The Quiet Don: The Untold Story of Mafia Kingpin Russell Bufalino (21 page)

The funding for the casino group was provided by Louis DeNaples.

The state police were furious with Marsico and vehemently argued to continue the prosecution. The police had spent five years probing gaming, and its best witness, Billy D’Elia, had yet to sit in a courtroom and tell the world all he knew about Louis DeNaples. For his cooperation, D’Elia had been sentenced in November 2008 to serve nine years in federal prison after pleading guilty to money laundering and witness tampering. He had faced up to thirty years. His attorney, James Swetz, sought a reduced sentence, given D’Elia’s cooperation in the DeNaples case, but the judge believed nine years was short enough.

Federal prosecutors couldn’t have been happier.

“The sentencing of William D’Elia comes after a series of carefully coordinated investigations conducted by state and federal law enforcement agencies, including the Federal Bureau of Investigation, the Department of Homeland Security, Immigration and Customs Enforcement, the Internal Revenue Service–Criminal Investigation Division, the Pennsylvania State Police and the U.S. Department of Labor,” said U.S. attorney Martin Carlson. “Today’s sentencing sends a powerful message about the commitment of law enforcement to break the grip of organized crime . . . and to ensure that the people . . . can live free of the influence of organized criminal figures.”

John P. Kelleghan, special agent in charge of the Immigration and Customs Enforcement office of investigations in Philadelphia, commended the Pennsylvania State Police and FBI for dismantling a “long-standing criminal enterprise.”

“With the sentencing of William D’Elia today, we close a chapter on the Bufalino organized crime family and its leadership. Thanks to the collaborative efforts of all the agencies involved, we have dismantled an organization that has exploited our community for decades,” Kelleghan said.

But Marsico was firm, even against the objections of Chardo, who supported the police in their argument to roll the dice and allow a jury to decide DeNaples’ fate. To that end, Chardo never once believed the case would ever be tried. DeNaples would certainly agree to a different set of plea terms before engaging in such a spectacle, but Marsico firmly believed that the Supreme Court would again find a way to interfere with the prosecution. Marsico was resigned that DeNaples had the support of the court, as he did Ed Rendell.

The governor had remained strangely quiet throughout the entire DeNaples prosecution. He once hailed DeNaples as a “salt of the earth” kind of guy, but he refrained from making any public comments until the plea deal was announced.

“When Mr. DeNaples was charged every newspaper in the state editorialized about how this was so bad and showed a weakness in the gaming law. But now that the charges have been dropped, what does that stand for?” said Rendell. “I happen to know Mr. DeNaples, and I know him well. He had a run-in with the law years ago but he’s been a good citizen, and you can ask any charity or community or civic association, and they will tell you that. He’s licensed by the U.S. banking department to be a banker. I don’t think that the charges were dropped will be bad for Pennsylvania.”

Rendell never addressed the hundreds of thousands in campaign contributions he received from DeNaples, his associates and business partners. Nor did Rendell address the allegations in the League of Women Voters lawsuit.

The FBI and state police knew about the contributions and believed the money was being funneled from DeNaples to Rendell, but their review in 2007 ended quietly.

Although DeNaples himself was technically out of gaming, his family still owned the casino, which had been DeNaples’ plan all along. Now approaching seventy, DeNaples intended to leave Mount Airy under the control of his children, so the plea result merely moved his plans ahead a few years.

What DeNaples did not expect was to lose his Dunmore-based bank. He had served as a director at First National Community Bank since 1972 and over the years became its largest stockholder and chairman. After the perjury charges were filed, the bank’s regulator, the Office of Comptroller of Currency (OCC) in Washington, D.C., took action to permanently separate DeNaples, saying that it was required to prohibit anyone who had agreed to “enter into a pretrial diversion or similar program” from any involvement, including working, owning or controlling, a national bank. In effect, since the perjury charges stemmed from allegations that DeNaples lied about his organized crime contacts, he did not meet that standard set by the OCC.

