PART 5:INSIDE JOB THE LOOTING OF AMERICANS SAVINGS & LOANS

INSIDE JOB 
The Looting of Americans 
Savings and Loans 
By Stephen Pizzo, 
Mary Fricker 
and Paul Muolo

CHAPTER ELEVEN 

The End of the Line

Manning filed the FDIC and FSLIC civil suit against Renda and his cohorts in U.S. District Court in Kansas in April 1985. in the lawsuit was a graphic description of Renda's "special deals" at Indian Springs State Bank, Coronado Savings and Loan, and Rexford State Bank. The Kansas City U.S. attorney's office, whom Manning had implored months earlier to take the case, was beginning to look more than a little silly. At last the Kansas City Organized Crime Strike Force took the matter to the grand jury. They contacted Maffeo and requested that he send them copies of the documents he and Manning had seized at Renda and Winkler's offices. Maffeo complied. 

Nonetheless, Renda continued to do business out of First United Fund in New York, although things got pretty weird around the shop. First United Fund now was huge. It managed $5 billion in deposits. Most of its employees had nothing to do with Renda's wheeling and dealing but had come to suspect much. On the wall in the bull pen at First United was "the big board," which listed all the institutions dealing with First United Fund. Over the names of institutions that employees suspected were involved in one of Renda's "special deals" they would sometimes stick cutouts of army attack helicopters shooting missiles at the institution's name. On the side of the helicopters they'd write FDIC or FSLIC. 

Word of the Kansas City grand jury probe sent a clear message to Franklin Winkler and his father, Leslie. As accomplished con artists, they knew when a gig was up, and if even the Kansas City feds were onto them, then this gig was most certainly up. In early 1987 both Franklin and his father skipped the country.1 

Daily was obviously going to be named a defendant in any case brought by the Kansas City Strike Force, and as usual he was quick to take up pen in his own defense. This time he described his ideas for subverting Manning's investigation. In a report he called "Goals Achievable Through Use of Public Relations and Investigative Firms," Daily suggested to his cohorts that when Mike Manning came to Honolulu they "put a tail" on him. "The purpose would be to gather data on him, associate it with his billing, and try to pick up a little fraud up on the Federal Government by the Morrison, Hecker firm, as well as acquiring the capability to embarrass or discredit them, if need be " He also suggested they try to get a story on CBS's 60 Minuses that would portray Daily and his straw borrowers as victims rather than participants in the scheme. 

But things were coming apart much too fast, and soon after Maffeo's search of the First United offices. Renda's own right-hand man and executive vice president, Joseph DeCarlo Sr. began secretly negotiating with Maffeo and the Brooklyn Organized Crime Strike Force for immunity in exchange for testifying against his boss. When the talking was over DeCarlo agreed to plead guilty to a single count of conspiracy and another count of tax evasion in return for immunity on everything else. He also agreed to testify against Renda in return for a five-year cap on his sentence. 

That was all Maffeo needed. Ten days later, in the early morning hours of June 16, 1987, a squad of FBI agents swooped down on Renda's New York mansion armed with a 145-count grand jury indictment. The federal agents read Renda his rights, and in front of his wife and children they handcuffed him and led him off to a waiting car. Renda was charged, along with codefendant Martin Schwimmer, with defrauding Sheetmetal Workers Local 83 and Teamster's Local 810 by skimming nearly $16 million off of the $100 million in pension funds brokered by First United Fund into thrifts and banks between December 1981 and December 1984. Renda and Schwimmer were charged with racketeering, mail and wire fraud, embezzlement and bribery. Prosecutors said the First United Fund case was the largest criminal union-pension fraud scheme ever prosecuted by the Justice Department. 

The same day Renda was scooped up in New York—and three years after Manning had pleaded with the assistant U.S. attorney in Kansas City to prosecute Renda, a 31 count grand jury indictment was unsealed in Kansas City, charging Renda, Franklin Winkler, and Daily (and others) with embezzlement and with defrauding Indian Springs State Bank and Coronado Savings and Loan of $7 million. It was a bad day for Mario Renda. He now had a two-front war to fight. Maffeo was prosecuting him in Brooklyn for skimming from the pension funds, and the Kansas City Strike Force was prosecuting him for defrauding Indian Springs State Bank. 

Renda and his attorney appeared before a federal judge in Brooklyn later that day. Renda's attorney objected to his client's rough handling earlier that morning by the FBI: "I understand there is little the court can do to help me, to raise my strenuous outrage at Mr. Renda's arrest this morning at seven o'clock in his home in Garden City in the presence of his children. . . . My client has asked me to apologize for the manner in which he appears before your honor. Having been taken out of his home this morning, he wasn't in a position to choose a tie or put on a suit." 

To which a sober-faced judge replied, "Don't worry, I'm not fussy." 

The Brooklyn indictment charged that Renda and Schwimmcr had obtained union business the old-fashioned way, by bribing union officials. It charged that once the money was placed at thrifts, First United Fund was paid commissions that were shuttled to "off the books" bank accounts and not declared. With their profits in accounts not reflected on the books of First United Fund, the indictment claimed, Renda began lying on his taxes. In 1982 he claimed income of $2,251,478 for First United Fund when in fact First United Fund made $3,284,370 that year. In 1983 he told a whopper. He claimed First United Financial Corporation had made a profit of $137,206, when in fact income that year totaled $3,429,546. In all, Maffeo charged, Renda and Schwimmer had received over $16 million illegally from the two pension funds. 

October 19, 1987 ("Black Monday" on Wall Street)—three years to the day after Maffeo's troops showed up with a search warrant at First United Fund's office in Garden City, New York—Renda was to go on trial along with Sam Daily in Kansas City. (Franklin Winkler was hiding out in Australia.) Jury selection had already begun when Renda and his attorney cut a separate deal with the head of the Kansas City Organized Crime Strike Force. Facing one count of conspiracy and 29 counts of federal wire fraud, Renda agreed to plead guilty to two counts of wire fraud for a two-year cap on his sentence. 

Brooklyn Strike Force attorneys were furious with their Kansas City brethren because an attorney on the Kansas City Organized Crime Strike Force had earlier refused a much better offer from Renda: Before he was indicted Renda had offered to plead guilty to both the Brooklyn and Kansas City charges and take whatever sentence the judge gave him in Brooklyn in exchange for a maximum sentence of two years in the Kansas City case. He had also offered to repay the FDIC and FSLIC $20 million in cash. But the attorney on the Kansas City Strike Force refused the deal because he wanted to hold out for a prison sentence of five to seven years. By the time the trial rolled around, however, the head of the strike force had evidently gotten cold feet, and Stuart Steinberg, Renda's friend and attorney, cut a deal. But the offer to repay $20 million was off because Renda now claimed to be broke. 2 The FSLIC and the FDIC were left standing at the altar with that familiar empty feeling in the pits of their stomachs. 

"Steinberg told me he couldn't believe how good a deal they were offered," an attorney close to the case told us. "He .said they didn't even require Renda to testify against Daily or the others in the case."

The Kansas City acceptance of the Renda plea bargain particularly angered the Brooklyn Strike Force attorneys because they had gotten Renda's subordinate, Joe DeCarlo, to agree to testify against Renda in return for a five-year-sentence cap. How did it look when the main culprit made a better plea bargain than his lackey?3 

The Kansas City Strike Force had let Mario Renda, one of the key figures in a nationwide scheme to defraud thrifts and banks, off with a two-year slap on the wrist. We had to wonder. Didn't the Justice Department know what kind of damage Renda had done at dozens of institutions? Weren't they aware by now of his associations with others who had swindled thrifts and banks across the country? (At least one member of the Kansas City prosecuting team certainly understood the significance of the case when he warned an investigator ominously after the trial, "This is much bigger than even you know. These are very nasty people.") Still, the Renda case had, from a prosecutor's standpoint, been "turned." For the record, the Kansas City Organized Crime Strike Force had its "conviction." 

With Renda now out of the case and Franklin Winkler on the lam in Australia, that left just Daily and another minor player, Los Angeles investor and syndicater Fred Figge, to face 28 counts of wire fraud and one count of conspiracy.4 The case droned on for two months. The loss of its star defendant, Renda, a key element in the original indictment, took all the focus out of the case. It bogged down badly as prosecutors tried to replace Renda with technical particulars. They threw over 670,000 pages of documents at the jury. The papers filled a dozen file cabinets and would have stood ten feet thick. When the trial ended in December 1987 the jury issued a muddied decision, finding Daily and Figge innocent of all the wire fraud charges but guilty of conspiracy. 

The defense had contended that Daily and Figge were victimized by the Winklers, who then fled and left Daily and Figge holding the bag. After the trial some jurors said they agreed. But a defense attorney told a Kansas City Times reporter he wasn't sure the jury understood what they were doing, since they convicted the two men for conspiracy, which embraced the wire fraud counts, but did not convict them of the wire fraud. 

"It's quite possible the jury was confused." he said. "I don't know whether they really knew what was going on or not." 

