ROSLYNN R. MAUSKOPF, United States Attorney for the Eastern District of New York, PASQUALE J. D’AMURO, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation, WILLIAM E. KEZER, Inspector-in-Charge, New York Division, U.S. Postal Inspection Service, and GLENDA PAPILLION, Acting Special Agent-in-Charge, Internal Revenue Service – Criminal Investigation, announced today the unsealing of a superseding indictment against SALVATORE LOCASCIO, a made-member and Capo in the Gambino crime family of La Cosa Nostra (the “Gambino Family”); RICHARD MARTINO, a made member of the Gambino Family; ZEF MUSTAFA, a high-ranking associate of the Gambino Family; Gambino Family associates NORMAN CHANES, DANIEL MARTINO, ANDREW CAMPOS and THOMAS PUGLIESE; LAWRENCE NADELL, YITZHAK LEVY and KENNETH SCHAEFFER (three former employees of RICHARD MARTINO); and USP&C, INC., a Delaware corporation, for their participation in a telephone “cramming” scheme that placed unauthorized charges on the local telephone bills of millions of consumers, in amounts frequently exceeding $40 per month. The charges include racketeering, racketeering conspiracy, conspiracy to commit wire and mail fraud, wire fraud and money laundering. The superseding indictment seeks the forfeiture of $430 million in criminal proceeds. (1)
Those defendants arrested earlier today will be arraigned this afternoon by United States Magistrate Judge Robert M. Levy at the U. S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York.
The new indictment supplements existing charges brought against RICHARD MARTINO and CHANES in March and May of 2003 in connection with their participation in an internet fraud scheme that bilked thousands of unwitting consumers in the United States, Europe and Asia of up to $230 million through bogus free tours of adult entertainment web sites. LOCASCIO and MUSTAFA were previously indicted, in May 2003, for their role in conspiring to launder the proceeds of the internet fraud scheme.The Telephone Cramming Fraud Scheme
The new charges stem from a scheme conceived by MARTINO and CHANES to place unauthorized charges, for services such as voice-mail, on the local telephone bills of millions of consumers. In furtherance of the scheme, the defendants’ “service provider” companies, typically shell corporations, advertised samples of adult entertainment telephone services, such as phone sex, psychic readings, horoscope lines and telephone dating services, in various print and television media outlets. The advertisements promoted free samples of the services to consumers, who were encouraged to call an “800” telephone number to receive the sample. The recorded promotions mentioned nothing about voice-mail, or any of the services for which the defendants subsequently billed consumers. However, by calling the “800” number, consumers triggered a recurring monthly charge on their telephone bills for voice-mail service, without the consumers’ knowledge or consent.
The charges were placed on consumers’ phone bills by USP&C, a “billing aggregator” formed by RICHARD MARTINO and CHANES. USP&C entered into billing and collection agreements with local telephone companies, including PacBell, Southwestern Bell and Bell Atlantic, which entitled USP&C to insert a bill page into the victims’ monthly telephone bills. The indictment charges that USP&C bill pages described the added services in vague and misleading terms, concealing the fact that the consumers were being billed for optional services rather than standard charges.
To conceal the fraudulent nature of the scheme, RICHARD MARTINO, CHANES and others prepared two sets of media advertisements and program scripts for the 800 telephone numbers. One set, the “marketing” versions, consisted of the actual advertisements and program scripts used to defraud the victims. The second set, the “approval” versions, which appeared properly to seek the consumer’s authorization to charge a recurring monthly fee for a voice-mail service, were not generally marketed to the public, but rather were presented to local telephone companies, regulatory and law enforcement agencies, and complaining customers in order to conceal the existence and fraudulent nature of the “marketing” materials.
As alleged, when one of the defendants’ service providers, or a related entity controlled by the defendants, was forced to shut down because of complaints by victims or local telephone companies, employees of MARTINO and CHANES would begin billing for voice-mail services under the name of another entity they controlled. In this manner, the defendants’ scheme was kept alive in the face of growing scrutiny from regulators, local telephone companies, and the victimized consumers.
As a result of increasing consumer complaints to local telephone companies and regulatory agencies, RICHARD MARTINO, CHANES, DANIEL MARTINO, and others, created a “call center” affiliated with USP&C to handle the complaints internally. The call center’s operators were directed to attempt to persuade victims that the voice-mail charges on their phone bills were actually authorized in order to induce customers to pay the charges. If a victim was adamant that the charges had not been authorized, the operators were then told to offer a partial refund, but to offer a full refund only if a partial refund was not accepted. Also, if a victim requested the telephone number that triggered the unauthorized charge, the operators were instructed to provide an 800 number that connected to the “approval” version of promotional materials in an effort to deceive the victim into believing that he/she had in fact authorized the charge.
