Judge Losing Patience As Defense Challenges Mob References

By George Anastasia
For Bigtrial.net

Salvatore Pelulluo and Nicky Scarfo Jr. used their mob connections to intimidate and silence officials at FirstPlus Financial Group while setting up and carrying out the multi-million dollar looting of the Texas-based company, federal prosecutors contend.

And for that reason, they argue, evidence demonstrating ties to La Cosa Nostra were legitimately presented to the jury during the FirstPlus fraud trail and should not be grounds for dismissing the convictions that were delivered back in July.

Scarfo and Pelullo "allowed various FPFG officials to learn of (their) affiliation with organized crime," Assistant U.S. Attorney Steven D'Aguanno wrote in a 103-page response to a defense motion asking that the convictions be dismissed and a new trial ordered.

"That knowledge caused those officials to refrain from challenging Pelullo's and Scarfo's control of the company" and allowed Pelullo and Scarfo to carry out the "takeover and looting" of the Texas-based mortgage company, the prosecutor wrote.

U.S. District Court Judge Robert Kugler has scheduled a hearing for Friday on the defense motion and government's response. Scarfo, Pelullo and brothers John and William Maxwell, who were also convicted, are scheduled to be sentenced in January.

All four defendants have joined in motions seeking to have their convictions overturned and a new trial ordered. The principal defense argument is that neither the evidence nor the testimony supported the government's contention that the looting of FirstPlus was an organized crime scheme. Introducing the spectre of the mob, the defense argued, created undue prejudice and denied the defendants a fair trial.

Kugler has dismissed similar defense arguments in both pre-trial motions and during the six-month
trial. It is unlikely the judge would reverse himself, but the motions set the stage for what is likely to be protracted appeals by the defendants, all of whom could be facing lengthy prison terms.

Scarfo, 49, and Pelullo, 47, both have prior federal convictions and could be looking at from 30 years to life. John Maxwell, the former CEO of FirstPlus, and William, a lawyer retained by the company during the scam, do not have criminal records and will probably receive substantially less time.

It also appears the judge's patience is running low with regard to the constant bickering and posturing in the ongoing legal battle. In a brief letter to Michael Riley, Scarfo's court-appointed lawyer, Kugler sounded a bit miffed over a request for an extension of time requested by the defense attorney in order to review the transcript of a recent hearing. Kugler said he was surprised that review had not been undertaken before the defense began slinging its charges in post-trial motions.

"I would have hoped that before attacking the ruling of a court, one would at least review the ruling if for no other reason than to accurately depict what happened," Kugler wrote last week. "But that seems to be a theme here."

The defense has labeled the alleged scam a "garden variety white collar crime" that had nothing to do with organized crime. Given the amount of money that was taken -- in excess of $12 million -- that would be quite a garden.

In response to the government's reply brief, Pelullo's lawyers continued to hammer away at the same themes, arguing in a 24-page response filed last Friday that the organized crime allegations, the alleged threats made by Pelullo to FirstPlus employees and the judge's decision to have an anonymous jury "all resulted in a miscarriage of justice."

The defense contends that the prosecution's arguments were both "inaccurate" and "contemptuous" and that the government's conclusions were "unsupportable, unreasonable and often simply ludicrous." That verbal bombardment is expected to continue when the sides square off in person in front of Kugler on Friday.  

In its legal brief, the prosecution has argued that there was ample evidence to show that Pelullo and Scarfo used their mob ties to insinuate themselves into the company and to instill fear in any company official who might have raised questions about who they were and what they were doing.

While neither Pelullo nor Scarfo held any position in FirstPlus, the prosecution argued that Pelullo, an Elkins Part businessman with two prior federal fraud convictions, was the "de facto" head of the company after he and Scarfo took behind-the-scenes control by installing their own board of directors in the summer of 2007.

That "figureheard board," D'Aguanno wrote, took directions from Pelullo who was listed as a consultant but who in fact was the "de facto Chief Executive Officer."

Pelullo was described as an "associate" of both the Philadelphia crime family and the Luchese organization, a New York/North Jersey mob family. Scarfo was identified as a "made" or formally initiated member of that organization.

The government's response to the defense motion highlighted several of the key issues raised during the trial, including references to frequent meetings and phone calls in which either Pelullo or Scarfo discussed the FirstPlus scam with Scarfo's jailed father, Nicodemo "Little Nicky" Scarfo, the former head of the Philadelphia mob.

The elder Scarfo, 84, was serving a 55-year sentence for racketeering and murder in a federal prison in Atlanta at the time. He was visited on almost a monthly basis by Pelullo while the scam was unfolding in 2007 and early 2008, prosecutors said. Scarfo and a fellow prison inmate, Luchese crime family boss Vittorio "Vic" Amuso were named unindicted co-conspirators in the scam.