Renda was not going to get off so easily in Brooklyn. Maffeo had all the evidence he needed tying Renda to the pension-fund embezzlement scam. And now, with DeCarlo telling all to federal prosecutors, Renda knew he was trapped. So he decided to follow DeCarlo's lead and turn against Schwimmer. Renda told Maffeo that he would testify against Schwimmer in return for consideration on his sentencing in the Brooklyn case and help with the judge on the Kansas City case, for which he had not yet been sentenced. Maffeo agreed. Renda pleaded guilty to racketeering and tax-evasion charges. In return Maffeo agreed to recommend to the Brooklyn judge that he limit Renda's jail sentence to 25 years and agreed to send notice to the Kansas City judge that Renda was now cooperating with federal prosecutors.5 

After Maffeo settled matters with Renda, a source close to the case who knew we were investigating Renda sent us a package. Four years' worth of Mario's personal desk diaries arrived in a large UPS box one morning. Maybe in looking them over we'd see some familiar names, she said on a small yellow note attached to the first page of the foot-high stack. 

The package included Renda's daily business diaries from January 2, 1981, through October 19, 1984 (when Maffeo's forces stormed First United Fund with a search warrant). Renda apparently kept the diaries on his desk and jotted down notes on important phone calls, reminders to himself, daily interest-rate quotes, and just plain trivia. The diaries were peppered with dozens of names we already knew. 

Khashoggi was there. The Dunes Hotel and Casino. Winkler. Daily. Lemaster. Seaside. Teamsters. Ferrante and the Palace Hotel in Puerto Rico. Steelworkers. San Marino S&'L. Bank of Irvine. Consolidated S&L., Bill Patterson of Penn Square Bank, First Atlantic Investment Corporation, Bureau of Indian Affairs, California Congressman Tony Coelho, all dutifully noted in Renda's own scrawl. Also, Morris Shenker was there: "Bill Wiss friend of Morris Shanker [sic]. " "Morty Shanker deal. " "B of A on Shanker deal." It took us days to pick through the diaries, trying to decipher Renda's careless handwriting and impossible spelling. 

The scope of Renda's activities seemed to grow with every new piece of information. Given the allegations that Sal Piga was a Lucchese mob family associate and that the Brooklyn Strike Force had recorded an alleged Lucchese mob family member talking about how Schwimmer was helping him launder money through bearer bonds, we kept wondering if the mob was pulling Mario's strings. We asked several investigators if Renda was working with or for the mob, and one day we received a piece of unmarked mail. We opened the large envelope and found inside the sworn deposition of Lawrence S. Iorizzo. Attached was a handwritten note to us: "If you are focusing on mob bust-outs of savings and loans, then this is the definitive piece." 

There were no shades of gray there, no subtleties to wade through. Larry Iorizzo was a bona fide hood. He was about five foot ten and weighed 300 pounds. He had been convicted of bootlegging gasoline on Long Island and he had fled to Panama, where he was silly enough to cross swords with Colombian drug lords. Rather than kill Iorizzo, the drug lords simply put him on a nonstop flight from Panama to Miami. As soon as the plane was airborne, they called the U.S. attorney in Miami and said, "Guess who's coming to dinner." 

Iorizzo had decided at that point to save his skin by talking, and the feds placed him in the federal witness protection program. In return for protection he agreed to give evidence whenever he had information about a case. In a sworn deposition, September 30, 1987, Iorizzo told the feds what he knew about Renda. He said: 

Back in 1981, when Renda and the Winklers were first formulating their linked-financing scheme, Iorizzo was the president and principal shareholder of a mob-front company called Vantage Petroleum Company in Bohemia, New York. He had been indicted in Suffolk County, New York, for obtaining contracts to distribute gasoline to turnpike and highway markets by collusive bidding. The case had been widely reported in the press and no one would loan either Vantage or Iorizzo any money. 

This blacklisting was creating cash-flow problems for Iorizzo, and a friend steered him to Leslie Winkler. Leslie told Iorizzo that his friend Mario Renda was a New York "money man" who could help Iorizzo with his cash-flow problems. Leslie arranged a meeting between Renda and Iorizzo in late 1981. Iorizzo testified: 

During that meeting, held at Renda's home, I explained my financial difficulties to Mario Renda. Renda told me that he was aware of the cash-flow problems and had been briefed on the situation by Winkler. Renda also indicated that he had read about my problems with law-enforcement authorities in the newspapers. 

Renda explained to lorizzo how his linked-financing scheme worked: 

I understood from our conversation that these brokered C.D's could be used with banks that wanted to inflate their cash position, making the banks more liquid and in a more favorable position to extend loans. Renda told me that he could arrange for deposits to be put into a bank, if there was a bank that I knew well enough to talk to and explain that I could arrange for money to be deposited if the bank would give me a loan. 

Leslie Winkler told Iorizzo that Renda was very close to Adnan Khashoggi and that Renda might be able to assist Iorizzo in getting a fat oil contract if Iorizzo used his powers of "persuasion" in New York to help Khashoggi. It seemed Khashoggi, who owned a home outside New York City, was having trouble getting the town fathers' approval for a helicopter landing pad at his home. Renda said that if Iorizzo could "remove these obstacles," Khashoggi would be most appreciative. 

At that same meeting, Iorizzo later swore, he and Renda exchanged their Mafia bona fides, with Leslie Winkler telling Renda that Iorizzo was with the Colombo crime family and Renda in turn bragging that he controlled "a lot of money being loaned for the benefit of the Paul Castellano family." Castellano was the New York City Mafia boss for the Gambino crime family. 

According to Iorizzo, he and Renda came to an agreement under which Renda would place money at a bank of Iorizzo's choice, and he chose Central National Bank of New York (C.N.B.Y). The bank then made loans to a Panamanian shell corporation formed by Iorizzo. Renda got $35,000 under the table from Iorizzo as his share in the C.N.B.Y scheme and Leslie Winkler got a small percentage for making the introductions. 

"I literally purchased the company's papers from a lawyer in Panama who maintained them, along with other such entities, on the shelf of a bookcase in his office in Panama," Iorizzo said. He had been introduced to the Panamanian lawyer by Leslie Winkler. Iorizzo told Renda he used the Panamanian shell corporation rather than Vantage Petroleum for this loan "because I had no intention of paying the loan off once it was made. Renda then suggested that I could use Panamanian shelf companies such as Houston Holding in order to borrow money from other banks in the United States and/or Europe, allow the loans to go into default, and then collapse these companies into bankruptcy, thereby discharging the nonperforming loans." What Iorizzo described was another classic bust-out. 

Renda and Leslie Winkler also tried to enlist Iorizzo into their overall scheme to bust out banks and thrifts. "I understood from these discussions that the schemes involved getting banks to take in brokered deposits to make loans to limited partners who would turn the proceeds over to general partners in a partnership arrangement. . . . There was no intention of repaying anybody as the general partners had no obligation to pay the loans off . . . the loans would go into default and as the collateral was not worth as much as it was represented to be, the limited partners would be left with the responsibility of paying on the mortgage and/or promissory notes." Though interested in the scheme, Iorizzo had declined "due to other activities which required my presence in New York." 

Renda's diaries and Iorizzo's deposition fleshed out for us Renda's role as a deposit broker. Taken together with the activities of his partner Schwimmer with the Lucchese crime family, they left little room for doubt that Renda's banking activities were intertwined with the mob's. Taken in a larger context, they were even more significant. Renda was a fellow who, in a matter of a few short years, went from tap-dance teacher to multi billion-dollar deposit broker and who was able to bilk dozens of thrifts and banks out of tens of millions of dollars. Ultimately, he put many of these institutions out of business—all of which he did with other people's money and newly promulgated government regulations that deregulated interest rates and thrift rules. The warnings issued by Ed Gray and a handful of others went unheeded as Congress Hastened instead to thrift lobbyists who insisted that brokered deposits were not a problem. When the court ruled that only Congress, not the F.H.L.B.B, could limit FSLIC insurance on brokered deposits, all hope of bringing the "hot money under control vanished. The next step the F.H.L.B.B might have taken would have been to assign more examiners to watch institutions using large amounts of brokered deposits, but the F.H.L.B.B did not have enough examiners to do the job. 

In the vacuum created by regulatory and congressional inaction, Mario Renda and others like him moved in and quickly subverted the role of deposit broker to that of extortionist and corrupter. Finding small thrifts struggling to make it against larger competitors, these brokers put a price on their millions —a cut. With the promise of huge deposits as the carrot, heretofore honest thrift officials agreed to accommodate the deposit brokers and their friends, who then spirited off their share of those deposits, never to be seen again. What did it matter? they reasoned. The deposits were insured—backed by the "full faith and credit of the U.S. Treasury." 

The laws and regulations covering brokered deposits have not changed as of this writing. The potential for abuse by unethical deposit brokers like Mario Renda remains. We had hoped that the downfall of Mario Renda would have alerted regulators and examiners, but it was not so. In late 1988—three and a half years after the collapse of Indian Springs State Bank when we interviewed the senior trial attorney at the F.H.L.B.B, we sat in shocked disbelief when we learned that he had no idea who Renda was or what Renda had done.