According to the indictment, after Southwestern Bell terminated USP&C’s right to insert a USP&C bill page in Southwestern Bell’s local telephone bills, USP&C initiated a direct billing format, mailing bills directly to victims. In order to deceive Southwestern Bell’s customers into believing that the direct-billed charges were legitimate and were for costs arising from their local phone service, RICHARD MARTINO, CHANES and DANIEL MARTINO created a bill page and mailing envelope designed to imitate Southwestern Bell’s telephone bill. These bills were then sent out on behalf of a fictitious entity named “Southwest Region Bill,” a company registered to PUGLIESE, as president. The Southwest Region Bill warned that if the victim-consumer did not pay the assessed charges, steps would be taken “to cancel all service.” As a result, the indictment alleges that numerous victims were tricked, or coerced, into paying for the fraudulent charges.
According to the indictment, the defendants’ scheme resulted in unauthorized recurring monthly charges on millions of victims’ local telephone bills throughout the United States, and generated approximately $50,000 to $600,000 in gross revenue per day between 1997 and 2001. In total, the cramming scheme is alleged to have produced approximately $200 million in gross revenues and approximately $100 million in profits.
The proceeds of the telephone cramming scheme were allegedly laundered through a series of shell companies controlled by RICHARD MARTINO and CHANES. Specifically, the proceeds were sent from Mical, a company owned by RICHARD MARTINO, to Creative Program Communications, Inc., a company 50 per cent owned by LOCASCIO, and 25 per cent owned by LOCASCIO’s close associate, MUSTAFA. In this manner, RICHARD MARTINO directed more than $30 million in telephone cramming proceeds to Gambino Family Capo, LOCASCIO, and to MUSTAFA. The Internet “Free Tour” Fraud Scheme
RICHARD MARTINO and CHANES were previously indicted, in March 2003, for their participation in an internet fraud scheme that bilked thousands of unwitting consumers in the United States, Europe and Asia of up to $230 million. They were charged with running bogus free tours of adult entertainment web sites based on magazines published by The Crescent Publishing Group, Inc. (“Crescent”), a Manhattan-based publishing company which cooperated in the government’s investigation. During 2000, Crescent published over a dozen different magazines and had almost $40 million in print revenue. The superseding indictment charges DANIEL MARTINO, NADELL and LEVY with participating in this scheme. The charges include conspiracy, wire fraud, and money laundering, and forfeiture of $230 million in proceeds from the scheme.
According to the indictment, the web sites were part of a joint venture formed in 1996 between Crescent, Lexitrans (a company controlled by RICHARD MARTINO), and Harvest Advertising, Inc. (a company controlled by CHANES). The Joint Venture web sites featured adult content from magazines published by Crescent.
Through the advertised free tours of the web sites, the defendants tricked visitors into providing credit or debit card information, purportedly as proof of age, and promised that the card would “NOT BE BILLED.” In fact, visitors’ credit cards were billed a few screens into the tour, without their knowledge or consent, and without notice that the free portion of the tour had concluded.
The defendants employed various means to prevent users from leaving the web sites, including programming the free tours to “bounce” users who tried to exit to another free tour controlled by the defendants, disabling the “go back” button on the users’ browsers, and failing to include an “exit” or “home” button within the free introductory portion of the tour. In addition, the defendants hid price information by burying vague language in the middle of sexually explicit text which was superimposed over sexually explicit images on the web sites.
The indictment alleges that nearly from the start of the scheme, Crescent received an unusually large number of “charge backs” from disgruntled web site users who complained about unauthorized charges to their credit cards. A charge back occurs when a consumer disputes a charge and receives a credit on his or her bill, which in this case was debited from Crescent. During 1999, Crescent’s charge back rate was more than ten percent, the third highest rate among millions of companies participating in the Visa program within the United States. Facing escalating fees imposed by Visa for excessive charge backs and the prospect of termination from the Visa program, the defendants created a series of shell companies with new bank accounts — all secretly controlled by Crescent — on a continuous, rolling basis, and abandoned their old accounts as charge back rates mounted. In addition, the defendants attempted to settle individual customer complaints internally at Crescent rather than at the banks. In these instances, the defendants typically provided refunds only when expressly demanded by the user, and otherwise simply canceled the consumer’s web site membership.