Among other things, the prosecution contends that Amuso and the Luchese crime family were to share in the looting of the company. This was in part an obligation the younger Scarfo had to the crime family to which he belonged. It also was a payback, authorities contend, for Amuso interceding after the younger Scarfo was shot and nearly killed at Dante&Luigi's Restaurant in South Philadelphia on Halloween night 1989.

The shooting effectively ended any attempt by the elder Scarfo to control the Philadelphia crime family from prison after he was jailed in 1986. Amuso, according to testimony, arranged to have the younger Scarfo formally inducted into the Luchese organization. That membership, according to underworld protocol, made any future attempts on his life unlikely.

Prosecutors contend that one recorded conversation between the two Scarfos in which they discussed "Uncle Vic" sharing in the FirstPlus bounty was a clear reference to Amuso.

The government conceded the defense point that the FirstPlus investigation grew out of an organized crime probe into reports that the elder Scarfo, through his son and with the backing of the Lucheses and other New York mob families, was attempting in 2006 and 2007 to wrest control of the Philadelphia crime family from the anti-Scarfo group that was then in control.

The FirstPlus scam was uncovered during that probe and then became the focus of the investigation, prosecutors said. But providing the jury with the background and genesis of the case did not create undue prejudice and was not grounds for dismissing the convictions, the government argued.

Evidence of mob involvement, D'Aguanno wrote, "was also relevant to prove how the fraud was successfully concealed and to rebut the defense that the takeover...was a legitimate, albeit aggressive corporate takeover."

D'Aguanno cited testimony from a company official who said he attended the celebratory dinner in October 2007 after the Pelullo/Scarfo group had taken control following a shareholders vote that day. The dinner took place in a private room at Del Frisco's, a popular steakhouse in Dallas that Pelullo frequented.

"Pelullo was seated at the head of the table while a violinist played the theme from The Godfather," D'Aguanno wrote. "When the board member asked William Maxwell why Pelullo needed bodyguards, Maxwell explained that Pelullo did consulting work for the mob."

William Maxwell, the prosecutor said, also told the board member that he was working on a legal brief and attempt to have the elder Scarfo's conviction overturned. If he succeed, Maxwell told the board member, he "would be set for life."

"The board member's belief that Pelullo's control of FPFG was backed by (the mob) deterred the board member from contracting law enforcement officials about the defendants' scheme to defraud FPFG," the prosecutor argued.

Evidence introduced during the trial indicated that Pelullo and Scarfo took $12 million out of the company through a series of phony consulting contracts and bogus business deals. The cash was used to finance a lavish lifestyle. Pelullo bought a Bentley Continental for $217,000. He and Scarfo purchased a yacht for $850,000 and Scarfo and his then new wife, Lisa Murray-Scarfo obtained a fraudulent mortgage on a $715,000 home outside of Atlantic City.

Scarfo's wife, who pleaded guilty to a bank fraud charge, and his cousin, John Parisi, who pleaded to a fraud charge linked to one of the straw companies, are scheduled to be sentenced on Nov. 17.

The case included hundreds of wiretapped conversations as well as thousands of company documents, including emails which showed, the government contends, that Pelullo clearly was directing the company.

The Maxwell brothers, according to the prosecution, were aware of what was going on and helped expedite the fraud.

The government dismissed John Maxwell's claim that he was only following the advice of legal and financial advisors hired by FirstPlus.

"With respect to the securities fraud conspiracy, Maxwell conveniently ignores the government's evidence which demonstrated that (he) clearly understood that Scarfo and Pelullo were in control of FPFG and that Maxwell knowingly falsified SEC filings to conceal that control," the government's brief reads in part. 

As to William Maxwell, who was hired as a $100,000-a-month legal consultant for FirstPlus and who funneled cash to Scarfo and Pelullo through company-financed consulting contracts, the prosecutor wrote that there was "overwhelming evidence of William Maxwell's guilt, particularly from the recorded conversations and his relentless funneling of money from his attorney trust account to Pelullo and Scarfo."

In essence the government contends that while the target was a financial institution, the scam at FirstPlus was nothing more than a mob bustout scheme, similar to what organized crime figures have done for decades after taking over legitimate businesses like bars and restaurants. The bustout entails using the business's credit line to run up exorbitant bills that will never be repaid while at the same time siphoning cash and selling off assets from the company. 

"Simply put," D'Aguanno wrote. "the government's evidence overwhelmingly established the involvement of organized crime in the scheme to take over and loot FPFG." 

George Anastasia can be reached at George@bigtrial.net.