Securities Arbitration

Nicodemo S. Scarfo, the 46-year-old son of imprisoned Philadelphia crime boss “Little Nicky” Scarfo, was arrested on Nov. 1 along with 13 associates and indicted on multiple counts of conspiracy, including securities fraud, money laundering, racketeering, wire fraud and obstruction of justice.
The charges relate to the alleged extortionate takeover of a publicly traded financial services company, and include a count for a felon in possession of firearms, according to information released by the U.S. Attorney for the District of New Jersey. Among those charged with Scarfo were attorneys and an accountant.

Conspiracy Involved FirstPlus Financial Group Inc.

The alleged conspiracy involved FirstPlus Financial Group Inc., a publicly held company in Texas. FirstPlus was allegedly looted by the members of the racketeering enterprise, who siphoned away money through fraudulent consulting agreements and acquisitions of companies controlled by Scarfo and Salvatore Pelullo, 44, who was also indicted.

According to U.S. Attorney Paul J. Fishman

The defendants allegedly stole more than $12 million from shareholders through rampant self dealing, fraudulent SEC filings and traditional extortion.
Fishman noted the importance of rooting out these kinds of crimes, particularly in tough economic times, because investors need to have confidence in public companies without fear that violent criminal organizations are running things behind the scenes. In addition, the public needs to be able to rely on corporate professionals, who have a duty act in the best interest of shareholders, not members of La Cosa Nostra.

Nicodemo S. Scarfo

Scarfo, who lives in Galloway Township, N.J., near Atlantic City, is a member of the Lucchese organized crime family of La Cosa Nostra, according to the information released by the U.S. Attorney. Pelullo, of Philadelphia, is an associate of the Lucchese and Philadelphia La Cosa Nostra Families. The 25-count indictment was filed federal court in Camden, N.J.
After an attempt on his life following an internal struggle for control of the Philadelphia family, Scarfo became a “made member” of the Luccheses. Scarfo was shot while dining at the South Philadelphia restaurant Dante & Luigi’s on Halloween, 1989.
Despite reports of the demise of organized crime, the activities have moved from back alleys to board rooms, according to a statement from Michael B. Ward, the special agent in charge of the FBI’s Newark, N.J., field office. This new type of crime relies on the same physical threats and intimidation, however, and often entails the looting of lucrative businesses for personal gain.
The indictment alleges that Scarfo and Pelullo used economic extortion and threats of violence to removed the entire board of directors and management of FirstPlus. Once they gained control, they allegedly extracted millions of dollars from the company to fund their lavish lifestyles.
The defendants were charged with conspiracy under the Racketeer Influenced and Corrupt Organizations Act, or RICO. Other conduct charged in the indictment includes securities fraud, wire fraud, mail fraud, bank fraud, extortion, interstate travel in aid of racketeering, money laundering and obstruction of justice.
Scarfo’s father Little Nicky Scarfo, the former boss of the Philadelphia’s La Cosa Nostra family who is serving a life sentence in prison, was named as an unindicted co-conspirator, as was Vittorio Amuso, the imprisoned boss of the Lucchese family.
The attorneys William Maxwell of Houston, Texas, Cory Leshner of West Reading, Pa., David Adler of Chappaqua, N.Y., Gary McCarthy of Berwyn, Pa. and Donald Manno of Medford N.J., were also named in the indictment, as well as Howard Drossner, a certified public accountant from Ambler, Pa. The charges against these six men variously include racketeering conspiracy, securities fraud conspiracy, wire fraud, and other offenses.
Lisa Murray-Scarfo, the younger Scarfo’s wife, was charged with conspiracy to commit bank fraud and with making false statements on a loan application related to a fraudulent mortgage use to buy $715,000 house with the proceeds from the criminal racketeering enterprise. William Maxwell’s brother John Maxwell, William Handley and John Parisi were charged with various offenses related to the conspiracy and Todd Stark was charged with conspiracy to provide ammunition for Scarfo’s 9mm handgun.

The Take Over FirstPlus Scheme

The scheme to take over FirstPlus began in April 2007, according to information released by the U.S. Attorney. Scarfo, Pelullo, Maxwell and the others assumed control of the company with the purpose of plundering its assets.
After the co-conspirators replaced the FirstPlus board with “figurehead” members under the control of Scarfo and Pelullo, the board named Maxwell as special counsel. Maxwell allegedly used this position to funnel millions of dollars to himself, Scarfo and Pelullo by means of fraudulent legal services and consulting agreements.
These agreements and the acquisition by FirstPlus of companies controlled by Scarfo and Pelullo served to obscure the alleged co-conspirators control over the company and conceal the source of the money.
Other defendants — namely Adler, Drossner and McCarthy — allegedly helped hide the criminal enterprise from law enforcement and regulatory authorities, including the Securities and Exchange Commission, or SEC.
Because it was a public company, FirstPlus was required to file reports with the SEC. On numerous occasions the alleged co-conspirators submitted false information, or omitted material information, in these required filings. As a result, according to the U.S. Attorney, FirstPlus shareholders had no idea that the company was being controlled by organized crime.
The alleged racketeering conspiracy allowed Scarfo and Pelullo to live lives of luxury, including an $850,000 yacht and a mansion for Scarfo, thousands of dollars worth of jewelry for his wife, and a Bentley for Pelullo. FirstPlus shareholders lost at least $12 million as a direct result of the alleged criminal activity.
The U.S. Attorney emphasized in its statement that the charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The Indictment Sentences

Sentences for the counts in the indictment range from 30 years for bank fraud conspiracy to five years for securities fraud conspiracy. The counts also carry fines of up to $1 million for bank fraud conspiracy, falling to $250,000 for lesser charges.
To top it off, Scarfo was on probation when the alleged conspiracy began, following his release from prison in 2005 on an unrelated charge. By participating in the alleged racketeering enterprise, Scarfo and the other defendants deceived and obstructed the probation department and the U.S. district court responsible for monitoring Scarfo’s supervised release.
The indictment was unsealed on Nov. 1, and was announced by New Jersey U.S. Attorney Paul J. Fishman and Assistant Attorney General Lanny A. Breuer of the Department of Justice’s Criminal Division.

Guiliano Law Group

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