by Lamothe, Lee
TORONTO, APRIL 1993
In the age of Enron, WorldCom and Martha Stewart, Penway Explorer Ltd. is a relatively minor flimflam, one of those periodic stories of charlatans squeezing an undeserved profit out of the stock market.
In the investment community, they call it “wash trading,” when traders simultaneously buy and sell shares in the same company. It unfairly makes it look like there is interest in a company’s stock when in fact the sales are a wash—no additional investment is made. Another scheme is called the “pump-and-dump,” whereby unscrupulous salesmen convince unsophisticated investors to buy an unworthy stock to boost its price and then, when the price reaches a prearranged target, those in the know suddenly sell their shares. It was a combination of these schemes that was planned for Penway Explorers, an obscure mining company being traded on the Alberta Stock Exchange. Penway held mining claims in Northern Ontario in the late 1980s. Worth only pennies a share under normal conditions, large blocks of the stock were bought cheaply and parked while co-conspirators artificially inflated the stock’s value, pumping it up to $6 a share.
A key salesman of Penway stocks was Arthur Sherman, who worked for McDermid St. Lawrence Securities Ltd., a Toronto brokerage firm. That Sherman was a problem trader was no secret. His supervisor, John Shemilt, described him as being “up to no good” from the moment he was hired. On May 8, 1988, Sherman vanished. Twelve days later, he telephoned his boss and said he was in Aruba and would return at the end of the month. When Sherman failed to show up, he was fired. The fact that Sherman was missing left several of his clients checking their accounts. Many found their Penway stock was missing, totaling 530,400 shares. Sherman, it was found, had sold them before vanishing, presumably with the money. He appears to have dumped the stock before the conspirators had planned, beating them to the punch. His sudden purge of so much Penway stock sank the share value to around 30 cents. The investors figured they had been cheated out of $3.5 million by Sherman and took the missing broker and his former brokerage firm to court. Lawyers for the firm, however, took issue with the investors—a seedy bunch, including a disbarred lawyer and a shady stock promoter from Montreal who dealt in stolen securities. The brokerage argued that the investors were not the “sole and exclusive beneficial owners” of the stock. Something was fishy with Penway beyond Sherman’s disappearance.
All of this would have been of little interest outside the investment community if it were not for revelations at a civil trial that the actual owners of the shares seemed unwilling to come forward. The investors who launched the lawsuit, lawyers for the brokerage claimed, were fronts for other people described as a “shadowy” Montreal group. Suddenly, a petty fraud case took on the trappings of a mystery novel. During 45 days of hearings, held sporadically between April 1992 and April 1993, Judge George Adams heard that the Penway swindle was where the markets and the Mafia met.
The dirty nature of Penway’s transactions seemed obvious to Lise Ledesma, a receptionist at the brokerage firm. She was the poor soul people had to go through to reach Arthur Sherman before he disappeared. Ledesma said she received rude and demanding telephone calls from two people using the name Rizzuto who wanted to talk to Sherman. One of the calls was a long-distance connection placed by a Spanish-speaking operator—this was at a time when Nick Rizzuto was under arrest in Venezuela on the cocaine charge and, apparently, in need of cash to pay his legal fees. Vito then came to the offices of McDermid St. Lawrence in Toronto to see Sherman. Ledesma said he was accompanied by “two very large and frightening thugs.” The visit and the calls were not well received. Sherman became “visibly anxious and nervous when it came to Mr. Rizzuto,” she said.
The Penway transactions all led back to the Montreal Mafia. Robert Campbell, a disbarred lawyer and convicted forger, had bought his Penway shares through a firm in Toronto called Mercore Securities Inc., which seemed to trade nothing but Penway stock. Campbell was purchasing shares for Vito, who held meetings over the scheme in Montreal and Toronto, the court heard. Campbell had “the full confidence” of Vito and there was a large cash loan made from Vito, or his associate Dino Messina, court heard. The checks being exchanged throughout the stock deals also came from people linked to the Rizzutos. One of them, for $80,000, was made out to Rocco Sollecito, whom police had frequently seen meeting with Vito and other members of the Sixth Family.