DeNaples fought the ban, arguing that he never admitted to having organized crime contacts, and filed a federal lawsuit against the OCC seeking reinstatement. But the suit was dismissed by U.S. District Judge Thomas I. Vanskie in February 2010, who ruled that the OCC and not the federal courts had jurisdiction over the case.

DeNaples subsequently filed an appeal with the Third Circuit Court of Appeals in Philadelphia, but again he was rebuffed. DeNaples was subsequently ordered to divest himself of all interests in the bank, including the sale of his shares.

While DeNaples fought for his interests in the bank, regulators swarmed over the bank’s books, looking for evidence of lax lending practices and suspicious transactions. For years, First National had been a source of easy money for a host of people close to DeNaples and other bank officers. Billy D’Elia had accounts there, as did DeNaples’ constant companion, the Rev. Joseph Sica, who on his paltry salary somehow was approved for tens of thousands in loans. Through the years numerous businesses, knowing they wouldn’t be approved elsewhere, turned to First National. The terms were usually onerous, and failure to pay meant foreclosure, as was the case with the Pocmont Resort in the Poconos. After undergoing a multimillion-dollar renovation with financing from First National, the resort defaulted on its debt, and the bank took over the note.

When bank regulators finished their probe, they imposed heavy restrictions after concluding the bank had for years conducted unsafe and unsound banking practices. The bank had, as suspected, failed to maintain internal controls and failed to report suspicious transactions that led to huge losses over the past few years, including millions in bad loans. One loan that defaulted, for $4 million, was for a land project guaranteed by two board members. The bank had also been implicated in a burgeoning scandal involving two Luzerne County judges accused of taking cash payoffs for sentencing teenagers to a private juvenile detention facility in Pittston Township.

The case, known as “Kids for Cash,” shocked even the most jaded observers following local corruption. Lackawanna County Judges Michael Conahan and Mark Ciavarella were approved for loans from the bank to establish a depository in Florida that took the payoffs from the scheme. The bank also financed the judges’ purchase of a Florida condominium. Conahan was a member of the bank’s board from 2003 until his resignation in 2009. Federal prosecutors credited Billy D’Elia for alerting them to the scam.

For DeNaples, the loss of the bank was perhaps the biggest blow throughout the entire casino saga, and his reputation suffered. From the day he purchased Mount Airy, in 2004, the usually quiet and publicity-shy businessman was front-page news. And as the evidence mounted against him, the sting and embarrassment to himself and his family was something he never envisioned.

In May 2009, the state police took one more shot at prosecuting the Katrina truck investigation. The case had originally been transferred to the police from the U.S. attorney’s office in Scranton after the FBI determined that the issue over titling was a state matter. The department’s Bureau of Criminal Investigations, which was assisting with the DeNaples probe, took on the Katrina investigation, and with the help of Dauphin County prosecutors, the case was referred to Lackawanna County for prosecution since that was where the trucks had been sold.

But district attorney Andy Jarbola declined to investigate, saying a local state police barracks, Troop R, already took a look at the matter and determined there was no wrongdoing.

Police commanders in Harrisburg, who supported the Dauphin County effort, had no idea what Jarbola was talking about, and their reaction was, “What investigation?”

“We never heard about [the Troop R] investigation,” said a police spokesman, who believed that Troop R would never have been allowed to probe DeNaples, given the Dunmore barracks was in DeNaples’ hometown and, more important, the commanding officer there, Major Joe Marut, had been captured on police surveillance video visiting DeNaples at his auto parts business. Because of his close contact with DeNaples, police brass would never have allowed Marut’s involvement in a DeNaples probe. Marut had also, coincidently, retired and taken a position with DeNaples as Mount Airy Casino’s chief of security.

Although DeNaples avoided additional prosecution, several of those invoked in the gaming legislation found themselves finally answering to law enforcement for other crimes. Former senator Vince Fumo was serving a five-year term for corruption, while Senator Robert Mellow resigned after word leaked that he was now under investigation. Federal agents had raided his office and home in June 2010 and removed boxes of documents in what they said was an ongoing public corruption probe. Mellow later pleaded guilty to conspiracy and was sentenced in November 2012 to eighteen months in prison. Meanwhile, state senator Raphael Musto was indicted for allegedly taking nearly $40,000 in kickbacks for his help in getting a company state grants and funding. Musto hailed from Pittston.

E
IGHTEEN

T
hough Dauphin County district attorney Ed Marsico’s grand jury probe ended in 2009, the information gathered from his investigation was quietly given to the state attorney general, Tom Corbett, who was preparing to empanel a grand jury of his own.

It would be six months before the public learned of the statewide grand jury in Pittsburgh, which was probing whether the gaming board steered gaming licenses to DeNaples and several other licensees. The
Pittsburgh
Post-Gazette
was the first to report the new grand jury after learning that gaming board records had been subpoenaed. Governor Ed Rendell was quick to say that he believed the gaming board did a “solid job” and denied there was any political influence exerted to decide the outcomes.

Dozens of witnesses were subpoenaed to testify, several of whom had previously testified in front of the DeNaples grand jury. It took two years for the state prosecutors to complete their work, and on May 19, 2011, they released their findings.

The report was a shocking yet sobering document that laid out, in detail, the problems that dodged gaming from its creation and all but confirmed the original fears of former deputy police commissioner Ralph Periandi. There was, as he suspected, a scheme to benefit several applicants, among them Louis DeNaples.

The grand jury report, in one of its chief findings, didn’t mince words, saying the “[Gaming] Board took the public policy objectives and essentially turned them on their head.”

The report was detailed and began even before the gaming legislation was approved, on July 4, 2004. The grand jury, for instance, learned that Senator Mellow approached William Conaboy, a Scranton attorney, to tell him he would be Mellow’s choice to serve on the soon-to-be-created gaming board.

Conaboy testified that he was told that Louis DeNaples would most likely apply for a gaming license. Conaboy said he expressed concern since he was not only friends with DeNaples, but was also one of his attorneys. They also served together on the board of Allied Health Services, which Conaboy also represented. Conaboy said he told Mellow he could not vote on anything related to DeNaples. Nevertheless, after the legislation passed in July 2004, Conaboy was appointed to the board by Mellow, as promised, to a part-time position that paid $145,000 per year.

Conaboy testified that Mellow told him before his official acceptance on the board that “he was only going to say it one time, that he was saying it then because I was not on the Board as of that date, he said his interest was solely his senatorial district, and if that applicant was qualified and met all the requirements of the Gaming Act, that he would like to see a casino in his district.”

The applicant would be DeNaples, and the grand jury found that BIE’s background investigation of Louis DeNaples, at least initially, was moot. The grand jury relayed how, less than two weeks after the gaming legislation was passed, in July 2004, DeNaples formed a limited liability company, Mt. Airy LLC, and set his sights on gaining a Category 2 slots license, which allowed for up to 5,000 slot machines.

But DeNaples didn’t even own the Mount Airy property, a purchase that would not be completed until December 2004. DeNaples later broke ground on Mount Airy in July 2006, a full six months
before
he was awarded a gaming license. The report quoted a BIE agent who opined, “You would have to be, I guess, pretty rich or pretty sure that you were going to get a license if you were going to do that.”

The grand jury said the DeNaples application had been guided and massaged to approval, with board members and other officials personally interfering with BIE’s background report. David Kwait, BIE’s director, testified about a chance encounter with DeNaples during a hearing in Philadelphia.

“I was standing with one of the commissioners and a couple of agents and either Conaboy or (Ray) Angeli, and I think it would have had to be Conaboy, come over and said, ‘Hey, I want you to meet Louie DeNaples.’ . . . I got to shake Louis DeNaples’ hand, and he asked me a question. He said ‘Who could I get? What company could I get to do a background investigation of me that would satisfy you and the queen?’ And I said, ‘What?’And he asked me again, and I really didn’t respond to him. Later, Conaboy pushed and said, ‘Well, suggest one,’ and I suggested, ‘Well, try the Kroll Agency in New York,’ and that was the end of my one and only conversation with Louis DeNaples.”

When asked if he was bothered that a current commissioner was introducing him to an applicant, Kwait replied, “Yes.” Kwait was also asked if the notion that DeNaples would need to hire an outside agency to vouch for him seemed a bit odd.

“For sure,” he said.

“If he has nothing to hide, shouldn’t he just be able to rely on your own agency to give him a clean bill of health?” asked a prosecutor.

“Hopefully, I agree 100 percent, so it was nonsense to begin with. No matter who he hired to do whatever, it wouldn’t have made a hill of beans as we proceeded to do our job.”

The grand jury learned that BIE’s initial background report included some damning information, including portions of the 2001 federal affidavit that quoted confidential informants relaying business ties between DeNaples and Billy D’Elia. The report also included a copy of the 2006 federal search warrant of D’Elia’s home and car, where state police and the U.S. Department of Homeland Security found DeNaples’ unlisted home number in D’Elia’s address book. They also found D’Elia’s bank statements from First National Community Bank in Dunmore.

BIE’s initial background report also included the Katrina truck investigation, along with reports from the old Pennsylvania Crime Commission. Of particular interest were the details of how four people, including Bufalino crime family underboss James Osticco, had tampered with the DeNaples federal jury during his 1977 trial for fleecing the federal government for cleanup work from Hurricane Agnes.

The grand jury learned that DeNaples’ ties to imprisoned Philadelphia cleric Shamsud-din Ali and his presence at the 1999 wedding of D’Elia’s daughter with organized crime figures from Philadelphia, including “Skinny” Joe Merlino, were eventually deleted from BIE’s final report.

To put the gaming board’s actions in perspective, other gaming jurisdictions, such as Nevada and New Jersey, would never have deleted damning information from an investigative report, even if it was deemed hearsay. The applicant in those states must prove his suitability. That wasn’t the case in Pennsylvania, said the grand jury, even after BIE made no less than four criminal referrals to other agencies, including the FBI and state police. One of those referrals concerned the FBI wiretap of Shamsud-din Ali, while others referred to the Katrina trucks and political contributions from RAM Consultants, a DeNaples entity.

As for information that made it into the report, much of it was whitewashed.

For instance, the report relayed how BIE agent Roger Greenback sought to investigate the vendors and construction contractors building the new Mount Airy hotel and casino but failed to get Mount Airy to cooperate. A casino attorney, Joe Wright, wrote to the board saying Mount Airy would not respond to any requests for information from BIE. That simple denial to cooperate was enough to deny DeNaples and Mount Airy a license, argued Greenback.

Mount Airy officials also complained to the gaming board that they believed they were being “picked on.” It was Tad Decker, the board chairman, who brought Greenback in to hear a simple message: lay off Mount Airy.

Concerned over the inappropriate interference, Greenback subsequently transferred the Mount Airy background investigation to the central BIE office, in Harrisburg. But that didn’t stop the board from completely changing the final DeNaples background report, which the grand jury found “were no reflection of the real investigative facts developed by BIE and were further tainted by the applicants editing through threat of litigation.”

“Significant information” was removed from Mount Airy’s BIE report, along with two other casino applicants, among them Don Barden, who was approved for a casino in Pittsburgh. Barden was the only African-American awarded a casino license, and his selection was the completion of the deal with the legislative black caucus in Philadelphia for its support of the gaming initiative. According to the grand jury report, Barden, like DeNaples, “received (his) fair share of preferential or special treatment.”

