On Tuesday, Nicodermo S. Scarfo, a made man within the Lucchese organized crime family, was arrested at his home. He's one of 13 men charged with the illegal takeover of the publicly traded company, among other racketeering charges. "The defendants gave new meaning to 'corporate takeover,' " said U.S. Attorney Paul Fishman.
"Criminal activities have evolved from the back alleys to the board rooms," said Michael B. Ward, special agent in charge of the FBI's Newark Field Office. Still, the tactics remain the same, he says: "physical threats and intimidation to gain leverage and loot lucrative businesses."
Scarfo is not the only one of the 13 with ties to organized crime. Salvatore Pelullo, an associate of the Lucchese and Philadephia La Cosa Nostra families is also charged, as are Nicodermo D. Scarfo (Scarfo Sr.), the imprisoned former boss of the Philadelphia family of La Cosa Nostra, and Vittorio Amuso, the imprisoned boss of the Lucchese family. Others charged include an accountant and five lawyers.
According to an indictment unsealed on Tuesday, the men used both physical and finance threats to take control of FirstPlus in order to plunder the company for their own financial gain. Scarfo, Pelullo and their partners replaced the company's board of directors with their own cronies, and then named their accomplice, lawyer William Maxwell, as special counsel to FirstPlus so that Maxwell could use that position's authority to funnel millions back to the mobsters.
As a public company, FirstPlus was required to submit annual filings with the Securities and Exchange Commission, which the mobsters did, though they routinely presented fraudulent information or simply omitted certain details. As a result, the public in general, and investors particularly, were left in the dark as to the true nature of the company and its management.
A conversation between Scarfo and Pelullo, included as evidence in the indictment, demonstrates how the mobsters remained mobsters, even in the boardroom. On December 5, 2007 Pelullo called Scarfo to tell him that "Individual 4," a former FirstPlus executive who had provided information that the two gangsters used to extort control of the company, had suddenly died. According to the transcript included in the indictment, Pelullo applauded that the "rat was dead," before adding that the man was "the only connection, the only tie to anything."
As Scarfo grapsed the weight of the news, he said, "Oh boy. Yeah, Sal, you wanna know something though?...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?"
According to the indictment, Scarfo and Pelullo lived lavish lifestyles. Scarfo had a $850,000 yacht and a luxury mansion. Pelullo owned a Bentley and loads of expensive jewelry gifted to his wife. In contrast, FirstPlus and its shareholders lost at least $12 million due to the criminal activity.
"Particularly in these economic times, investors should be free to invest in public companies without fear that violent criminal organizations are their puppetmasters," said U.S. Attorney Paul Fishman. "And the public deserves to rely with confidence on corporate officials and professionals whose positions require them to act in the best interest of shareholders, not members of organized crime."
As for the company, the FirstPlus website states that "beginning with the efforts of a newly reconstituted Audit Committee, the Board of Directors is working to ensure shareholder interests are protected and preserved."