CHAPTER TWELVE 

"Miguel" 

The Mafia of the 1980's was a sophisticated $50 billion enterprise that employed financial consultants and attorneys and dealt on a daily basis with international currency fluctuations and the rise and fall of the Tokyo stock exchange. 1 Individual Mafia members had average annual incomes of over $200,000. The top 50 bosses made much more.2 They traveled in the world of high finance, and even before thrifts were deregulated, upper-echelon Mafia financiers knew exactly how they would benefit from deregulation. They were ready to take advantage of the opportunity as soon as Congress passed the legislation. The lower echelons of the modern Mafia, a vast and assorted crew of "wise guys"3 who were constantly sweeping the country for lucrative scams, also quickly got the word that savings and loans had changed. The Mafia on all levels struggled daily with a consuming need for cash and for a way to launder it. Thrift deregulation fulfilled both of those needs nicely, making it easier to launder money through multi million dollar development projects, using a thrift as a front, and making it easier to find thrift executives willing to make risky loans for a piece of the action. Not only had the rules been drastically eased, but the cops (thrift examiners) were no longer much of a threat, their ranks having been gutted after state and federal deregulation. 

In our investigation we ran into the mob, or associates of the mob, at many of the thrifts we examined. Each of the "Big Five" New York families —Gambino, Genevese, Lucchese, Bonanno, and Golombo—turned up, along with the lesser families such as the Civellas from Kansas Gity, Garlos Marcello in New Orleans, Santo Trafficante in Tampa, and others. Did the leadership of crime families have a sit-down 4 one day and decide to loot S&Ls? Glues that surfaced at dozens of savings and loans convinced us that some form of coordinated operation existed. The evidence was overwhelming that the Mafia was actively looting S&Ls—in various, widely disparate locations, at the same time, in the same ways, often using the same people. 

The mob was also using S&L's to launder money. Thrifts' access to brokered deposits, as well as their new ability to make direct investments in real estate projects and partnerships, made deregulated thrifts a natural vehicle for laundering large sums of money. Among the most popular money laundering techniques were:5 

Buy an asset (a piece of property or a business, for example) with a loan from a thrift. Repay the loan over a period of time with dirty money. Once the loan was paid off, sell the asset and the money was laundered. (Or default on the loan and let the thrift repossess the property. Either way, you had an explanation for the origin of the money if anyone should ask.) 

A twist that would allow you to both launder money and steal some from the thrift at the same time was to borrow more on the asset than you paid for it (and more than it was worth) and then default on the loan, claiming you lost money on the project. The money in your possession would then clearly be the product of the defaulted loan and, therefore, laundered. Plus, you'd have the extra money you had made by over encumbering the asset (which the thrift would repossess and have to dispose of.)

The permutations and possibilities were endless, especially when done in conjunction with a real estate transaction. The American way of handling real estate transactions was cluttered with 200-year-old ownership instruments like quit claim deeds, grant deeds, trust deeds, and deeds of re-conveyance. Those arcane instruments might cross the sights of average people only once in their lives, when they bought their own homes. But to the white-collar swindler and money launderer, they were the tools of the trade. A routine heist or money laundering operation involving real estate was a blizzard of such instruments, hiding true intentions behind a frenzy of deeds and note filings.6 

Thrift deregulation came at a time (the early 1980's) when federal strike forces had targeted what they believed to be $100 billion 7 being laundered through U.S. financial institutions every year. The Bank Secrecy Act, passed in 1970, had several important provisions that fought against money laundering, including requiring banks and thrifts 8 to report all transactions over $10,000. But working against the Bank Secrecy Act was the 1978 Right to Financial Privacy Act (and many state laws), which severely limited what banks could tell law-enforcement officials.'9 

The role of savings and loans in money laundering made headlines in 1985 when results were made public of Operation Greenback, a federal money-laundering probe conducted in Puerto Rico from 198? to 1985. Two senior F.H.L.B.B officials admitted they had altered bank examination reports that would have exposed possible currency reporting violations at a Puerto Rican thrift. The president of the Puerto Rican thrift was also vice chairman of the F.H.L.B of New York. Senator William V. Roth (R-Del.), chairman of the Senate Committee on Governmental Affairs' subcommittee on investigations, said in hearings in July 1985: 

It is instructive to note that in 1983 the F.H.L.B.B examined 2,185 savings and loans nationwide, including Puerto Rico, and found two Bank Secrecy violations (primarily failure to report cash transactions over $10,000), whereas in the same year the FDIC found ten of the eleven Puerto Rican banks examined to be in some form of noncompliance with the Act. In 1984 the Bank Board found zero violations out of 1,906 examinations nationwide. In Puerto Rico alone the FDIC found six of the seven banks examined in noncompliance. Now this either means that the savings and loans are models of compliance with the Act, or that the Board just is not doing its job. There is little question in our minds that the latter is the case: The F.H.L.B.B has consistently dropped the ball regarding enforcement of the Bank Secrecy Act. In the entire history of the Act, since its passage in 1970, the Board has referred a grand total of two financial institutions to the Treasury Department for civil penalties, none for criminal penalties. 

That complacent environment was nirvana for the mob, and they took every advantage of the opportunity. But the most prevalent mob activity we found at thrifts was individual mob members and associates getting and defaulting on loans—big loans and lots of them. The mob's survival depended on a constant flow of money. Before deregulation getting that money was a hit-or-miss proposition. Wise guys often had to shake down small businessmen. It was hard work. After deregulation thrifts bursting at the seams with brokered deposits were like the mother lode and the wise guys were the 49er's. If wise guys could get sufficient control of a thrift, they busted it out. If they failed to gain control, they took what loans they could get and moved on to the next thrift.

The frenetic pace with which they scoured the thrift industry looking for loans seemed also to be a function of the way the mob had changed since the 1960's. Twenty years ago the mob was still a fairly homogeneous entity made up of well-recognized "families" who controlled precisely described territories and took care of their own. Like Fortune 500 companies, mob families had their own now-familiar hierarchy, with each station bearing its own, sometimes paramilitary, title like capo, lieutenant, soldier, earner, wise guy. But the 1980's mob had undergone its own version of perestroika.10 To survive a war on the mob that was being waged by law enforcement armed with high technology' tools, wise guys were given far more independence of action. No longer were they required to get the Godfather's support for every little operation or scam.11 Instead, mob operatives used their family associations (and one person might have several) as a reservoir of talent and influence when conducting an operation. Also, the young wise guys were far more independent-minded than in the old days when they virtually worshiped the Godfather. The conviction of 1,000 Mafia bosses and underlings since 1981 created a vacuum into which young, reckless, independent operators moved (to the dismay, apparently, of older Mafia members). They tended to organize their own jobs. "Our Thing has turned into My Thing," testified a former FBI agent.'- When the job was done and the money in hand, the wise guys' only responsibility was "to do the right thing," meaning to be sure they passed enough of the booty up the line of command to satisfy the family. 

In the past the Mafia had had little interest in a conservative thrift industry that only made home loans. But the deregulated thrift industry was an exciting new target for wise guys with busy minds always figuring out their next scam. Throughout our research, then, when we talked to regulators or FBI agents, we always asked them, "Are you coming across any mob-related people in your thrift investigations?" Coauthor Paul Muolo, headquartered in New York and living in New Jersey, got the tip that led us to the mob-related operation we later decided was most typical of such activity at a thrift. His New York source had told him: 

"Well, check out Flushing Federal Savings and Loan over in Queens. Drop the name Rapp and see what happens. By the way, his real name's not Rapp, it's Hellerman. Michael Hellerman." 

In late 1972, Michael Hellerman and his wife, Mary, a tall slender woman in her late twenties, had exited their car off the Cross Island Parkway and pulled into the driveway of their home in Bayside, Queens.13 A stockbroker in his mid-thirties, Mike Hellerman had chosen to settle in this upper-middle-class enclave because of its relative proximity to New York City. Bayside was close enough that Hellerman could enjoy the city's nightlife while staying in touch with his clients, but far enough removed so he could escape the hustle and bustle. A suburb speckled with well-groomed single-family homes and small garden apartments, Bayside was a perfect place for Michael Hellerman to blend in with other professionals commuting daily to New York. It was also a perfect place for Hellerman to hide from his stock clients, who, perhaps, weren't prospering from some of Mike's recent trades. 

Hellerman and his wife, returning from dinner, pulled their Cadillac into the driveway and climbed out. Four police officers came over to the couple as a crowd of curious neighbors watched. 

"You Mike Hellerman?" a sergeant asked. 

"Yeah," 

The police led Hellerman and his wife to the house. "It looks like someone shot up your house, Mr. Hellerman," one officer told him. The Hellermans' home had been machine-gunned. 

Only a few days earlier the couple had been held up at gunpoint in their home. 

That night Hellerman's wife, Mary, became hysterical. The couple packed up their belongings and children and, using phony names, checked into the Diplomat Hotel across the river in midtown Manhattan. To neighbors and the police the event seemed out of place in the quiet neighborhood. But Mike Hellerman knew exactly what had happened and why. He also knew he needed help. 

On October 19, 1972, two days after the shooting, he called a contact he had at the Federal Bureau of Investigation and baited his hook. He would be willing to tell the FBI everything he knew about the mob's activity on Wall Street, he said, if he could be guaranteed protection. He assured them he had plenty to tell and that members of the organized crime families he'd been dealing with wanted Mike Hellerman dead. 

As his neighbors in Bayside would later learn, Mike Hellerman wasn't just any stockbroker. He was the mob's stockbroker. And he had enough information on mob stock scams to send key members of the Lucchese, Colombo, and Gambino crime families to prison for years. But it wouldn't be easy for Mike. One of Hellerman's best friends was John Dioguardi, better known as Johnny Dio, a big labor union racketeer who was reportedly a member of the Lucchese crime family. Dioguardi had once been instrumental in helping Jimmy Hoffa become president of the Teamsters Union. Dio and Hellerman were tight—so tight in fact that Dio was Hellerman's "protector" in the mob. From the late 1960's, up until he was sent to prison in October 1972 for bankruptcy fraud, Dio made sure that no harm came to Mike as Hellerman pulled stock swindle after stock swindle for the families. 

Over the years Hellerman's stock scams had netted millions for Dio and mobsters like Vinnie Aloi, reputed to be the head of the Colombo crime family. There seemed no limit to the ways Mike Hellerman could turn a buck on a stock swindle. Hellerman bribed traders, artificially inflated the price of stocks by setting up phony buyers, and sold artificially inflated stocks at unheard-of profits. Other times Hellerman formed companies that had little or no assets, sold thousands of dollars' worth of stock in them, pocketed the profits, and left the buyers holding an empty bag when the bottom fell out of the stock price. It seemed that no matter how many people he burned, Hellerman rarely got burned himself. Sometimes he sold stolen bonds. In other scams, using a phony company he'd created, he'd get a loan from a bank using stolen bonds as collateral. And in almost every scam the mob was there, riding a crest of stock scams engineered by their Wall Street wizard Michael Hellerman, who later referred to himself in his autobiography as a nice Jewish boy gone wrong. 

From the mid-1960's up until late 1972, Hellerman had inhabited an underworld ruled by men like Dio and Vinnie. And he had no regrets. Along the way he had met a lot of people and seen a host of things that he would never have seen if he'd taken his father's advice and become an accountant. 14 Hellerman not only had helped the mob swindle millions but he had been involved in two major political scandals as well, including a brush with Watergate. He described the scandals in his 1977 biography. Wall Street Swindler. 

In 1969 two aides to then House Speaker John W. McCormack had been convicted of attempting to peddle their influence with the SEC on behalf of a Hellerman company. And then in November 1971 Hellerman was implicated in a Watergate-related case, although he never was indicted. Robert Carson, an administrative aide to Hawaii Senator Hiram Fong (Carson had been president of the Honolulu Stock Exchange and also chairman of the Hawaiian Republican Party for eight years before he became Fong's aide), tried to quash the Justice Department indictment of Hellerman, Dio, and others in return for a $200,000 bribe. Richard G. Kleindienst, then deputy attorney general during the Nixon administration (Kleindienst later became attorney general), testified that Carson had offered to donate $100,000 of the money to the Committee to Re-Elect the President (CREEP) if Kleindienst killed the indictments against Hellerman and the other organized crime figures, including Vincent Aloi, Johnny Dioguardi, and Carmine Tramunti, reportedly head of the Lucchese family. Carson was eventually indicted and convicted. 

Whatever else one might say about Hellerman's life, it had not been boring. 

The son of a Polish immigrant, Hellerman grew up in Brooklyn and Long Island. When he finished college he headed straight for Wall Street. He was an imposing figure, over six feet tall and 200 pounds. He also was a quick study, with an uncanny ability with numbers, and he prospered almost from the start. His philosophy, he would later say in Wall Street Swindler, was simple. 

"One of the first things I learned was that the investor, the buyer of stocks, is a sucker. He's just a turkey waiting to be plucked. He is totally at the mercy of his broker, who can manipulate him in such a way that the broker can wind up making more money than the customer and use the customer's money to do it." 

By the time Hellerman was 22 the newspapers were referring to him as the  "Wizard of Wall Street." The more Hellerman made, the more he spent, and the money went quickly. Caught up in the glamour of Wall Street in the early 1960's Hellerman always wanted more and his need for money became an addiction. Soon Hellerman was bribing stock clerks and taking his customers (and even his fellow brokers) for a ride. But some of Hellerman's honest customers complained and word got back to the Securities and Exchange Commission. At the age of 24 he was barred from engaging in the securities business in New York state. 

By 1963 Hellerman, who'd developed a fierce gambling habit, was hanging out in Las Vegas, a down-and-out compulsive gambler. Cheating on Wall Street, Mike Hellerman was often a winner. But at the gaming tables, particularly the craps tables in Vegas, he was in way over his head. Following a drunken binge one night, Hellerman woke up thinking he'd won $15,000 only to discover that he'd dropped $240,000 at craps the night before. 

In Wall Street Swindler. Hellerman said that in Vegas he fell in with the mob. He gravitated to Moe Dalitz, an old bootlegger and an alleged member of one of Cleveland's organized crime families. Dalitz wanted to hire Hellerman to work at his Vegas Desert Inn Hotel and Casino. Dalitz and Hellerman also cooked up a plan to open a hotel and casino in Reno. The deal flopped when Hellerman couldn't come up with a gambling license. It seemed that, like the SEC, the gaming control authorities in Las Vegas had certain standards that Mike didn't meet. 

During his Las Vegas days in the mid-1960's Hellerman made friends with mobsters like Johnny Roselli, who was a one-time member of Al Capone's gang and the right-hand man of Sam Giancana, Chicago's Mafia boss.15 But Hellerman's gambling problems—as well as his association with underworld crime figures—escalated, and it was only through the efforts of a special friend, Hellerman would later recall, that he was able to escape Vegas, at least for the time being, and return to New York, where Hellerman hoped to put his life, and scams, back together. 

That special friend, Hellerman's savior, was Jilly Rizzo, who was almost 20 years older than Mike. Stocky Jilly Rizzo has often been described as Frank Sinatra's right-hand man, valet, personal body guard, and best friend. Rizzo and Hellerman became fast friends in spite of the fact that they appeared to have very little in common. Whereas Hellerman was a smooth talker, Rizzo was gruff and unrefined, which he made up for by being outgoing and gregarious. But Rizzo, despite his rough exterior, had a knack for making people, especially his restaurant customers, feel at home. He had slick, greased-back dark hair and he was starting to bald. As Hellerman said in his biography, "Jilly wasn't a handsome man." But Hellerman added, "If Jilly had a mission in life, it was to please Frank Sinatra." 

Former mob enforcer turned informant Jimmy "the Weasel" Fratianno recalled, in his biography, a call he got from Rizzo that seemed to illustrate Rizzo's relationship with Sinatra. Fratianno said Rizzo told him: 

"Jimmy, Frank has asked me to speak to you about a jerk that used to work for him as a security guy. A real fucking animal. Hit a guy in the jaw and collarbone with one punch. . . . Frank fired him and the guy's had a hard- on for Frank ever since. He's been spouting off some bullshit to the scandal sheets. ... we want this guy stopped once and for all. Know what I mean?" 

"You want the guy clipped? Just say the word and the motherfucker's good as buried." 

"No," Rizzo said. "Not right now. Just hurt this guy real bad. Break his legs, put the cocksucker in the hospital. Work him over real good and let's see if he gets the message "16 

Hellerman had first met Rizzo when Rizzo was running Jiily's Restaurant, a popular New York nightspot that drew both entertainers and members of New York's well-known organized crime families. Jilly mingled with both—with equal success. Over the next 20 years Jilly and Mike would remain friends and Mike would make the bulky, tough-looking Rizzo an integral part of his life. 

In 1963 Rizzo and Hellerman opened a restaurant together in New York called Mr. J's, named appropriately for Rizzo. The new Rizzo-Hellennan restaurant was a smashing success, at least at first, and Hellerman made even more contacts with men who made their living as part of the underworld. Hellerman later said he also met and became somewhat friendly with Rizzo's friend Frank Sinatra. And the Hellerman charm didn't fail him. Soon Sinatra was affectionately referring to Mike Hellerman as "Miguel." Mike, still in his early twenties, even proposed a joint-venture casino deal with "Old Blue Eyes." The deal never came off, but Sinatra reportedly liked the kid's pluck. 

By 1968 Hellerman knew he wasn't going to get rich running a restaurant, and he decided to try to get back on Wall Street, where the money was. The SEC had barred him from the securities industry because of his earlier stock swindles, but that wasn't really a problem. To keep his name out of the deal, Hellerman set up a firm in the name of an old college chum who knew absolutely nothing about the brokerage business, and he hired a stable of brokers through whom he could move stocks. 

During his earlier fling on Wall Street, Hellerman's mistake had been in trying to do his kind of business with the general public. They had taken umbrage and had turned him in to the SEC. Hellerman would have no such finicky customers this time around. Instead, he recruited customers like Johnny Dio and Vinnie Aloi. From 1968 to 1972 Hellerman pulled one stock swindle after another. On some of the deals he even swindled lower-level mobsters. Some  complained to Aloi about the deals, but no harm ever came to Hellerman because Dio had become his "protector." For a piece of the action Dio would make sure no harm came Mike Hellerman's way. Besides, the two men had actually become very close friends. 

Hellerman was raking in the money once again. And his old spending habits came back, too, just like it was yesterday. He was spending $10,000 a week in pocket change—jewelry, furs, expensive furniture and restaurants. Life was indeed blessed for Michael Hellerman. But again the good times were not to last. In October 1972 Dio was headed to prison for bankruptcy fraud. The night before Dio surrendered to U.S. marshals he and Hellerman got together at Dio's house in Bayside for a final farewell with friends. Hellerman was worried that with his protector in prison and with the SEC and FBI eyeballing his operation, his life was in danger. 

"What's bothering you, Mike?" Dio asked Hellerman in private. "We knew this would happen sooner or later." 

"I know," Hellerman replied. "But I'm scared. I'm going to move the hell out of New York as fast as I can. There are a lot of guys waiting for me now because you're going to be gone. " 

Hellerman was right. The mobsters he'd been swindling had a feeling that federal investigators from the SEC and the U.S. attorney's office in Manhattan were moving in for the kill. They were mad at Hellerman, not only for some of the unfavorable deals he'd cut for them, but also because, to save his own skin, Hellerman might be willing to sell out his old friends, including Dio, Aloi, and even Carmine Tramunti. There was plenty of sentiment within the families that they had better get to Hellerman before Hellerman got to them. They machine-gunned his house to warn him to keep quiet. 

But the warning had the opposite effect. Hellerman quickly decided to cut a deal with New York Assistant U.S. Attorney Robert Morvillo, an old high school football buddy. Morvillo was now on the other side of the law, as head of the criminal division for the Southern District of New York. 17 The deal was this: Hellerman would get at least six years in prison for three large stock swindles that he masterminded, and he would testify against Tramunti, Aloi, and even his good friend Johnny Dio. Hellerman agreed. And in time all three would be sentenced to lengthy prison sentences because of Hellerman's testimony. 

In the fall of 1973 Hellerman went from trial to trial as a protected government witness, testifying against Carmine Tramunti, Vinnie Aloi, and finally Johnny Dio. But by this time Michael Hellerman, a confessed and convicted felon himself, no longer existed. Under the wing of the federal witness protection program, Michael Hellerman had been transformed into Michael Rapp. As far as he and the U.S. government were concerned, Mike Hellerman was history, just a sealed file buried in the voluminous records of Foley Square in lower Manhattan. His new identity was created for him by the U.S. Marshal's Service.

With tongue in cheek, they gave him the name "Rapp." New Social Security cards were issued, a new birth certificate, driver's license, school records, personal history, everything short of a new bar mitzvah. (From this point forward we refer to Michael Hellerman as Michael Rapp.) 

Mike Rapp also did a little time in prison, a situation he abhorred. When he was temporarily released in late 1973 to testify against Dio, he swore he'd "never commit another crime in my life." He begged Morvillo and the U.S. attorney's office not to send him back to prison. After the Dio trial Rapp went to a federal safe house in New England until he was scheduled to testify again in another trial involving Dio. To ingratiate himself with his captors, Rapp cooperated to the hilt. Rapp had no stomach for being a courageous prisoner of war. He sang like a canary. He was responsible for the indictment or conviction of more than 90 men. 

What happened to Rapp after he finished testifying on the government's behalf is not clear. His life was in danger, and his best bet was to dissolve into his new identity. What is known is that he did very little prison time for the stock swindles he masterminded. Since he had testified against members of the mob, the U.S. attorney's office believed Rapp wouldn't dare step out of line. 

By 1977 Rapp was living a quiet, simple life in Massachusetts, according to law-enforcement officials. Divorced from Mary, he remarried, opened a restaurant in Boston, and tried to settle down. With Thomas C. Renner, a reporter for the Long Island-based daily Newsday, he penned Wall Street Swindler, an autobiographical account of how a nice Jewish kid from Brooklyn got greedy, befriended mobsters, and pulled an untold number of stock scams on their behalf. (Ironically, some of Rapp's methods outlined in his book would later be used by convicted inside trader Ivan Boesky.) Nowhere in the book did Rapp disclose where he lived or what exactly he was up to. He wrote, "My future, whatever it may be, will depend on what I am willing to contribute. I have the tools, the education, and the mind to make a better life and I'm trying harder now than ever before in my life." 

He also wrote, "I knew that no matter what the temptation, I would never commit another crime in my life. Those three short days, a flickering moment in my sentence, were enough to convince me that all the money, all the mink coats, jewels, fancy cars, and restaurants weren't worth one day in that prison again." 

High-sounding promises aside, Rapp soon abandoned the straight and narrow path he had set for himself After a run-in with Massachusetts revenue agents over the possibility that perhaps his Boston restaurant was underpaying its fair share of taxes, Rapp left in a huff and moved to Bar Harbor Island in Florida, just north of Miami, where in 1983 he resumed his relationship with Rizzo and made a host of new friends. He had to. He'd sent all his old friends up the river. No matter, his new friends were eager to do business with him. Soon, law enforcement officials said, Rizzo introduced Rapp to Anthony Delvecchio 18, a tall hulk of a man who weighed in at about 240 pounds and used to work as a bouncer in one of Rizzo's restaurants. Delvccchio, in his late forties, grew up on Delancy Street, a tough Italian neighborhood in New York's Little Italy. He later testified that Rizzo introduced him to Rapp in a Miami restaurant called Apples, which Rapp and reputed mobster Phil "Cigars" Moscotta had recently purchased. 

Moscotta (who also went by the name Brother Moscotta), Rizzo, Delvecchio, and Rapp had dinner at Apples in May 1984 and one topic of conversation, Delvecchio later recalled, was Flushing Federal Savings and Loan in Flushing, Queens, New York. Rizzo and Delvecchio told Rapp that World Wide Ventures Corporation, in which Rizzo and Delvecchio said they held a stake, had just obtained an easy $500,000 loan from Flushing secured by some land in the Pennsylvania Poconos.'19 Delvecchio and Rizzo said World Wide had supplied Flushing Federal with an appraisal report that said the land, a hundred acres, was worth $2 million. The value was based on the fact that some day World Wide Ventures planned to build a hotel, timeshare and sports complex on the site. In fact, the land was worth only about $500,000 at the most, maybe less, thrift executives said later, yet the president of Flushing Federal had approved the $500,000 loan.20 World Wide was a holding company in Orange, New Jersey, that invested in other business. It didn't matter that some of the businesses never got off the ground—like World Wide's self-chilling soda can.21 

When Rapp was told the Flushing Federal story over dinner, he must have been intrigued. It sounded like his kind of bank. And it wasn't too far from Bayside, where he'd almost been murdered 12 years earlier. Rapp listened carefully. He also told Delvecchio he had access to European funds through a company called Swiss International, which was controlled by a man named Heinrich Rupp. 

"If you need some money for the project in the Poconos, maybe I can help," Rapp said, according to Delvecchio. "I have a friend who's close with Rupp." 

Rupp did become involved in another deal that they had on the table that night, a deal that involved the Aurora Bank in Denver and John Napoli, Jr., a man alleged to have close ties to New York's Lucchese crime family. Rupp and Napoli would both later be convicted of bank fraud for this scam. Court documents showed that Napoli had an opportunity to buy $9 million in stolen currency for $2 million from a contact named "Al." Napoli had arranged with Aurora Bank officers for the bank to loan millions of dollars to various people, and regulators later claimed that Delvecchio and Rizzo agreed to borrow $350,000 from Aurora.-- (Later, when Rizzo was sued by the FDIC for his involvement in this deal at Aurora, he refused to answer questions and invoked the fifth amendment because he said he was the subject of a criminal investigation in another jurisdiction.) 

Rupp claimed to be a longtime CIA contract pilot. His attorney told us that in the 1970's he flew for Global Air International out of Dallas. When Rupp was convicted of bank fraud in connection with the Aurora Bank case, a witness for the defense told the judge that the CIA commonly used financial institutions to launder drug money or scam loans before sending the money off to the Contras or to various other covert purposes.23 Among the financial institutions the witness named as having been used in this way were Aurora Bank and Flushing Federal.24 

Rapp apparently decided that taking out loans, or getting a share of loans that he arranged for others, might be a promising way to make ends meet. Clearly something new and exciting was happening in the once stodgy world of savings and loans, something that would welcome his kind of expertise. So Mike Rapp—former stockbroker to the mob, former jailbird, former informant — became Mike Rapp, loan broker and matchmaker. In short order a colorful cast of characters found their way to Mike's door. Delvecchio said a music publisher from Beverly Hills named Steve Metz arrived with big plans to buy his own bank. Texas investor Frank Negrelli, who was interested in oil and gas leases, also showed up, as did Owen Beveridge, a deposit broker from Long Island, and William Smith (he claimed to be a former CIA agent), who owned a travel agency that sponsored, among other things, gambling junkets to the Dominican Republic. And Rizzo and Delvecchio were around. Delvecchio said they all had business propositions for Mike Rapp—everything from investments in oil and gas leases to the purchases of banks, S&Ls, hotels, and casinos. For a finder's fee, or a piece of the action, Rapp's job was to put these men's ideas together with money to fund them. (Delvecchio has since sued Rapp over the collapse of their business arrangements. )  

Another visitor to Rapp's home/office was Lionel Reifler, a man whose background was similar to Rapp's. In 1970 Reifler had pleaded guilty to stock fraud; in 1975 he pleaded guilty to selling unregistered securities and was sentenced to two years in prison. In 1973 Reifler had drawn the attention of investigative journalist and author Jonathan Kwitny, who gave him less than honorable mention in his book on white-collar crime in America entitled Fountain Pen Conspiracy. Reifler was now running a realty office in Fort Lauderdale, Florida. 

