A federal bankruptcy trustee in Dallas has put a dollar figure on a multistate financial-fraud investigation linked to mobster Nicodemo S. Scarfo and Elkins Park business consultant Salvatore Pelullo.
The trustee has alleged the two men, through companies they controlled, took at least $4.86 million out of FirstPlus Financial Group, a company based in Irving, Texas.
Those business deals are the focus of the ongoing fraud investigation by the FBI, according to law enforcement sources familiar with the probe.
FirstPlus Financial filed a Chapter 11 bankruptcy reorganization petition June 23 in Dallas.
Filings in that case this month offered insights into that investigation, which became public when the FBI staged raids in Philadelphia, Miami, South Jersey, and Texas last year.
On Aug. 7, lawyers for Matthew D. Orwig, the court-appointed trustee, asked for bankruptcy court authorization to investigate "insider transactions" that occurred after "a group of individuals allegedly associated with Salvatore Pelullo assumed control" of FirstPlus in 2007.
The trustee alleges at least $4.86 million and 1.6 million shares of company stock were transferred to companies believed to be controlled by Pelullo and Scarfo.
Authorities with the U.S. Attorney's Office in Camden, which is coordinating the FBI investigation, have declined to comment on the probe, but sources familiar with it say indictments are expected this year.
In his Aug. 7 motion, the bankruptcy trustee identified Pelullo, former FirstPlus chief executive officer John Maxwell, and Maxwell's brother William, who was special counsel to the company, as "targets of the federal grand jury investigation."
The motion also articulated the underlying criminal allegation in the probe: that beginning in June 2007, "the Philadelphia LCN [La Cosa Nostra] family, through the Maxwell Group, took over" FirstPlus Financial.
Pelullo and Scarfo, through their attorneys, have denied any wrongdoing.
John Maxwell has said he did nothing improper and has countercharged that federal authorities helped his corporate rivals gain control of the firm.
William Maxwell, in a telephone interview this month, said he had done nothing wrong. What's more, he said, FirstPlus owes him more than $1 million.
"The government can do what it wants to do," said the lawyer, who heads a group of creditors, including Pelullo's wife, Svetlana, who are challenging the bankruptcy proceeding. "Once they do, then it's my turn to respond in court."
The Maxwell brothers became active in the company in the summer of 2007. At that time, John Maxwell became president, chief executive officer, and a member of the board of directors.
Harold Garber, an Atlantic County lawyer who had represented mob boss Nicodemo "Little Nicky" Scarfo and Scarfo's nephew and underboss Philip Leonetti, was appointed chairman of the board.
In August 2007, just two months after being appointed, Garber died of cancer. How and why a criminal lawyer who represented prominent South Jersey mob figures was tapped to serve on the board of a Texas financial firm remains one of the unanswered questions in the FBI investigation.
Garber's law license was suspended for a year in 1984 for ethics violations. He was cited for simultaneously representing Leonetti, who had been charged in a murder case, and a witness against Leonetti. After the witness recanted his testimony, the charges against Leonetti were dropped.
Pelullo, 43, who has two convictions in financial-fraud cases, has been described by John Maxwell as a consultant for FirstPlus.
Others familiar with the company have said Pelullo was a behind-the-scenes decision-maker during the period under investigation.
According to associates, Pelullo has said he is a cousin of Nicodemo S. Scarfo, the son of the jailed mob boss. But authorities believe there is no blood relationship.
The younger Scarfo, 44, survived a mob assassination attempt in 1989 and has been identified as a soldier in the Lucchese crime family. He has served federal prison time on gambling and racketeering charges.
Authorities believe Pelullo and Scarfo were behind a series of deals in which FirstPlus bought mortgage, development, and rehab firms that the two had set up in Philadelphia and New Jersey.
The insider transactions outlined in the trustee motion include:
A "special counsel" legal-services agreement between FirstPlus and William Maxwell in which Maxwell was to be paid "at the astronomical rate of $100,000 per month." Among other things, Maxwell was to hire and manage "outside consultants" to perform work for the company.
A consultant agreement between Maxwell and Seven Hills Management L.L.C., a Pelullo company. "This consulting arrangement with Pelullo and his subsequent involvement in the operations" of FirstPlus and its subsidiaries "was never disclosed" to company shareholders, the trustee alleges.
The purchase of Rutgers Investment Group L.L.C. for $1.825 million and 500,000 shares of company stock from Pelullo's Seven Hills Management and Learned Associates of North America, a company authorities believe Scarfo controlled.
The purchase of Globalnet Enterprises L.L.C. for $3.04 million in cash, a $1.495 million loan note, and 1.1 million shares of company stock. Globalnet was also owned by Seven Hills and Learned Associates. An FBI wiretap in an unrelated case in New Jersey included a conversation in which Scarfo identified Globalnet as his company.
In a counterclaim filed Aug. 17, William Maxwell said the facts cited by Orwig, the bankruptcy trustee, were false and misleading. He described Orwig, a former federal prosecutor, as the "alter ego" for prosecutors in U.S. Attorney's Office in Camden who are investigating FirstPlus.
Lawyers familiar with that investigation say authorities have been following a paper trail that they believe will show Pelullo and Scarfo looted the company.
Most of those documents were seized during FBI raids in May 2008 in Texas, New Jersey, and Philadelphia.
The investigation centers on allegations of bank fraud, wire fraud, mail fraud, interstate transportation of stolen property, money laundering, and racketeering, according to the search warrants used to launch those raids.
The warrants named more than three dozen companies and individuals. In addition to FirstPlus offices in Irving, Texas, authorities raided Scarfo's home in Egg Harbor Township, N.J.; Pelullo's home in Elkins Park; and the office of Scarfo's longtime attorney, Donald Manno, in Cherry Hill.
Other documents in related cases indicate that authorities are tracking several mortgage deals and real estate transactions in South Jersey and Philadelphia. These include Scarfo's purchase in March 2008 of a $715,000 home on Hartford Drive in Egg Harbor Township, the home that was raided two months later. Scarfo's mortgage was reportedly arranged through the Rutgers group.
What or who led Pelullo and Scarfo to FirstPlus Financial in 2007 is another unanswered question.
FirstPlus, once a high flier in the subprime mortgage-lending business, collapsed after the economic downturn in the late 1990s.
Several of its subsidiaries have been tangled in civil litigation and bankruptcy for 10 years. The company's stock, once trading for nearly $50 a share, sells for pennies and is no longer listed on any major stock exchange.
But around 2006, shortly before Pelullo became a company consultant, FirstPlus began receiving an influx of cash, residuals from mortgages let during the 1990s.
That cash, which according to the bankruptcy trustee could total about $50 million, financed the deals now under investigation.