In April 2000, Visa terminated the rights of Crescent, its chief executive officer and its chief financial officer, to participate in the Visa program in the United States. In response, the defendants consolidated their credit card processing operations offshore. In September 2000, Visa barred Crescent, its chief executive officer and chief financial officer from participating in the global Visa program. Despite this ban, the indictment alleges that the joint venture defendants and Crescent attempted to continue operating the web sites through nominees.
As charged in the indictment, RICHARD MARTINO and CHANES used several companies to launder the proceeds of the internet fraud scheme. In addition, RICHARD MARTINO funneled millions of dollars of the proceeds to other corporations he and CHANES controlled. Using these corporations, from June 1999 through June 2000, RICHARD MARTINO transferred more than $8 million in proceeds of the internet fraud scheme to Gambino Family Capo, LOCASCIO, and to MUSTAFA.
“These defendants conspired to defraud consumers by using a sophisticated web of shell companies to generate one of the largest consumer fraud schemes in United States history,” stated United States Attorney ROSLYNN R. MAUSKOPF. “This indictment demonstrates our commitment to protecting victims of consumer fraud and prosecuting members and associates of organized crime who prey on those victims.” Ms. MAUSKOPF thanked the Federal Trade Commission for its assistance in the case and emphasized that the investigation is continuing.
FBI Assistant-Director-in-Charge PASQUALE J. D’AMURO stated, “The scheme hatched by these defendants was innovative and in many ways ingenious. It demonstrates once again how organized crime is perpetually seeking new ways to make money. Today’s arrests demonstrate how the FBI and our partners always follow the money and uncover its source. Whatever illegal scheme the mob devises to generate cash, we’re never far behind.”
Postal Inspector-in-Charge WILLIAM E. KEZER stated, “Today’s indictment demonstrates the commitment of law enforcement agencies from all levels of government to combat consumer fraud. Postal Inspectors will continue to aggressively investigate, arrest and seek prosecution of anyone using the U.S. mail to commit criminal activity.”
Potential Penalties and Forfeiture Allegations
If convicted, individual defendants face up to 20 years in prison on the racketeering charge; 20 years in prison on the racketeering conspiracy charge; 20 years in prison on each wire fraud charge, five years in prison on the wire fraud conspiracy charge, and 20 years in prison on the money laundering conspiracy charge. They also face fines of up to $500,000 on the money laundering conspiracy charge and $250,000 on each of the remaining charges, or up to twice their gains, the loss to the public, or the amount of funds laundered, which is $430 million. The corporate defendant faces fines of up to $500,000 or twice its gains or the loss to the public.
The superseding indictment seeks forfeiture of up to $430 million, and specifically seeks the defendants’ interest in the following substitute assets valued at more than $30 million, among others: from SALVATORE LOCASCIO, his residences in Naples, Florida, valued at $2.1 million, and at 2 Timmons Road, valued at $950,000, as well as his interest in the proceeds of a shopping center in Florida, valued at over $1 million; from RICHARD MARTINO, his residences in Southhampton, New York, valued at $6 million, and Tuckahoe, New York, valued at $580,000, and real property in Harrison, New York, valued at $2.1 million; from ZEF MUSTAFA, his residences in Pelham Manor, New York, valued at $1.35 million, and Belleair Shores, Florida, valued at $1.7 million; from NORMAN CHANES, his residence in Southhampton, New York, valued at $11 million, and a cooperative apartment on Central Park West in Manhattan, valued at $3.4 million; from DANIEL MARTINO, his residence in Hawthorne, New York, valued at $550,000; from ANDREW CAMPOS, his residence in Eastchester, New York, valued at $900,000; and from LAWRENCE NADELL, his residences in Holmdel, New Jersey, valued at $1,600,000, and Boca Raton, Florida, valued at $625,000.
The case has been assigned to United States District Judge Carol B. Amon. he government’s case is being prosecuted by Assistant U.S. Attorneys Andrew Genser, Eric Komitee, Tracey Knuckles and Sharon Volckhausen.
DOB: December 17, 1959
Naples, Florida and Scarsdale, New York
DOB: November 11, 1959
Harrison, New York
DOB: September 8, 1961
Pelham, New York
DOB: January 27, 1947
New York, New York
DOB: June 23, 1950
Hawthorne, New York
DOB: February 17, 1969
Eastchester, New York
DOB: February 2, 1957
Middle Island, New York
DOB: March 16, 1948
Holmdell, New Jersey
YITZHAK LEVY, also known as “Isaac Levy”
DOB: April 5, 1966
New York, New York
DOB: October 29, 1968
Pelham, New York
A Delaware Corporation
Overland Park, Kansas
1. The charges contained in the superseding indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty.