014
A federal prosecutor used mobster Nicodemo S. Scarfo's own words today to describe the alleged takeover and looting of a Texas-based mortgage company that is at the heart of what authorities charge was a $12 million scam orchestrated by Scarfo and his business partner Salvatore Pelullo.
"Layers upon layers, like an onion," Scarfo, 48, said in a secretly recorded telephone conversation with Pelullo, 46, that was picked up on an FBI wiretap back in 2007 as authorities contend the takeover of FirstPlus Financial was unfolding.
For nearly three hours today, Assistant U.S. Attorney Stephen D'Aguanno, the lead prosecutor, detailed the allegations in the racketeering conspiracy case against Scarfo, Pelullo and five co-defendants. D'Aguanno said underneath those layers of the onion -- false SEC filings, phony stockholder reports, bogus consulting contracts and fraudulent business purchases and expenses -- was the financial scam that poured millions into the pockets of the two lead defendants.
"They're joined at the hip, from their criminal activities to their alleged business activities," D'Aguanno said of Scarfo and Pelullo, who frequently referred to each other as cousins even though there was no blood relationship.
In a closing argument that signaled the beginning of the end of the five-month long trial,
D'Aguanno called Pelullo the "de-facto" head of FirstPlus Financial. He said Pelullo "controlled" the company and that he "reported" to Scarfo. Both men had lucrative consulting contracts once they secretly took control of the company's board of directors in the summer of 2007, the prosecutor alleged.
Co-defendant William Maxwell, a lawyer on a retainer of $100,000-a-month to FirstPlus, helped set up those consulting agreements with Seven Hills Management, Pelullo's company, and Learned Associates, Scarfo's front, according to the prosecution who spoke for nearly three hours to the 16-member (four are alternates) jury panel.
D'Aguanno is expected to complete his arguments tomorrow. He will be followed by attorneys for the seven defendants. Jury deliberations are likely to begin late next week or early on the following week.
The prosecutor, who spearheaded the FBI investigation that began seven years ago, said Pelullo had a contract similar to Maxwell's that paid him $100,000-a-month. Scarfo's contract called for $33,000-a-month. He later had another contract with Maxwell for $150,000-a-year, the prosecutor said.
None of those deals were ever disclosed in SEC filings or reported to company shareholders, said D'Aguanno who then asked the jury a question that he repeated again and again - "Why?"
The answer, he said, was because the deals were part of a massive fraud set up by Scarfo and Pelullo, both of whom had criminal records that would have had to have been disclosed had their names been listed on company filings. Pelullo has two prior fraud convictions and was cited in the past for lying to the SEC, D'Aguanno said. Scarfo has two prior convictions linked to organized crime gambling and racketeering cases.
In their closings, defense attorneys, as they have throughout the trial, are expected to argue that the failures of FirstPlus were not caused by fraud, but by a poor economy. Defense attorneys have also argued that the government has interjected the presence of organized crime in the case to sensationalize what would otherwise be mundane financial charges that have little basis in fact. They also have contended that any chance FirstPlus had of succeeding ended when the FBI staged a series of raids in May 2008, seizing company records and assets.
Michael Farrell, one of two court-appointed attorneys representing Pelullo, is scheduled to offer the first defense closing after D'Aguanno completes his address. Farrell, a high energy litigator with a loud and aggressive courtroom style, is expected to take three or four hours. With no court on Friday, Farrell's closing could roll into Monday. The closings from the other lawyers could take the remainder of the week. The prosecution gets a final rebuttal closing before the case goes to the jury.
Today was a clearly one-sided prosecution summation of evidence and testimony that began back in January and finally concluded last week.
D'Aguanno told the jury that the criminal enterprise at the heart of the FirstPlus fraud was not the mob, but the Scarfo-Pelullo organization. He said, however, that both men used the reputation of organized crime to bolster the threats and extortion that allowed them to take over the company in the summer of 2007.
Scarfo's father, jailed Philadelphia mob boss Nicodemo D. "Little Nicky" Scarfo, and Vittorio "Vic" Amuso, the jailed leader of the Luchese crime family, were named as unindicted co-conspirators in the case. The elder Scarfo exercised "influence and control" over his son and Pelullo, D'Aguanno said, adding that both mob leaders -- even though they were in jail -- were to share in the financial benefits of the takeover.
Scarfo Sr. and Amuso were fellow inmates at a federal prison in Atlanta in 2007. Pelullo and Scarfo Jr. visited the elder Scarfo several times and discussed the FirstPlus takeover with him, D'Aguanno charged. Scarfo Jr. has been identified as a made member of the Luchese organization.
D'Aguanno also said a prison phone conversation between the two Scarfos in which they mentioned taking care of "Uncle Vic" was a coded reference to Amuso and his potential share in the looting.
Scarfo Jr. was on probation at the time the fraud unfolded, D'Aguanno said. He said that Pelullo, William Maxwell and Donald Manno, a co-defendant and longtime criminal attorney for Scarfo, were part of a scheme to lie to the probation department about Scarfo's associations and job opportunities in an fraudulent attempt to have his probation restrictions lifted.
If Scarfo had gainful, legitimate employment as a consultant for FirstPlus, why not just tell that to the probation department, D'Aguanno asked? The reason, he said, was that that disclosure might have led to government inquiries into what he was doing and disclosed his relationship with Pelullo.
Ironically, D'Aguanno said, authorities were already investigating those connections while Scarfo and the others tried to hide them.
Other defendants in the case include William Maxwell's brother, John, who was the CEO of FirstPlus after the alleged takeover and attorneys David Adler and Gary McCarthy who handled business and SEC filings for the company.
D'Aguanno opened his remarks by playing a tape for the jury in which Scarfo and Pelullo laughed and joked about the untimely passing of J.D. Draper, a FirstPlus insider who authorities said helped the two plan the behind-the-scenes takeover.
Draper, who was named compliance officer of the company, died unexpectedly of a heart attack in December 2007. On the tape, Scarfo and Pelullo mockingly talk about how they are broken up by his passing.
D'Aguanno said Draper was one of the few insiders who knew all the details of the scam and his passing eliminated any concerns on the part of Pelullo or Scarfo that he might turn on them and go to authorities.
"I'm crushed, tears are coming to my eyes," Pelullo said on the tape which was played twice during the trial and a third time today.
After more mock comments about sorrow and condolences, Scarfo told Pelullo that Draper's death was "one thing I know you can't take credit for."
But the government contends that Pelullo, in secretly recorded conversations and in emails, took credit for nearly everything else that brought him and Scarfo behind-the-scenes control of the company. And all of it, D'Aguanno said today, was based on fraud.
George Anastasia can be contacted at George@bigtrial.net.