Checks, however, were the least of the problems at Penway. Staff at a brokerage in Montreal reported their irritation with $40,000 to $50,000 payments for the stock being made in $10 and $20 bills. Gennaro Scaletta, who was arrested with Nick Rizzuto in Venezuela on cocaine charges in 1988, showed up in deposit records, along with Messina, Sollecito and Libertina Rizzuto, Vito’s mother. Even these people were declared to be yet another layer of insulation around the real owner, the judge ruled: “On the evidence, I find the only person acting as a true owner was Vito Rizzuto.” The transactions were subject to “the aggressive scrutiny of Roméo Bucci and the presence of Frank Campoli,” the judge said. At that time, Bucci was a name from the mob’s past and Campoli from its future. Bucci was the mobster who had previously been sent to New York by Paolo Violi to register Montreal’s vote in the Bonanno Family leadership selection; Frank Campoli, described at the trial as “Vito’s man in Toronto,” married into the Cammalleri family and would surface years later in a probe into Vito’s involvement in another controversial company.
Judge Adams dismissed the lawsuit. Unconvinced that Sherman had absconded with the Penway money, he suggested another possibility: that Sherman’s disappearance was the result of “the wrath of Mr. Rizzuto.”
The bad publicity for Vito from the Penway trouble was not over. By 1995, officials at Revenue Canada—the federal tax department—had pored over evidence from the proceedings. The question they had was that if Vito had been the beneficiary of all those stock purchases, why had none of this money been claimed on his tax returns? The taxman wanted his share of the $1.4 million in revenue that was traced to Vito through the stock transactions and issued a tax judgment against him. In addition to the unpaid taxes and a hefty interest payment, the government sought a $127,000 fine. Vito appealed the decision to the Tax Court of Canada. The department then threw itself into the case with surprising zeal. It appeared almost personal. The government’s lawyers planned to introduce into evidence the school records of Vito’s three children, evidence from Nick’s arrest in Venezuela at the time of the swindle and records from Vito’s arrests in the hashish cases. Also to be entered was a document titled “Associations of Vito Rizzuto with the Criminal Element in Canada and Elsewhere,” and the criminal records for Vito and 28 of his associates, a collection of drug traffickers, money launderers, killers—and Maurice “Mom” Boucher, a leader of the Hells Angels Motorcycle Club, who qualified as all three. Also entered into the record was a statement of facts that included this line: “The applicant is known as ‘the Godfather’ of the Italian Mafia in Montreal.” From then on, the designation would be repeated in the media whenever Vito found his way into news stories. The aggressive tactics seemed to take Vito and his lawyers by surprise.
Vito, always publicity shy, was suddenly reluctant to fight the tax bill and, after a frenzy of private meetings in August 2001, between his lawyer and government attorneys, an out-of-court settlement was reached just days before the hearings were scheduled to start.
“We felt like we had a strong case, but we wanted to avoid the media circus that was sure to happen,” said Paul Ryan, Vito’s tax lawyer, who said the government’s emphasis on Vito’s criminal connections was unusual. The terms of the settlement were not released.
According to government sources, Vito agreed to pay $400,000 to settle his case behind closed doors and avoid further public scrutiny, a sum that Vito himself has since confirmed. The suddenness and secretiveness of the settlement caused some alarm. John Williams, chairman of the government’s Public Accounts Committee, filed a motion in Parliament demanding “copies of all agreeme
nts and related documents and/or correspondence, including reports, minutes of meetings, notes, e-mail, memos and correspondence, entered into between the government and Mr. Vito Rizzuto.” Somebody seemed to think it was fishy. The government responded that tax matters were private and declined to make any information public. The payment of the fine was likewise done in private. The $400,000 settlement appears to have been a communal effort by the Rizzuto family, with several members sending large sums of money over the course of a year to Jean Salois, who set up an account to handle the inter-family loans. The flow started on January 21, 2002, with a $50,000 deposit by Vito’s wife, Giovanna. She matched that deposit five months later and added another $75,000 in September. Vito’s son, Nick, rose to the occasion with a $125,000 deposit into the account on May 15, and another $95,000 a month later. Vito’s daughter, Bettina, kicked in $50,000 on February 5, leaving Vito needing to add only $5,000 of his own to the kitty. It was a communal approach that had been used by the family before. In a legal account apparently established to fund the fight against the government’s tax case, $93,000 was accumulated through various deposits from Vito, his mother, his wife and his son Leonardo, according to accounting documents prepared by Salois, Vito’s lawyer.