One licensing attorney testified that gaming board members were “horse trading” their votes, agreeing to vote for each other’s favored applicants prior to the actual hearings. In effect, the gaming board members weren’t voting for their favored applicant but for the favorite of the person who appointed them, either a legislative leader or Rendell.

As for Barden, he was based in Detroit and was the owner of several casinos in the Midwest through his Majestic Star company. Barden, like DeNaples, was a self-made man who, on paper, had a net worth that reached into the hundreds of millions. In reality, Barden was a financial nightmare whose background investigative report was, like DeNaples’, completely scrubbed. The final BIE report on Barden had been whittled down to twenty-nine pages from eighty and omitted lengthy passages on Barden’s history and his gambling habits. The original report included information on how Barden, during the first quarter of 2005, wrote checks to five casinos to cover personal gambling losses of more than $500,000. Barden also had outstanding markers, or gambling debts, of nearly $2 million. Over a five-year span, from 2001 to 2006, Barden lost more than $11 million while gambling, yet none of that made it into his final investigative report.

Aside from his BIE investigative report, other checks on Barden were also altered, including his financial suitability report, which originally came in at six and one-half pages and included details of previous financial performance, his financial risk profile and an analysis of his individual financial worth and projection of his performance should he gain a license. In fact, there was a comment within the report that said that “the Majestic Star Casino, LLC, has demonstrated weak financial performance during the fiscal years ended December 31, 2000 through and including December 31, 2005.”

Barden’s final report was two and one-half pages and didn’t include any financial analysis; instead, the whole project was based on a promise by the New York bank Jefferies & Co. to fund the $435 million project with a commitment letter. The entire project was, in reality, completely leveraged.

After receiving his gaming license, Barden’s Majestic Star quickly ran into financial trouble during construction, and Barden was eventually forced to sell the casino. Barden died of lung cancer in May 2011 at age sixty-seven.

Perhaps most incredible, the grand jury found that attorneys for Mount Airy were allowed to review drafts of DeNaples’ suitability reports up to three weeks before he would sit for his closed-door hearings, while his chief competitor, Pocono Manor, received two days to review their documents. Ideally, gaming investigators would file their reports, which would then be reviewed by their superiors and BIE attorneys. Upon completion, the background report is then submitted to the gaming board members for their review. Instead, the grand jury found that the process in Pennsylvania saw BIE submit a background report that, when submitted to the board, had been completely edited and was devoid of any damning information. In other words, said the grand jury, the fix was in, and DeNaples, as expected, got his license.

According to the grand jury report, Mount Airy was treated differently “almost from the start.” The grand jury intimated but couldn’t decide if this was “because the potential suitability issues were known or because this was a critically important license from a political standpoint.”

The BIE investigation had revealed, according to the report, “significant areas of concern regarding the character, honesty, and integrity of Louis DeNaples,” and it cited his 1978 felony conviction, the Katrina truck case, his political contributions and suspected ties to organized crime. The investigators also testified as to how “disappointed” they were that DeNaples received a license. Some were more disappointed, while others, according to the grand jury, expressed “outright disbelief, anger and embarrassment.” David Kwait, the former head of BIE, said the DeNaples case was “what not to do in a gaming situation.”

In their defense, gaming board members explained that they didn’t consider DeNaples’ felony conviction because it occurred outside the fifteen-year statute that was included in the gaming legislation. They also dismissed the political contributions and Katrina truck incident because “no one brought charges” against DeNaples. Remarkably, they said they didn’t believe any of the allegations were considered an “issue of bad character, honesty, or integrity for DeNaples to overcome.” The threshold for bad character was a criminal conviction, they said.

Ken McCabe, the former FBI agent, agreed that he couldn’t consider DeNaples’ previous felony conviction.

During the suitability hearings, which occurred over three consecutive nights, DeNaples was protected not just by his own attorneys, but by the gaming board itself. The board’s chief counsel, Frank Donaghue, limited the questioning of witnesses to just several minutes.