Scores

by Blutrich, Michael D. ;

I dropped to my knees in front of the toilet and began puking into the blue-colored water.

  Cleaned up and feeling surprisingly giddy, I stared at myself in the bathroom mirror. As I thought about what happened, I realized my exhilaration was emanating from a sense I’d broken a barrier, passed into a rim of unanticipated safety. Sergio was never going to dare to search me again, and that was a very comforting thought.

  Just as I reached for the bathroom door, I froze in place. Locking the door, I again slipped off my jacket, opened my shirt and trousers, and pulled the microphones up from the F-Bird. To my chagrin, when I tried to tape the microphones back onto my chest, the tape wouldn’t hold; the small black nubs kept falling off. Try as I might, I couldn’t get them to secure to my skin.

  Struggling to find an option, I reached down and pulled off some of the tape holding the F-Bird to my leg. Examining the excess pieces, they seemed sufficiently sticky to do the job. It was with the greatest relief that both microphones held to my chest at their first applications. Satisfied I’d succeeded, I rebuttoned the shirt and put myself together one more time.

  Walking through the dining area, I came upon Sergio and Pearlstein enjoying a round of martinis. Spying my own waiting bottle of Italian sparkling water, I announced, “I see we’re right back where we left off.”

  After the meal was ordered and a second round of drinks delivered, Sergio raised his glass and called for a toast. We raised our glasses in return. “Let’s drink to Mikey Scars, the man who gave us back Scores,” I sang out.

  Andrew raised his glass to his lips, but Sergio stood up with a malevolent mask covering his face. “Where the fuck did you hear that name, and how do you know about him and Scores?”

  “Are you kidding, Mike? You told us the whole story of Scars and the sit-down last week.”

  Sergio sat down and cradled his head in his hands. After a few tense moments, he raised his head and started laughing. “Boy, I must have been really drunk last week, I don’t remember saying a fucking thing about that. I can never do that much drinking again.”

  When he finally stopped laughing, he turned serious. “Hey, listen to me, forget that name, forget that story. It could get us all killed.”

  “You told us that last week too,” Andrew chimed in.

  “I did?”

  “You did,” Andrew reaffirmed.

  “Then why did you say his name?” Sergio yelled at me.

  “I forgot to forget,” I answered wearing a robust smile.

  The balance of the evening passed as sweetly as a summer breeze. Having passed the search, and realizing Sergio had no recollection of the prior week’s conversations, the group covered all the topics lost to the malfunctioning recorder. As Andrew pumped Sergio with an endless array of alcohol, the stories of Steve Kaplan, Willie Marshall, the DePalmas, Tori Locascio, Mikey Scars, Gotti Jr., and the one hundred thousand dollar sit-down extortion spilled from Sergio’s lips with expanded detail and priceless admissions.

  The only personal annoyance I increasingly encountered was a burning sensation kicking up from the F-Bird. My leg was becoming painful, although I forced myself to ignore the distraction I was forewarned might occur.

  With a triumphant feeling of glorious success, the dinner came to a quiet end. We paid the check and traded farewells at the front door.

  We’d been warned by the agents to always monitor for the possibility of being followed after leaving the scene of an undercover meeting. According to Karst, “The departure is always dangerous and the time most cooperators let down their guard. It’s also the moment the mafia will most likely strike if they suspect you’ve been compromised. So always check to ensure you’re never being followed after a taping.”

  This admonition was on my mind as we pulled out of the restaurant’s parking lot. It would be an easy matter to monitor any vehicles trailing us because traffic was light and the area was borderline rustic. It was several blocks away when I noticed a car behind us, keeping a steady distance. I mentioned the vehicle to Andrew, who suggested making a few turns to judge whether it was in fact a “tail.”

  I turned the car left, then right, and then left again. At each turn, the car behind mirrored our movements. Sharp panic ruled the moment and we started discussing the best methods of ensuring escape. I started furiously punching keypad buttons on the dashboard phone to reach Jack and Bill. “Maybe they’re close enough to help.”

  As the phone kept ringing without response through the car’s speaker, I made another turn in a vain hope the tail would just disappear. When the car behind again followed suit, such hopes faded and my agitation mushroomed.

  Finally, Jack Karst answered the phone. “Jack,” I was half screaming, “where are you? They must be on to us because we’ve been followed since we left the parking lot. Tell us what to do!”

  After a pregnant pause, during which I actually thought I heard laughing, he responded, “That’s us behind you.”

  Disconnecting the call, we looked at each other in open disgust, feeling as ridiculous as two men could feel. We started laughing, and kept laughing as I dropped off Andrew at home. I was on my way to keep the standard debriefing appointment with the FBI; Andrew was going to sleep.

  Jack and Bill were waiting for me in front of the building. As I approached, Jack held his finger to his lips, apparently trying to ensure no conversation took place while the F-Bird continued to record. Both agents were smiling like Super Lotto jackpot winners.

  After settling into my office, Karst proceeded to turn off the F-Bird, again verbally entering his vital information and the time of day. With the session at an end, Ready blurted out, “We heard almost everything, and it was amazing.”

  “We couldn’t have dared hope for a more productive night and you squeezed every bit of information out of that man,” Karst added.

  I then retold every part of the night I could remember as the agents took extensive notes. When the bathroom confrontation was reviewed, Karst just dropped his pen, leaned back, and said, “It’s just too easy, it’s like shooting fish in a barrel for you.”

  When the F-Bird came off my leg, I simply stared at the red, nasty-looking rectangular welt left behind on my inner thigh. “I can’t believe it,” I complained, as I gingerly rubbed the wound. “I felt it was burning, but I never dreamed it would be this bad. You think it’ll leave a scar?”

  “I don’t think it’s that bad,” Karst responded, “but we’re doing something wrong. Let me think on it.”

  The following week, I received a call from the agents advising that they’d been instructed to conduct a proffer-interview with me on the subject of the Florida insurance frauds. Sipperly and Miller needed to know all about the frauds so that negotiations between New York and Florida on the issue of our promised sentencing transfers could finally be initiated. We quickly agreed on a time and place, and although it would be years before I understood most of what had really transpired, I was determined to honestly present everything I knew at the time of the interview.

  I’d first learned of National Heritage Life Insurance Company—referred to as “NHL”—in 1990, when a loan broker referred three strangers to me. Facing an extreme deadline, the trio explained they were seeking a short-term, high-interest bank loan of three million dollars, which together with an additional million they’d already raised on their own, met the four-million-dollar purchase price for NHL from its existing ownership. In fact, if they couldn’t close the desperately needed loan within a month or so, NHL would be permanently closed by government regulators and the trio’s contract to purchase the company voided.

  At first, I found the NHL loan difficult to sort out. Although the company’s only office was located in Orlando, Florida, it was an insurance company incorporated and licensed by the Commonwealth of Delaware, under the supervision of the Delaware Department of Insurance. So while everyone I knew referred to NHL as “the Florida Company,” it was Delaware’s final approval that was required for the sale.

  Th
rough my banking connections, I was able to arrange timely approval of and commitment for the loan. This was something I’d done many times before through a banker I’d known and worked with for decades. Filled with relief, my clients moved their families to Orlando, committed to home purchases, enrolled their children in new schools, and took up employment at NHL. But, on the day before the scheduled closing, the banker called to tell me that the bank’s president had vetoed the loan, declaring it was outside their lending area.

  The borrowers angrily turned to me, as if I were somehow responsible for the bank’s extraordinary about-face. According to the trio, as a direct result of “my” bank’s default, all three men would now be unemployed and bankrupt; their families hopelessly displaced in Florida without assets or hope for the future. They begged me to come up with a solution, and I honestly did feel some measure of responsibility. After all, I’d assured them there would be absolutely no problem with the loan, as approval had been confirmed verbally at a meeting between the bank and the borrowers.

  In a night filled with recriminations and tears, the buyers pleaded with me to fly to the closing on the following morning and present the sellers with a “rubber” check from my brand new and woefully inadequate escrow account. They explained that, since NHL had millions of dollars in a corporate account in the same bank branch as my escrow account, a quick transfer from NHL to my account following the closing—before my check could possibly be presented by the sellers to the bank some fifteen hundred miles away—would cover the escrow check and save the sale.

  In an act of insanity, I acquiesced—and the plan amazingly succeeded. My check cleared after the NHL transfer, and the sale closed without incident. What I didn’t realize at the time was that I was now “in bed” with some truly troubled and unethical folks.

  After the men took control of NHL, one of the buyer trio, David Davies, the man who would later become one of the driving forces behind the creation of Scores, in his role of NHL’s chief financial officer, began issuing mortgage loans to “friendly” borrowers at inflated values. Here’s what that means: NHL would, for example, loan three million dollars on a piece of undeveloped land worth one million dollars. Two million dollars of that loan would be approved for planned future construction on the property. But instead of paying out that two million over time as construction proceeded, as is the norm, Davies paid the two million at closing to the buyer, who funneled the money back to Davies. On paper the loans looked legitimate, but Davies was secretly pulling millions out of NHL.

  Davies’s intention was to use eight million dollars of excess cash from these loans to purchase another insurance company for merger with NHL. Once this purchase was completed, he would be in control of significantly greater assets, and the fraudulent loans, as well as the initially stolen three million dollars, could then be made “right”—at least in theory.

  I regret to say this, but Davies recruited my full participation by promising to buy out a failing restaurant I owned in California, enabling me to pay off all of the restaurant’s debt with the purchase proceeds. The restaurant was seriously underwater, and I was on the brink of declaring personal bankruptcy. Davies’s offer would save me from the bankruptcy filing and all of the horrific ramifications that would have flowed as a result to me, to my investor-clients, and to my law firm. In return, I agreed to support his loan scheme by assisting in acquiring the properties, closing the loans on NHL’s behalf with his recruited borrowers, and defending the loans within the company and with regulators. Unlike the initial three-million-dollar loan fraud, which I enabled out of sympathy and guilt, and without compensation, this second phase of the NHL frauds marked my voluntary passage to the “dark side.”

  Davies’s plan was interrupted, however, when it was discovered he’d concealed a prior European criminal record from the Delaware regulators in his purchase application. He was ousted from NHL by Delaware regulators, and another of the original threesome, Patrick Smythe, took over the reins of the company. But, in the end, Davies departed with the great bulk of the undiscovered excess loan cash in his pocket, and NHL was now secretly in debt for about ten million dollars. I admitted to the agents I’d been aware of these activities and had profited from them—though not at the levels of either Davies or Smythe.

  NHL now began successfully selling annuity policies at an aggregate face value of approximately one million dollars a day, and was headed toward a billion dollars in assets under its management. With time, NHL would grow sufficiently to cover all the missing funds from earned profits. But NHL’s success led to more regulatory scrutiny and, at this point, it became increasingly impossible to hide the ten-million-dollar hole. The company had too many loans in which the loan amount exceeded regulatory maximums for a fledgling venture with insufficient capitalization. NHL was on the brink of being prohibited from selling further annuities in Florida—its largest market—unless the offending loans were reduced or removed from its books immediately.

  Lloyd Saltzman now entered the picture. Saltzman and Smythe came up with a complicated plan to rescue NHL. They arranged a credit line for one of Saltzman’s companies from an international bank, secured by NHL assets secretly assigned to the bank by Smythe, and Saltzman utilized the credit line to purchase sufficient interests in the offending mortgages to bring the company back into compliance. Smythe also arranged a second loan to a different company of Saltzman’s, also secured by NHL assets, and those funds were used to increase NHL’s capital base to avoid another regulatory threat of closure. These rescues were in violation of Delaware insurance law and most certainly illegal, because the loans were recorded on NHL’s books as investments and not loan security, making the insurance company look far more fiscally sound than it really was. I was fully involved in this fraudulent rescue scheme with Smythe and Saltzman.

  This newest fix fell apart when the international bank unexpectedly called the loans and demanded immediate repayment. The hidden asset “hole” now stood at thirty-five million dollars, and the situation seemed hopeless. In desperation, Saltzman introduced us to Sholam Weiss, a purported financial expert who was going to save us all.

  The salvation plan as concocted was straightforward: We would spend one hundred sixty-five million dollars of NHL cash to purchase mortgage assets with a face value of two hundred million dollars at government FDIC and RTC auctions. These assets, being sold from recently failed banks taken over by the feds, were available at varying and often significant discounts. The plan was to purchase enough large, first-quality mortgages at a cumulative discount sufficient to cover the new thirty-five-million-dollar hole. These mortgages would next be securitized into a bond that NHL would purchase and place on its books at the face value of the mortgages.

  At the time I believed the newest plan had finally solved NHL’s financial issues forever, but by the time of the proffer with the agents, I knew everything had somehow gone terribly wrong. The mortgages purchased at auctions turned out to be totally nonperforming, bought at deep, deep discounts, and virtually worthless. Smythe suddenly disappeared, the bond defaulted on its first interest payment to NHL, and Delaware officially closed NHL’s doors. Weiss, Smythe, Pound, and other confederates had stolen the bulk of the NHL funds designated for the original purchase; they quietly cherry-picked everything of value out of the bond for their own profit. I would not discover these truths until years in the future.

  As events unfolded, it became clear that the conspiracy in Orlando was going to overwhelm me and everyone else involved. Each attempt to save NHL had only compounded the company’s problems and our individual culpability. I accepted my role in all of this and I was willing, at the invitation of the United States, to risk my life in an effort to redeem myself and avoid a long prison sentence.

  After the proffer, the government reaffirmed that my sentencing for the Florida financial crimes would be transferred from Orlando to New York, to be heard before a judge with experience in mob cases, who would fairly evaluate and appropriate
ly reward my life-threatening undercover risks, as promised.

  CHAPTER TWENTY-SEVEN

  The Beat Goes On

  During the ensuing weeks, Thursdays remained the primary days for covert filming at the offices. The Sergios, Willie Marshall, and various other targeted mafia cohorts were regularly and tediously captured on tape, collecting and counting their weekly spoils. The cameras also bore witness to conversations on issues ranging from bouncers forced upon the club, disagreements over financial responsibility for coatroom repairs, and admissions about assaults and usurious money laundering, to demands for free dinners as signs of “respect” to mafiosos.

  At the FBI’s prodding, we developed a pattern of confiding frustration to Sergio about Marshall, and to Marshall about Sergio. These “nudges” resulted in valuable insights into the competing mafia interests at Scores. It became evident that “Willie & Co.” had grabbed the upper hand of power and the decision was made to use this struggle to our investigative advantage.

  On one particular Thursday morning, after collecting his cash tribute from Andrew, Mike Sergio ambled into my office. He took a seat and impatiently waited for me to finish a telephone conversation. When the call disconnected, Sergio immediately spoke his mind. “I need to talk to you privately.”

  “OK, should I lock the doors?”

  “Not in the office, Michael. I’m nervous in here ever since you found those bugs in the ceiling. By the way, are you keeping on top of that situation?”

  “We have the offices swept for devices every week,” I lied.

  “Good, that makes me feel better. But I’d rather talk alone somewhere else. Why don’t we go to dinner next week, just the two of us, without your prick of a partner?”

  I agreed and promised to call with a proposed night for dinner as soon as my trial calendar finalized. A little apprehensive about an unexpected private meeting, I called after Sergio as he was on his way out. “You’ve got me curious, is there a new problem?”