These characters gravitated to Mike Rapp because he knew how to get money. Besides cutting his teeth on Wall Street, he had studied under master bank fraud artist Erwin Layne. a swindler who pulled scams for Vincent Gugliara, a soldier in New York's Colombo crime family. Layne's specialty involved a scam where he'd take possession of stolen bonds (usually obtained by the mob) and then move the bonds to banks and obtain loans against the bonds. During the days when he was still Michael Hellerman, Rapp had taken special note of the way  Layne operated. Hellerman even described Layne's system of scamming banks in Wall Street Swindler. 

Speaking of Erwin Layne, Hellerman wrote, "... bis next step was to borrow $10,000 or $15,000 from one of the wise guys, select a bank, and then open an account at that bank. He established himself at that bank as a construction executive and became friendly with a vice president of the bank. Once that friendship was established Layne began a carefully choreographed program of wining and dining the banker, providing a prostitute (whom the banker was led to believe was Layne's wife) and paying her to seduce the banker behind his back in a lavishly furnished apartment. . . . The setup for the scam might last six months, until Layne was convinced that he had the banker on the hook. ..." 

The banker thus compromised, the final step was to get large loans from the bank. The banker, torn between guilt and fear that Layne would find out he was sleeping with Layne's "wife, " would bend over backward to accommodate Layne. Any resistance on the part of the banker was weakened by the "wife," who would beg the banker to make the loan so they could continue their affair. Once the loans were in hand, the only thing left for the swindler to do was to pull up stakes and leave town. It was a classic bank scam. 

In the spring of 1984, Rapp had an idea that didn't stray too much from Lavne's blueprint. Rapp, of course, would add some variations of his own, but the end result would be the same. His target would not be a bank, however. He was intrigued by thrift deregulation and the stories about Flushing Federal Savings, and he had decided to make friends with Carl Cardascia, the president of Flushing Federal.

CHAPTER THIRTEEN 

Flushing Gets a Bum Rapp 

Carl Cardascia, in his forties, had been president and chief executive officer of Flushing Federal Savings for about a year. Cardascia told friends he had never finished college and hated paperwork. Still, he had been a dedicated employee of the S&L since the late 1960s when he had begun working his way up the Flushing Federal ladder. He was no financial genius, but operating a savings and loan association did not exactly require an MBA. Cardascia picked close friend Ronald ). Martorelli as his right-hand man, making him a vice president and Flushing's chief lending officer. Prematurely balding, Martorelli was small- framed and wore glasses. He was a graduate of Hofstra University and, like Cardascia, had worked his way up the ranks at Flushing Federal, starting as a part-time teller in 1974 when he was just 17. 

A federal judge would later describe Cardascia as a "careless," "incompetent" thrift president. He didn't like to waste his time studying financial statements and credit reports. Instead, he just made "an informal type of analysis within his own mind" about whether an applicant for a loan would be able to repay or not, Martorelli explained later. By mid- 1984 Flushing Federal wasn't doing well. It was growing quickly (it had assets of about $578 million, thanks to brokered deposits) but was losing money. The Federal Home Loan Bank of New York slapped Cardascia with a supervisory agreement that forbade the S&L to make loans of more than $500,000 to out-of-state residents and more than $1 million to New York state residents. Flushing was also ordered to improve the documentation behind its loans. 

But soon thereafter a realtor introduced Cardascia to World Wide Ventures. Cardascia apparently did some of his "informal analysis within his own mind " and decided World Wide Ventures looked like a pretty good risk. Court records showed Flushing Federal gave World Wide not only the $500,000 loan that Rizzo and Delvecchio later told Rapp about but also granted the company a $5 million line of credit. What Cardascia's informal analysis had not disclosed was that World Wide Ventures, according to regulators, was for the most part worthless. It had .some rights to the bare land in the Poconos, but that was about it. On the surface World Wide looked like a company on the way up. But authorities would later claim that behind the scenes a friendly stockbroker was actually manipulating World Wide's stock and artificially inflating its price. 

In June, World Wide President Lorenzo Formate brought a Florida businessman friend of his to Flushing Federal's corporate headquarters in New York and took him up to Cardascia's office on the second floor. , 

"Carlo," Formato said, "I'd like you to meet a friend of mine, Mike Rapp." 

"Glad to meet you, Carlo," Rapp said, shaking Cardascia's hand. Michael Rapp told Cardascia that he was a businessman in search of financing for some projects he was considering, including the purchase of People's National Bank up in Rockland County. And there was a bank out in Oklahoma that he and a partner of his from Texas had their eyes on. Plus, he was looking at the purchase of oil and gas leases in Texas. Rapp mentioned that he could arrange for large deposits to be brokered into Flushing Federal. Cardascia, who evidently trusted Formato, listened to Rapp's rap. Over the next month or so, according to federal investigators, Rapp successfully applied the Erwin Layne formula to Flushing, with a couple of twists and flourishes of his own, of course. 

Rapp began by wining and dining Cardascia and, according to one federal agent, even took the Flushing Federal president to Atlantic City on a little gambling trip. Although nothing was ever made of it, there were rumors that Rapp began buying presents for Cardascia and his wife—a set of golf clubs and a fur coat. Delvecchio said that along the way Rapp gave Cardascia an earful about his business plans. Then Rapp invited Cardascia and his wife to a benefit cocktail party in New York where Rapp's old friend Frank Sinatra was supposed to sing a song or two. Sinatra never showed, but his wife did, and since it didn't take much to impress Cardascia, that did the trick. 

Rapp knew Cardascia's S&L was in trouble and needed money, and Mike knew where to get it. Delvecchio told authorities that Rapp, together with money brokers Owen Beveridge and others (Rapp would eventually tap into First United Fund too), made sure that Flushing received all the brokered money it needed in order to have enough cash to make loans to Rapp and his associates. Initially, a meeting was scheduled at Flushing Federal to talk about bringing money into the ailing S&L. Rapp, Reiflcr, and Delvecchio went into Cardascia's office, and Cardascia buzzed his young protege, Martorelli, who then met Rapp and Reifler for the first time. Everyone shook hands. During the discussion Rapp told Cardascia he could bring at least $13 million in CDs into Flushing. 

Martorelli and Delvecchio would later tell authorities how the deal worked: Rapp arranged to have the money deposited at Flushing free of any brokerage fees—all Flushing had to do was agree to loan to Rapp and his partners $250,000 of each million Rapp brought in. (Normally, the financial institution paid a 2 percent to 5 percent brokerage fee for brokered deposits it received. Rapp was taking a page out of Renda's book and offering to place the deposits at the institution without cost to the thrift. ) 

Rapp's friends started shaking the Flushing Federal money tree in June 1984 when according to the FSLIC, a World Wide associate was granted a $250,000 line of credit and Reifler's realty company got $250,000. Martorelli said no credit checks or applications were ever filled out by the two. All of the loans were unsecured. No sooner had Flushing shelled out $250,000 to the World Wide associate than the borrower's name appeared in the newspaper as the owner of a warehouse full of counterfeit highway tokens seized by FBI agents in Brooklyn. He was promptly arrested. Martorelli rushed into Cardascia's office waving the article about the arrest.1 Cardascia looked it over. "I'll look into it, Ronnie. Don't you worry. I'll take care of it," he reportedly said. 

Federal authorities claimed that even as the money flowed Rapp continued bringing new loan proposals to Flushing. The money from these loans, Delvecchio said, was supposed to go into high-yield oil and gas leases, and Rapp and his partners were buying a bank in Oklahoma. Also, Rapp, Rizzo, and Delvecchio were supposedly going to buy a hotel and casino in the Caribbean. All these investments would turn big profits and Flushing would get its money back, plus. By that time Rapp appeared to have gained Cardascia's total confidence. After all. how could Cardascia not trust a man who knew Frank Sinatra—personally? Rapp reassured Cardascia that he, Michael "Miguel" Rapp, would distribute loan proceeds to the borrowers he lined up. Martorelli said Rapp also promised Cardascia that he'd make sure the interest on the loans was paid in a timely manner. 

With Flushing Federal under the watchful eye of federal regulators, Rapp couldn't take out too many loans under any one name without drawing suspicion so he set up a maze of phony corporations, prosecutors later proved. Through that paper corporate empire he and his friends could borrow money without putting their own names on paper. Rapp's scam at Flushing was just one big Ponzi scheme—regulators claimed he took out new loans to make payments on old loans and he and his friends pocketed any difference. Delvecchio told authorities that when Rapp set up a new company he'd show up at Flushing's headquarters, sometimes with Smith or Metz, other times with Rizzo and Delvecchio. They'd fill out a loan application for the new front company. Delvecchio said, and be out the door with a Flushing Federal check in hand the same day. 