In the early 1990s, investigators watching Vito were also perplexed by a seemingly improbable venture that saw him traveling to Switzerland, Hong Kong and the Philippines. The travel was part of an attempt to get his hands on gold ingots from the fortune of Ferdinand Marcos, the deposed (and deceased) president of the Philippines. Vito claimed to have a mandate from the family of a Filipino general, who was a close associate of the former president, to retrieve assets from the Marcos estate on their behalf; it was believed to be hidden in Swiss and Hong Kong banks, the RCMP said. The talk of the gold stash surfaced during Project Bedside, another police operation investigating Vito for suspected drug activities. Officers found Vito in near constant contact with two brothers, twins, in Vancouver; their talk was not of Libyan hash, but Filipino gold.
Roberto and Antonio Papalia had once worked in Montreal nightclubs with Vito, when all three were young men. An older brother, Adolfo, was a co-owner, with Paolo Renda, of Complexe Funéraire Loreto, a Montreal funeral home that Vito had listed as his place of employment for several years, until 2001. (These Papalias are not related to the Ontario gangsters of the same last name.) After moving to Vancouver, the twins became controversial figures, making a name for themselves through several stock market deals and corporate ventures that ran afoul of market regulators. Roberto has been banned for life from being a director of any U.S. public company by the Securities and Exchange Commission, for defrauding investors; police have recorded Antonio, known as “Tony,” talking with Vito about a stock transaction in 1996 and was, until recently, in contact with Vito on a weekly basis, according to police. The Papalias reportedly controlled a small gold and iron-ore mine on Texada Island, a stretch of land 32 miles long and 6 miles wide that lies in the Strait of Georgia, about 190 miles north of Seattle. The mine might explain their interest in the Marcos gold plan or, conversely, why Vito might have sought their input.
Police in Canada were at a loss as to what to do when they realized what was under discussion. There was no easy evidence of a crime, certainly not one in Canada, and any investigation of such a global scheme would be an expensive venture. One thing they could do was alert the Philippines government to Vito’s interest.
“We were telling people in the Philippines that he’s arriving in Manila Tuesday, you should follow him from the airport, see where he is going, who he meets with,” said a Montreal police officer involved in the case. “And they said, ‘You have to pay us if you want us to tail him.’ We couldn’t believe it, we were like, ‘Hey, it’s your national treasury being pilfered, not ours’.” It is unknown if Vito’s attempt to act as an intermediary was successful.
SAINT-DONAT, QUEBEC, FEBRUARY 1995
The repetitive clunking sound coming from a cramped basement laundry room could easily have passed as a washing machine on its spin cycle, as unexpected visitors arrived at a chalet on a secluded lake near Saint-Donat, about a 90-minute drive north of Montreal. Instead of laundry facilities, a reconditioned printing press was found churning out counterfeit $100 U.S. banknotes. Piles of them. As police gathered the boxes containing sheets of uncut banknotes, which would later be tallied at some $15 million in face value, other officers arrested the man operating the press. In addition to being surprised by the sudden arrival of agents with the U.S. Secret Service, the RCMP and Montreal police, Lebanese-born Joseph Baghdassarian was frazzled from a cocaine binge. His erratic state only added to the marvel agents had for the quality of his work.
