Monday, June 23, 2014

Jury Deliberations Continue In Scarfo Fraud Trial

By George Anastasia

The jury completed a fourth day of deliberations this afternoon without reaching a verdict in the FirstPlus racketeering fraud trial of Nicodemo S. Scarfo and six co-defendants.

The anonymously chosen panel of seven women and five men is expected to return to the U.S. District Courthouse in Camden at 9 a.m. tomorrow to resume the process. The panel sent a question to Judge Robert Kugler late in the day that led to some speculation about where the panel is headed.

The question had to do with the interrogatories or predicate acts listed to support the racketeering conspiracy charge that heads the indictment. All seven defendants are charged with conspiracy. The government has to prove at least two of the predicate acts as elements of the conspiracy charge. In response to its question, the panel was told it had to be unanimous in finding two of those acts proven.

"I guess this means they're still on count one," said one defendant as lawyers and other courtroom observers tried to analyze what the question meant.

The case involves 25 counts, but the principal charge is racketeering conspiracy. The consensus seemed to be that the conspiracy charge would determine how the panel would find on each of the remaining counts which were individual crimes that the prosecution argued were part of the larger conspiracy.

The government has alleged that Scarfo and co-defendant Salvatore Pelullo orchestrated the behind-the-scenes takeover of FirstPlus, a troubled Texas-based mortgage company, in the summer of 2007. The indictment alleges that the pair then used phony contracts, bogus consulting agreements and over-priced business acquisitions to siphon $12 million out of the company.

The money was used, the government contends, to support a lavish lifestyle for the lead defendants and to finance the purchase of a yacht, a corporate jet, a Bentley and a home outside of Atlantic City. Scarfo and Pelullo have been held without bail since their arrests back November 2011.

Thirteen defendants were originally charged in the case. Six, including Scarfo's wife Lisa Murray Scarfo, have pleaded guilty.

During jury deliberations, Scarfo and Pelullo are being held in a lockup at the federal courthouse. The other defendants and their lawyers are free to come and go, but are on 15-minute call notice. The jury question this afternoon brought everyone back to the fourth floor courtroom.

Throughout the day, lawyers and defendants can be found at the defense tables in the courtroom, in the hallway outside or at a nearby coffee and sandwich shop. Many are doing work on portable computers at the defense table.

When asked how he was spending his time during deliberations, John Maxwell, the former CEO of FirstPlus and a co-defendant in the case, pointed to his laptop and said, "Been watching a lot of movies."

"These guys are the victims of collateral damage," said a friend and supporter of Gary McCarthy, a lawyer and co-defendant. "The government wanted those two (Scarfo and Pelullo) and didn't care what happened to anyone else. It's a disgrace."

Scarfo and Pelullo are charged in almost every count in the case and have the most predicate acts listed in their interrogatories. Scarfo, for example, is charged with racketeering conspiracy in count one, according to the verdict sheet the jury is working on. The jury is required to find him guilty or not guilty of that charge and to support that finding by answering "yes" or 'no" to eight interrogatories that ask whether the government has proven him guilty of wire fraud, mail fraud, bank fraud, obstruction of justice, extortion, interstate travel in aid of racketeering, money-laundering and fraud in the sale of securities.

There are interrogatories listed for all seven defendants, but Scarfo, 48, and Pelullo, 46, have the most listed under their names.

Other defendants in the case include Maxwell, the former CEO of FirstPlus; his brother, William, who served as an attorney for the company and allegedly funnelled consulting work to Scarfo and Pelullo through FirstPlus; David Adler, a lawyer who specialized in SEC filings, McCarthy, a lawyer who worked on business and financial issues and Donald Manno, Scarfo's long-time criminal defense attorney.

Manno is charged in only five of the 25 counts. The allegations against him center of bank fraud, money laundering and obstruction of justice involving a mortgage for a $715,000 home Scarfo and his wife purchased in 2008 and attempts by Scarfo to subvert the requirements of his probation at the time the FirstPlus fraud was allegedly unfolding.

Scarfo, the son of jailed Philadelphia mob boss Nicodemo D. "Little Nicky" Scarfo, was on supervised release following his conviction in a mob-linked gambling case when the FirstPlus fraud was alleged to have taken place.

His father and jailed Luchese crime family boss Vittorio "Vic" Amuso were named as unindicted co-conspirators in the case with the government alleging that the younger Scarfo and Pelullo consulted with Little Nicky and intended to kick up money to both imprisoned gangsters as part of the scheme.

In addition to the racketeering conspiracy charge, the case includes one count of securities fraud, 17 counts of wire fraud, one count of conspiracy to commit money laundering, one count of conspiracy to commit bank fraud, one count of conspiracy to file a false bank statement and one count of obstruction of justice.

Scarfo, Pelullo and the Maxwell brothers also face weapons offenses.

Jury deliberations began last Wednesday following a six-month trial and more than a week of marathon closing arguments from the prosecution and defense.

The defense has argued that the government overcharged the case, turning a failed business operation into a massive fraud. In fact, the defense argued again and again, FirstPlus failed because of a poor economy and the government investigation that undermined what Pelullo and others were trying to do to rebuild the company. The defense also argued that the prosecution introduced the spectre of organized crime to hype the charges and allegations. They argued that the investigation, which began with the code name "Operation Son Block" and with Scarfo and the mob as its target, went off track because investigators did not understand arcane and detailed financial matters that were at the heart of the operation and various SEC and related filings.

In his rebuttal closing prior to the start of jury deliberations last week, Assistant U.S. Attorney Stephen D'Auganno, the lead prosecutor in the case, told the jury to stay focused on the allegations and the evidence.

"What the defense has tried to sell you as a business model is really a model for fraud," he told the jury.

George Anastasia can be reached as