For example. Glen Grotto Inn, a Rapp company that was a mere shell with little or no assets, got a whopping $300,000 line of credit out of Flushing which later was increased to $700,000. By October 1984 Rapp was feeling so brazen that he even took out a $350,000 line-of-credit loan using his own name. He just walked into Flushing and filled out a loan application. Martorclli said Cardascia gave the nod and Martorclli cut the check. On that particular day Rapp brought his pal Jilly Rizzo with him. and regulators said Rizzo took the opportunity to pick up a quick $200,000 loan for himself while he was in the neighborhood. 

Notwithstanding Martorelli's growing concern, Cardascia continued to turn on the loan spigot for Rapp and his friends. But Martorclli said that in late October. Cardascia (who later claimed he did not know at this time of Rapp's other life as Michael Hellerman) finally voiced concern to Rapp that regulators were due to inspect the S&L's books soon and if Rapp didn't come up with some collateral for all the loans he was arranging, there might be trouble. 

"Carlo," Rapp reportedly said to Cardasica, "don't worry." 

Rapp certainly wasted no time worrying. No oil leases ever materialized, nor did any of Rapp's other ventures that he spun elaborate stories about to Martorelli, who said he became increasingly skeptical. But Rapp feathered his own nest well. He lavishly furnished his Bar Harbor home and showered his new wife, Janet, with expensive diamond broaches, rings, and gold watches. Delvecchio said he saw Rapp refurnish his Florida ranch house with Flushing Federal loan proceeds and buy what he'd heard amounted to half a million dollars' worth of jewelry for his wife. In November, Rapp was having lunch with Delvecchio at the Waldorf-Astoria on Park Avenue in New York when a delivery boy arrived at Rapp's lunch table with two fur coats. Rapp told him to take the furs up to his wife's room. Janet Rapp soon returned the kind gift by throwing a party for her loving husband. The party cost around $100,000 but no matter, she just wrote a check, a Flushing check, 2 Delvecchio said. 

By late October 1984 Cardascia was insisting that Rapp come up with collateral to cover the loans he'd received from Flushing. Most were still current, mainly because Rapp was using part of the newer loans to make payments on the others,' but Rapp probably figured he'd better cover the loans with something that at least looked like collateral before Cardascia had a nervous breakdown. Stock seemed like a good idea, so Rapp worked out a deal with a friend in Texas who needed a loan. The friend lent Rapp stock in a company he owned in return for a later loan. Rapp then put the stock up as collateral for most of the lines of credit he had previously arranged at Flushing. And while he was there he took the opportunity to get another $350,000, regulators later charged. (The stock later turned out to be worthless. ) 

But that was just a temporary fix and Rapp knew he would soon need a new source for loans. Flushing Federal was tapped out. Also the Flushing Federal loans were all coming due soon and he needed a way to deal with that too. Rapp began looking for a bank or savings and loan he could buy and control himself. He had been trying to set up a deal for Jilly Rizzo and Steve Metz to buy the People's National Bank in Rockland, Count\', Raniapo, New York. Rizzo and Metz were to be appointed to the bank's board of directors. Rapp said he had received assurances from his old friend Frank Sinatra that if Rizzo acquired the bank, Sinatra would serve as a director. Rapp was also telling interested parties that he had director commitments from singer Sammy Davis, Jr., and former President Gerald Ford. A lot of big talk . . . but no deal.4 

Then a better opportunity to buy a bank came along at the end of 1984, and Rapp decided the lea.st Flushing Federal could do for him, after all he had done for Flushing Federal, was to loan him the down payment. Martorelli said Rapp walked into Flushing accompanied by William Smith, the self-acclaimed ex-CIA agent. They clustered together in Cardascia's office. After a short time Cardascia buzzed Martorelli on the office intercom and asked him if he'd ever been to Texas. When Martorelli said he had not, Cardascia told him to pack his bags, he was leaving for Texas that day. Cardascia told Martorelli he would be representing Flushing Federal in a big deal. 

It was Monday, December 4, and within an hour Flushing had cut Bill Smith a $700,000 check off a commercial line of credit. Rapp, Smith, and Rapp's attorney left to make the travel arrangements and said they'd return in an hour to pick up Martorelli. After they left, Cardascia told Martorelli that the group was going to buy the First Bank & Trust Company in Duncan, Oklahoma, 140 miles north of Dallas. Once the bank deal was closed, Rapp would give Martorelli a check from the Duncan bank to pay off all the loans he and his friends had taken out of Flushing. Martorelli had two jobs on the trip: first, keep a close eye on the $700,000 check, and second, bring back the check paying off the Flushing loans.5 

Within two hours Martorelli was on a plane to Dallas, carrying the $700,000 check Flushing had cut for Smith. That night they all stayed in a Dallas hotel and the next morning Rapp chartered two planes at a nearby airport and flew his entourage, including Martorelli, to Duncan, Oklahoma, "to check out the bank." A little tire kicking, as it were. Rapp told Martorelli, "We're going to meet the bank's president, the directors, and a couple of shareholders." Which Martorelli later said seemed reasonable enough to him. After all, he didn't expect Rapp to buy a pig in a poke. That afternoon Rapp and his entourage arrived at the Duncan bank. More meetings, dinner, and more meetings, but no deal. Martorelli waited outside while Rapp et al huddled with the bank officials. At one point during the negotiations Rapp came out of the meeting and asked Martorelli for the $700,000 check. 

"They want to see it. It's the earnest money in the deal," Rapp told him. Ron handed over the check. Later that evening, after the meeting ended, Rapp gave the check back to Martorelli. Still no deal. 

That night they flew back to Dallas, and Martorelli called Cardascia to inform him of the progress. 

"Nothing so far," Martorelli said. 

The next morning Rapp met Martorelli back at the Dallas hotel for breakfast. Martorelli asked him how the deal was going. "We're still trying to iron out some details. But it looks good though," Rapp said. "It should happen shortly." Rapp then asked Martorelli for the $700,000 check again. Martorelli handed the check over. It was Wednesday. Martorelli called Cardascia. 

"Is the deal going to happen or not?" his boss asked. 

"I don't know." 

"Okay, if nothing happens by tonight, come back to New York.'' 

"Okay." 

The next morning Martorelli was on a plane back to New York. No deal and no check. The $700,000 was firmly in Rapp's hands. Martorelli said Cardascia told him not to worry about the money. Cardascia said Rapp's purchase of the Duncan Bank was imminent and the deal was just awaiting approval of the Federal Reserve, the regulatory agency that had oversight responsibility for the First Bank & Trust Company of Duncan.6 It seemed to Cardascia that the Duncan Bank acquisition was on the verge of being a done deal. But he informed Rapp that Flushing still needed more collateral on all the money it had lent to Rapp and his friends. The regulators were starting to sniff around the S&L's vault. Rapp told Cardascia not to worry, he'd take care of the situation. Rapp promised Cardascia that he would have enough deposits placed at Flushing to offset all the lines of credit that he'd arranged since May. Satisfied, Cardascia agreed to make more loans to Rapp and company. The FSLIC charged that Rapp got $350,000 for another dummy company that he had set up, Jilly's Enterprises got another $350,000 and a friend of Delvecchio's, acting as a straw borrower for Rapp, walked in and got a $575,000 line of credit. Authorities later alleged Rapp paid the straw borrower $5,000 and promised him a $50,000-a-year job with Jilltone, a new company Rapp was setting up with Jilly Rizzo and Delvecchio. (Delvecchio said Jilltone was trying to buy a hotel and casino in Santo Domingo.)7 

Rapp told Cardascia to have Martorelli pick up the collateral for all the loans on December 17, 1984, at the Regency Hotel on Park Avenue in New York.8 The last time Rapp had promised to produce collateral for the loans he was getting from Flushing, he had given Flushing worthless stock that he didn't own. This time the collateral was to be $8 million in certificates of deposit that Rapp supposedly had on deposit at Co-op Investment Bank, Ltd., an offshore bank based in St. Vincent in the West Indies. Dollar for dollar the face value of the CDs matched the lines of credit that Rapp and his friends had received at Flushing. Cardascia sent Martorelli to the Regency Hotel and as Martorelli walked into the room he looked at the familiar faces. 

"You know everyone," Rapp said. 

"Yes, I know everyone," Martorelli said.

Rapp read the pledge agreements that Martorelli had brought. He didn't like some of the language in the agreements and decided to change it. 

Martorelli said Rapp snapped, "I don't like this clause." The clause he disliked would've allowed Flushing to claim the C.D's as collateral prior to the maturity date of the C.D's. Martorelli didn't argue with Rapp because the C.D's were scheduled to mature before the loans came due anyway. Rapp took a pen from Martorelli and made the change. Now Flushing couldn't claim the C.D's until they matured, which wasn't for several months. Rapp then handed the passbooks to Martorelli. The pledges and passbooks in hand. Martorelli headed back to Flushing, feeling that at last the bank had security for all the questionable loans Cardascia had approved for Rapp. Everyone breathed a sigh of relief With the old loans now supposedly secured, Cardascia approved another round of loans totaling $1.2 million. Regulators claimed Rapp used part of the money to keep his earlier loans current. The CD's Rapp had given Martorelli were bogus, but it would be a while before Flushing found out. Rapp later admitted that he had paid a $1.5 million fee to Co-op Bank and the company's president to set up the phony CD's. Trying to cash them would be like grasping at a mirage. 

