Alleged takeover at FirstPlus Financial resembled a mob 'bust out'

The alleged takeover of a Texas financial firm by mobster Nicodemo S. Scarfo and one of his top associates has been described as "complicated and layered" by a federal prosecutor.

But in many ways, the scam attributed to Scarfo and Salvatore Pelullo - charged last week with siphoning more than $12 million out of the FirstPlus Financial Group - was a typical mob "bust out."

Time and again, investigators who track organized crime have seen the mob get its hooks into the owner of a business - a bar, a restaurant, a store - take the operation over, and run it into the ground.

The vendors who supply the food, alcohol, linens, and other necessities are left with unpaid bills. And the hapless proprietor is left with a company in shambles.

The mob, meanwhile, has made piles of cash.

This time, prosecutors say, it is the hapless stockholders of FirstPlus, a troubled company that was trying to reestablish itself after the subprime mortgage crisis of the late 1990s, who have been left with virtually nothing.

"Investors should be free to invest in public companies without fear that violent criminal organizations are their puppet masters," said Paul Fishman, the U.S. attorney for New Jersey, who announced Tuesday's indictments of Scarfo, Pelullo, and 11 others on racketeering, conspiracy, and fraud charges.

New York mob boss Vittorio Amuso and Scarfo's father, Philadelphia mob boss Nicodemo "Little Nicky" Scarfo, both serving time in a federal detention center in Atlanta, are unindicted coconspirators.

The defendants' maneuvers "gave new meaning to the term corporate takeover," Fishman said.

Organized crime had moved "from the back alley to the boardroom," said Special Agent Michael Ward, who is in charge of the FBI's Newark, N.J., office.

The pending 25-count indictment offers an outline of how the alleged plundering took place.

At the center of the scam was FirstPlus Financial, a highflier in the mortgage-lending business that had sustained a substantial downturn. The company's share price, which peaked at $60, was less than 20 cents in June 2007 when authorities say Pelullo and Scarfo made their move.

FirstPlus and its subsidiaries had been tangled in civil litigation and bankruptcy proceedings for nearly a decade and were just beginning to stabilize.

(The company filed a new Chapter 11 reorganization plan in June 2009 after the fraud investigation.)

Why Scarfo and Pelullo targeted the company has not been made clear, but the indictment and related documents indicate that during April 2007, Pelullo, a 44-year-old Elkins Park businessman with two federal convictions for fraud, went to Texas and started to set up the takeover.

Scarfo, 46, stayed in New Jersey, partly because his involvement was to be kept secret and partly because he was on probation, finishing up a federal sentence in a gambling case. He was not permitted to leave the state.

Scarfo, of Galloway Township, has three convictions. He also is under indictment in Morris County for his alleged role in a multibillion-dollar sports-betting and extortion operation.

Because of their records, neither Pelullo nor Scarfo wanted their names on documents that FirstPlus might be required to file with the Securities and Exchange Commission, banking regulators, or stockholders, investigators say.

Between April and June 2007, authorities allege, Pelullo and a business associate from Miami, William Handley, threatened, cajoled, and coerced members of FirstPlus' board of directors to step down.

Several board members were told they would be the target of lawsuits that claimed they had stolen from the company, according to those familiar with the investigation. Others, said a source close to Pelullo, were simply bribed.

"They were paid $60,000 to walk away," the source, who asked not to be identified, said last week.

The replacement board members included Handley, who also became the company's chief financial officer. John Maxwell, a Texas businessman, was made a board member and chief executive officer. His brother William, a lawyer, was named special counsel.

Handley and both Maxwells have been indicted. All of the defendants have pleaded not guilty.

Prosecutors allege the "figurehead board" allowed Pelullo to become the de facto head of the company. The indictment includes snippets of wiretapped conversations that support allegations that Pelullo called the shots.

For example, a few days before a 2007 meeting where stockholders were to vote on whether to accept the new leadership, Pelullo ordered John Maxwell to make sure those who had not yet cast ballots were told to support the change.

"You yourself, go back and find these people's numbers," Pelullo told Maxwell, according to a wiretap cited in the indictment. "I don't care in they're in a funeral parlor. I don't care if they're in a doctor's office. I don't care if they're in a [expletive] hospital on a respirator. . . . I want their vote. I want their signature. And I want it done by the close of the day today."

"Done," Maxwell replied.

Prosecutors say that the new board "served to rubber-stamp the directives of Pelullo and Scarfo" and that shortly afterward, cash began to flow out of FirstPlus.

Scarfo and Pelullo set up companies in Philadelphia and Atlantic City that authorities contend were crucial to the pillaging of FirstPlus.

Among them were Rutgers Investment Group, supposedly a mortgage/finance company; Globalnet Enterprises, a construction and restoration company; and Premier Group, a firm involved in appraisals and restoration.

In June 2007, FirstPlus paid $1.82 million and 500,000 shares of company stock for Rutgers Investment, even though, the indictment contends, Rutgers "had little, if any, value."

In July, FirstPlus paid $4.54 million and 1.1 million shares of company shares for Globalnet, again a company with suspect value.

And in January 2008, FirstPlus bought Premier for $700,000 and 1 million shares of company stock.

As special counsel to FirstPlus, the indictment contends, William Maxwell was paid $100,000 a month and given unchecked control in the awarding of consulting contracts.

Prosecutors contend that in less than a year, William Maxwell took $3.5 million out of the company. They allege that he sent $1.5 million to Pelullo and Scarfo for "consulting." Scarfo was paid $33,000 a month, but it was unclear, authorities said, what he did for that fee.

FirstPlus supplied Pelullo and Scarfo a lavish lifestyle. It bought a private jet for more than $600,000 that Pelullo and others in the company frequently used.

Pelullo and Scarfo bought an $850,000 yacht they christened "Priceless." Pelullo picked up a black Bentley Continental GT convertible for $216,963. Scarfo treated himself to an Audi worth nearly $100,000 and a home in Galloway Township worth $715,000.

There were parties and expensive dinners, all on the company tab. And first-class airfare when the company jet was not available.

In Texas, those familiar with FirstPlus said, Pelullo would stay at the best hotels and dine at fancy restaurants. Del Frisco's was a favorite. He, the Maxwells, and others would often end the night at gentleman's clubs where they spent thousands tipping the go-go dancers.

The FirstPlus party ended for Scarfo and Pelullo in May 2008, when the FBI raided homes and businesses in New Jersey, Pennsylvania, Texas, and Florida.

Fishman would not comment on what led authorities to launch their investigation, but he said his office and the FBI constantly update the status of people in whom "we have an interest."

Associates have described Pelullo as a "wannabe wiseguy" who talked tough and frequently quoted lines from The Godfather movies.

Federal authorities say the current case in many ways is captured in a classic line by Mario Puzo, author and screenwriter of The Godfather saga.

"A man with a briefcase," Puzo wrote, "can steal more than a man with a gun."

Pelullo played the role of the man with the briefcase in the FirstPlus takeover, investigators say. But he was quick to let everyone know that he had the backing of Scarfo, the man with the gun.