“He is a master craftsman,” said Paul Laurin, a counterfeiting specialist with the RCMP who led the raid. “I have to say that this man was a counterfeiter who put his heart into his work. There aren’t too many printers so good who go bad.” The key to the work of Baghdassarian, who became known by the nickname “the Artist,” was his ability to replicate the red and blue fibers that are embedded in genuine Federal Reserve bills. The Artist worked his magic with the printer, but it was the Sixth Family that moved his merchandise. The clan had long valued bogus banknotes and, as early as 1972, had been selling bulk loads of counterfeit notes and even using them to pay some of their bills. The notes from the Artist’s press, sold for about $15 each, were recovered in Albany, Buffalo, Boston, Cincinnati, Miami, Honolulu, Houston, Los Angeles, Reno, San Francisco, Toronto and Vancouver. No less than $24 million had recently rolled off that press, and this was by no means the first batch. After the chalet raid, seven people were arrested and charged with counterfeiting, conspiracy and possession of counterfeit bills. The authorities boldly named the Montreal Mafia as the bank-rollers and distributors of the counterfeit bills but, again, no member of the Sixth Family was ever indicted.
The stock swindles and gold deals, bogus money and extortion kept various Sixth Family members busy and well fed over the years, but such activities were never designed to replace their primary business. Drugs remained the priority, and in that, they would soon encounter a new underworld force that was both collaborator and challenger.
CHAPTER 33
MONTREAL, 1995
Maurice “Mom” Boucher was an ambitious, charismatic and seemingly fearless leader within the Hells Angels Motorcycle Club in Montreal, who headed a particularly bold and vicious chapter of the world’s largest and most notorious biker gang. Boucher’s Hells Angels chapter was the Quebec Nomads, a name denoting that they were, like the Sixth Family, not tied to a geographic territory. Also like the Sixth Family, the Nomads were obsessed with the staggering profits that the drug trade could bring. Mom Boucher’s first targets in Montreal were rival bikers and independent drug dealers, many of whom he beat into submission, drove into retirement or had killed. He was buying drugs in bulk and working hard to have all street dealers sell only drugs bought through him. Boucher soon wielded considerable clout throughout the province of Quebec, controlling a significant and growing drug-trafficking enterprise.
For Boucher, that was not nearly enough. Again like the Sixth Family, Boucher wanted to build his own monopoly, to become his own brand and run his own drug franchise. Quietly, he was planning for the day when he was strong enough to replace Vito Rizzuto at the top of the underworld, but he knew that time had not yet come. Meanwhile, he faced a challenge that demanded his more immediate attention. Not all of the street distributors in the area were interested in dealing with Boucher. A number of dealers, bar owners and distributors got together and went looking for a better deal, and they found it in the Sixth Family. When Boucher learned his monopoly was being challenged by a group calling themselves the Alliance, who had secured a source through the Sixth Family, he was furious.
“The Hells Angels complained like hell about it to the Italians,” said a longtime drug investigator in Montreal. He, like many police officers in Canada, even the Italian-born ones, used
the word “Italians” as shorthand for the Mafia when talking about organized crime, just as “Russians” is used for Eastern European crime groups, and “Jamaicans” for the criminal posses of immigrants from Jamaica.
“The Italians said to the Hells Angels, ‘We will sell to whomever we want; we don’t ask permission for anything. If we have a buyer we will sell it to that buyer and if you have a problem with that, then work it out amongst yourselves,’” the investigator said. The Nomads, under the leadership of Boucher, took the mob at its word. If they could not stop the flow of drugs to their competition at its source, then they would stop it at the retail end. When the rival gang—which had by then formalized its structure and changed its name to the Rock Machine—refused to restrict where and from whom they bought their drugs, the war was on. The Hells Angels were unrelenting; the Rock Machine, unyielding. The violence of the biker war in Quebec was unprecedented in Canada. Beginning in earnest in 1994, the war would claim more than 160 lives. It was a battle that the Hells Angels were winning, a fact not lost on the Sixth Family.