CAMDEN, N.J. – Federal prosecutors say members of a Philadelphia-area mob have turned to a modern crime — pillaging the assets of a mortgage company — in a sign that organized crime is evolving to include more white-collar crime.
Thirteen people — including lawyers and an accountant — were charged in a federal indictment unsealed Tuesday. Most of them were arrested in raids throughout the morning in New Jersey, Florida and Texas. Among them were Nicodemo S. Scarfo, the son of imprisoned Philadelphia-southern New Jersey crime family boss Nicodemo D. "Little Nicky" Scarfo, five lawyers and a certified public accountant.
They face charges including racketeering, wire fraud, money laundering, false statements on a loan application, securities fraud. Maximum penalties range from five years in prison to decades.
"The criminal activity is evolving," said Michael Ward, agent-in-charge of the FBI in Newark. "It's going from the back alleys to the boardrooms."
Authorities say the plot started in April 2007, when the younger Scarfo and his associate Salvatore Pelullo, who has previously been convicted of financial crimes, decided to take over FirstPlus Financial Group, a publicly traded mortgage company based in Irving, Texas. Authorities said it was a company with a lot of cash but not much sophistication.
The indictment charges Scarfo and Pelullo used threats to help wrest control of the company. Pelullo is accused of telling a member of the FirstPlus' board that if he didn't go along with the plan, "your kids will be sold off as prostitutes."
The indictment says he later told others who were charged in the scheme to get the company's board to agree to hand control to his and Scarfo's new directors — and he wanted it done immediately. He allegedly told them: "I don't care if they're in a funeral parlor, I don't care if they're in a (expletive) hospital on a respirator, we'll send somebody there. I want their vote, I want their signature, and I want it done by the close of the day today."
Authorities say the elder Scarfo, serving in a federal prison in Atlanta, was apprised of the plot, but that he was not charged because he's expected never to be released.
In one of several wiretap transcripts used in the indictment, the government said the younger Scarfo, 46 of the New Jersey shore community of Galloway, told his father about the plot on the phone.
"Honest to God, we're good six to 10 months off from being able to help everybody," Scarfo said.
His father responded, according to the transcript: "I wanna know when it's complete."
After getting control of FirstPlus, Scarfo and Pelullo are accused of having it buy Rutgers Investment Group and Globalnet Enterprises, shell companies they owned so they could take out money. After that, authorities said, they signed a series of consulting contracts to pay themselves even more.
In less than a year, authorities said, they took $12 million and spent it on multiple homes, including one for Scarfo's ex-wife; weapons and ammunition, a plane, an Audi, a $217,000 Bentley, $30,000 in jewelry and an 83-foot, $850,000 yacht they named "Priceless."
Scarfo appeared in U.S. District Court in Camden on Tuesday in a worn gray sweat shirt and blue sweat pants, spoke only to say that he understood the charges. But the public defender representing him, Lisa Evans Lewis, said he has no job, no income and no assets other than $125 in a checking account — and that he'd need a court-appointed lawyer. He couldn't fill out a financial affidavit to prove his need, though, because doing so might violate his Fifth Amendment right not to incriminate himself.
A bail hearing for him was scheduled for Friday. He did not enter a plea.
Seven other defendants appeared in court Tuesday. All of them were released on bail. Three, including Scarfo's wife, Lisa Murray-Scarfo, did not enter pleas.
The other four, all lawyers, pleaded not guilty. Some of the lawyers defending them started making the case that they weren't knowingly involved in any scheme. Larry Gross, a lawyer for David Adler, a lawyer who lives in Chappaqua, N.Y., said his client had never heard of Scarfo before his office was raided in 2008.
One of the others, 28-year-old Cory Leshner, of West Reading, Pa., accused of running shell corporations for Pelullo and Scarfo and creating fraudulent accounting records, has graduated from law school, passed the bar exam and started a legal practice in Harrisburg, Pa., since the raids more than three years ago.
U.S. Attorney Paul Fishman wouldn't say how exactly authorities got onto the plot, but he said it ended with a series of raids in 2008.
Since then, FirstPlus has filed for bankruptcy, blaming the alleged criminals for wrecking the firm.
Fishman said the alleged conspirators were planning one more "piece de resistance:" They wanted to pump up the stock price of FirstPlus and sell off the company.
He said that was their exit strategy.
"We had a different exit strategy."
Reach Mulvihill at http://www.twitter.com/geoffmulvihill