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Monday, July 18, 2011

Documents reveal jailed Nicky Scarfo Sr along with Nicky Jr played role in Texas fraud case

Jailed mob boss Nicodemo "Little Nicky" Scarfo played an active role in setting up a scheme to defraud a Texas financial firm of millions of dollars while sitting in a federal penitentiary in Atlanta, new documents in a Dallas bankruptcy case contend.
But whether the 82-year-old mob boss will be indicted is one of several issues that prosecutors in the U.S. Attorney's Office in Camden are wrestling with as the FirstPlus Financial Group investigation draws to a close.
Scarfo's son, Nicodemo S. Scarfo, 46, and Elkins Park businessman Salvatore Pelullo, 45, have been identified as the primary targets of the investigation, which included a series of raids more than three years ago at businesses and homes in Texas, Pennsylvania, and New Jersey.
Nicodemo Scarfo MugshotNicky Scarfo Sr
In 2007, according to an 83-page civil complaint filed by attorneys for the FirstPlus court-appointed bankruptcy trustee, Pelullo orchestrated a scheme in which FirstPlus paid "millions of dollars for essentially worthless companies" that he and the younger Scarfo controlled.
The companies were set up in Philadelphia and Atlantic City to engage in construction and restoration projects. One did insurance adjustments, and another was set up as a training school for restoration work.
Officials with the U.S. Attorney's Office in Camden have declined to comment.
But a law enforcement source familiar with the criminal investigation said last week that the bankruptcy document was "a very good summary of what went on."
The source also said an indictment would be returned soon but said no decision had been made on whether the elder Scarfo, serving a 55-year sentence for racketeering and murder, would be charged or simply listed as an unindicted coconspirator.
He is not eligible for parole until 2033, so his sentence is, in effect, a life term.
The bankruptcy complaint filing on behalf of Matthew D. Orwig, the trustee, repeats several allegations contained in earlier documents in a FirstPlus Chapter 11 proceeding under way in Dallas.
But it also contains new allegations, including the assertion that accountants and lawyers working for FirstPlus were, in fact, looking out for the interests of the so-called Pelullo group.
In contends that Pelullo, who has two fraud convictions, handpicked individuals to sit on the company's board of directors. Those members, the trustee alleges, approved purchases and expenditures without due diligence.
This was part of a "scheme to siphon millions of dollars" from the company, the complaint alleges.
Pelullo and the younger Scarfo, through their lawyers, have denied any wrongdoing.
The case, built on piles of documents, includes wiretapped phone conversations, e-mail correspondence, and information provided by individuals who at one point worked for the company or for the Pelullo group, according to investigative sources.
The elder Scarfo's role includes a prison phone conversation in which he and his son discussed the role of an Atlantic City criminal-defense lawyer they had tapped as chairman of the FirstPlus board in 2007.
Harold Garber, who died in August 2007 shortly after his appointment to the board, had represented the elder Scarfo and his nephew and reputed mob underboss, Philip Leonetti, in the 1980s.
Garber's license to practice law was suspended for a year after he was cited for ethics violations involving a murder case in which Leonetti was charged. The murder charge was dismissed after a key witness recanted his testimony. Garber represented the witness at the same time that he represented Leonetti, authorities said.
How Garber, a New Jersey lawyer, ended up on the board of a troubled Texas financial firm was one of several questions that attracted investigators to the FirstPlus case.
The bankruptcy filing alleges that in a taped phone call, the Scarfos "discussed how Harold Garber was instrumental in the takeover" of FirstPlus.
Garber, who had cancer, died shortly after authorities alleged that Pelullo and the younger Scarfo had begun siphoning money out of FirstPlus through the purchases of worthless companies and the payment of exorbitant consulting fees.
The bankruptcy document details what it describes as "insider transactions" in which Pelullo, Scarfo, and the companies they controlled received more than $7.3 million and more than two million shares of company stock.
The trustee described those transactions in less than glowing terms, referring to the board of directors "rubber stamping" one deal based on a "bogus" financial report, and said another had been built around a "baseless valuation analysis."
In addition to what it described as fraudulent "insider transactions," the complaint cited "miscellaneous" and "professional and legal fees" paid to the Pelullo group in June and July 2007 totaling more than $1.5 million.
All of it, according to a law enforcement source, was part of a scheme by Pelullo to create a "veneer of legitimacy."
FirstPlus, originally based in Irving, Texas, was a high-flying financial company that dealt in subprime mortgage lending.
It originally filed for bankruptcy in 1999. But the reorganized company retained potentially millions of dollars in secured loans, and those so-called "residuals" began flowing back into the company's coffers around 2006.
In 2007, according to the complaint pending in bankruptcy court, the "Pelullo Group learned about the [company's] cash position and identified [FirstPlus] as an ideal target."



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