(Updates with comment from U.S. attorney in fourth paragraph, arrests in sixth paragraph.)
Nov. 1 (Bloomberg) -- FirstPlus Financial Group Inc., a Texas mortgage company, was taken over through extortion by reputed associates of the Lucchese organized crime family, U.S. prosecutors charged.
Nicodemo S. Scarfo, Salvatore Pelullo and others seized control of FirstPlus in June 2007 “by threatening its existing management,” federal prosecutors charged in an Oct. 26 indictment unsealed today in Camden, New Jersey. Scarfo is the son of Nicodemo “Little Nicky” Scarfo, the imprisoned boss of the Philadelphia-area mob, prosecutors say.
Scarfo and Pelullo forced the new management to approve the acquisition of companies they owned that had little, if any, value, according to the indictment. Scarfo and Pelullo looted FirstPlus of hundreds of thousands of dollars through phony consulting agreements and used the stolen money to finance lavish lifestyles that included “a luxury home for Scarfo, expensive automobiles, a yacht and jewelry,” the indictment said.
“The defendants gave new meaning to ‘corporate takeover’,” U.S. Attorney Paul Fishman said in a statement. “Investors should be free to invest in public companies without fear that violent criminal organizations are their puppetmasters.”
Prosecutors charged 13 people, including attorneys, a certified public accountant and two former FirstPlus executives. Little Nicky and Vittorio Amuso, the imprisoned boss of the Lucchese family, allegedly participated in the scheme from behind bars.
Arrested in Miami
Scarfo and six others were arrested this morning at their residences. Pelullo was arrested in Miami and attorney William Maxwell was arrested at his Houston office. Scarfo’s wife, Lisa Murray-Scarfo, is expected to surrender to authorities in Camden.
The indictment charges Murray-Scarfo with conspiracy to commit bank fraud by securing a mortgage to purchase a $715,000 house with proceeds from the scheme.
The 25-count indictment includes charges of money laundering, bank fraud, wire fraud, mail fraud, securities fraud, extortion and obstruction of justice.
The indictment caps a three-year investigation that began in 2008 when Federal Bureau of Investigation agents executed search warrants at several locations including the company’s headquarters in Irving, Texas.
The scheme, which cost First Plus shareholders $12 million, relied on the help of lawyers and accountants who were members of the Scarfo-Pelullo enterprise, prosecutors charged. Among those indicted are former FirstPlus Chief Executive Officer John Maxwell and former Chief Financial Officer William Handley, who got those posts at the direction of Scarfo and Pelullo, according to court documents.
Handley was among those arrested this morning. John Maxwell, the brother of William Maxwell, has yet to be apprehended, prosecutors said.
The company removed Handley and Maxwell from its board of directors in April 2009, two months before filing for Chapter 11 bankruptcy.
The indictment details a telephone call recorded by U.S. authorities in which Pelullo told Scarfo about the sudden death in December 2007 of a former FirstPlus executive who was on the compliance team.
The executive had provided information to Pelullo and another defendant that they used to help extort control of the company, according to the indictment. On the call, recorded Dec. 5, 2007, Pelullo and Scarfo “expressed relief” at the executive’s death, according to the indictment.
Pelullo laughed that he was “crushed” and “the rat is dead,” then acknowledged he was “the only connection, the only tie to anything,” according to the indictment.
Scarfo then referred to Kenneth Lay, the former Enron Corp. CEO who died in July 2006. Lay and another former CEO, Jeffrey Skilling, were convicted in May 2006 of deceiving shareholders about Enron’s financial condition by hiding debt and losses in a series of off balance-sheet entities.
“Oh boy,” Scarfo said, according to the transcript of the recording. “That’s one that I know you can’t take credit for ... [laughter] ... and that’s the natural best thing. You know what I mean? ... That is so like Enron-ish. You know what I mean? Kenneth Lay, he bailed out and took a heart attack.”
The case is U.S. v. Nicodemo S. Scarfo, 11-cr-740, U.S. District Court, District of New Jersey (Camden).
--Editors: Stephen Farr, Glenn Holdcraft
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