By the early days of 1985 too many "interesting people" were hanging around Flushing Federal and too much money was heading out the door. Both regulators and the FBI were poking around asking questions. Matters got worse when a top executive of a company that had been selling home improvement loans to the S&L was found murdered in his car in Bayside, Queens—Mike Rapp's old neighborhood. New York's Daily News described the murder as a mob-style hit. The FBI declined to talk to us about the case, noting that its investigation was far from being a closed matter, but we did learn that Flushing had been losing millions of dollars on the loans it had been buying from the dead man's company. 

The FBI zeroed in on the murder case, and while Agent Michael Shea was poring over Flushing's loan files he discovered a group of names that sounded terribly familiar, including Rapp's. By chance the FBI had found former protected witness Michael Hellerman. It took only a phone call to verify that Michael Rapp and Michael Hellerman were one and the same and that Helleman had once been the mob's personal stockbroker. Another agent familiar with the case said that the lines of credit put together by Rapp "looked like a who's who of organized crime." The FBI also discovered the name of another convicted stock swindler: Lionel Reifler. 

In early April 1985 Cardascia was forced out of his job by the New York F.H.L.B. Later that month Flushing was taken over by the FSLIC. The S&L was in the hole by at least $50 million and would wind up costing the FSLIC close to $100 million. Starting in April, attorney Andrew Donnellan, with the New York law firm of Dewey, Ballantine, Bushby, Palmer & Wood, started investigating Flushing's failure for the FSLIC. Also on Rapp's trail were the FBI and the U.S. attorney's office in Brooklyn. 

While the Flushing investigation was in its early stages, Rapp was allowed to continue to operate unimpeded, despite federal suspicions. We had seen this happen before: FBI agents in one city focusing only on what a suspect did in that jurisdiction and never checking to see if that person was operating (or had operated already) somewhere else. Rapp had similar scams in progress at thrifts and banks in California and Florida, so when Flushing collapsed he just shifted his attention to other fronts. But his relationship with his associates was becoming strained. He argued with Reifler and threw him out of his house. When the Texas businessman who had loaned Rapp the worthless stock was questioned by the FBI, he became furious with Rapp for getting him involved. Later he testified that Rapp threatened to have him killed if he didn't shut up.9 Law-enforcement officials said Rizzo's deal to buy People's National Bank of Rockland fell through because the Federal Reserve wouldn't approve it, and Delvecchio said he and Rizzo, sensing trouble, started avoiding Rapp. 

Later Delvecchio told investigators that Rapp essentially "robbed the bank," that he "finagled the bank out of money with other people involved." Delvecchio said he was mad at Rapp for the way he was wasting money when he was supposed to be investing it for the gang. Delvecchio brought his personal phone books to a deposition, apparently as a reference tool. Donnellan threatened to have Delvecchio's phone books entered as evidence in the case, and he grilled Delvecchio on whose names and numbers were in the book. Among them were all of the players involved with the Flushing lines of credit, including Rapp and Delvecchio's good friend Jilly Rizzo. Delvecchio had many different phone numbers for Rizzo, one of which was a New York phone number. 

"Rizzo has a New York phone number?" Donnellan asked. Rizzo's residence had been listed as Rancho Mirage, California. 

"Yes, he does, " said Delvecchio. "Write that number down and call it up. Find out who answers." 

"What is it?" asked Donnellan. 

"Frank Sinatra's number," said Delvecchio. 

Donnellan let the matter drop. A couple of minutes later Donnellan took the book and found the name of John Wayne. 

"You have John Wayne's number in here?" asked Donnellan. 

"Yeah," said Delvecchio. "You want to talk to him? You'll have to get a shovel." 

None of this slowed Rapp down. He was used to making and losing friends, and he was already building bridges to new ones. In 1985 a mutual friend, a banker in Houston, suggested to Rapp that he contact Charles Bazarian in Oklahoma City. Charlie had plenty of money, he said, and might be willing to loan to Rapp. Rapp liked the idea and in October he and William Smith flew to Oklahoma for a meeting with "Fuzzy." Mario Renda, who had gotten to know Bazarian at Consolidated Savings, had flown out from New York to attend one of Charlie's famous Halloween parties and was already at the Bazarian mansion when Rapp arrived. 

The meeting between Bazarian, Renda, and Rapp came at a critical time for Renda and Rapp. Renda's indiscretions with Winkler at Indian Springs State Bank and Coronado Savings had led to the FBI raid on First United Fund headquarters a year earlier. Since then investigators had been all over him. He'd gotten bad press and cash flow was a real problem. Rapp was having similar troubles. His old friends didn't trust him anymore and he was having a hard time finding financial institutions that would take his bait. Bazarian, on the other hand, was still riding high. He was plugged right into a number of financial  institutions, and his company, C.B. Financial, could still swing millions in loans anytime he wanted. 

All the ingredients Rapp required to solve his current problems were present at that meeting. He had a scam in mind, but he couldn't pull it off alone. He needed help. Above all else he needed $10 million in seed money to prime the pump. Rapp laid out the deal for the other two men: 

There was this bank in Florida, the Florida Center Bank in Orlando, he said. Its directors were anxious to sell out, if they could make a killing on their stock, and they were willing to work with him on a deal that could leave Rapp with the bank in his hands. To pull it off he needed just $10 million for two or three days. Five million would be used to buy a CD at Florida Center Bank, for which the bank agreed to pay him $3.1 million interest in advance (ten years' worth of interest in advance). In addition the bank would loan him $3.8 million (using the same $5 million CD as collateral). Then he'd combine the $3.1 million and the $3.8 million and buy a $6.9 million CD, on which the bank would pay him ten years of up-front interest and on which they'd grant him another, even larger loan. He would repeat the process three times, in about that many days, and it would generate enough money to repay Bazarian his $10 million plus $300,000 for his trouble. 

The other $5 million that Bazarian loaned him, Rapp said, he'd use to buy controlling interest in the bank. And once Rapp controlled Florida Center Bank, he'd be in a position to make loans to Bazarian, especially if Renda funneled deposits into Florida Center Bank so it had plenty of cash. Rapp said he wanted to start a pay telephone business with loans from Florida Center Bank. 

Charlie didn't have $10 million in cash right then, but he had a checkbook and an idea. He agreed to give Rapp two checks for $5 million each, but he didn't trust Rapp and asked his house guest and friend, Mario Renda, to accompany Rapp and the two $5 million checks to Florida. Bazarian offered to pay Renda $150,000, and Renda agreed to go.10 Getting involved in the deal was a foolish move on Renda's part. He knew federal prosecutors were in possession of all his First United Fund records and those of his chief accomplice, Franklin Winkler. They would be watching his every move. But apparently he just couldn't refuse the $150,000—or the promise of a new scam. 

With Bazarian's $10 million, Rapp finally had his best crack yet at getting his own bank. He flipped the CD's up to $10 million as planned, Bazarian's two $5 million rubber checks were covered before they could bounce, Renda started brokering deposits into Florida Center Bank, and Rapp started making sweetheart loans out the front door. 

One successful deal under way, Rapp and Bazarian began looking for other business opportunities. Bazarian owned 9.9 percent of Local Federal Savings and Loan in Oklahoma, and he decided he wanted to sell his stock to Rapp and Rizzo. He set up a dinner meeting at Pier 66 in Tampa between Rapp, Rizzo, a stockbroker named Marc Perkins, his boss, and others. The purpose of the meeting, according to Perkins, was to discuss the sale of Bazarian's Local Federal stock. Perkins, referred by an acquaintance of Bazarian's, had never met any of the group. When he arrived at the restaurant Bazarian introduced him to the others. During cocktails Perkins listened as the men talked, then he excused himself. In the restaurant lobby he ran into his boss, who had earlier left the table, and he remarked to him, "You wouldn't believe the bullshit these guys are talking. I don't think these guys have enough money to pay for cocktails, much less an S&L." 

The group settled in for dinner. The waiter brought the soup. Perkins made small talk with Rapp about their mutual interest, stocks. Suddenly, Perkins later told us, one of the men leaned across the table and nonchalantly asked Rizzo, "Hey, Jilly, you ain't packing a piece tonight, are you?" 

Rizzo didn't respond and just looked the other way, as if to say "How indiscreet." Perkins almost choked on his soup. After composing himself, he left the table and phoned his wife. 

"Honey, you have to call me back in a little while and have me paged. Say there's a family emergency or something. I have to get out of here. You wouldn't believe what's happening." 

When he returned to the table the men were discussing Rapp's and Rizzo's proposed buyout of Bazarian's Local Federal stock. Rapp told Perkins about his prior conviction. Perkins told Rapp that a felony conviction precluded Rapp from participating in any such stock transfer and that he, Perkins, wanted no part of any of this business. Perkins liked his name and didn't want to have to change it. 

"They were going to buy the Local Federal stock using Local's own money," Perkins said later. Just like the Florida Center Bank bust-out. 

In June 1985 the FSLIC. on behalf of Flushing, sued Rapp, Cardascia, Formato, Rizzo, Delvecchio, Beveridge, Smith, the companies they controlled, and others. The FSLIC charged that Cardascia was "corrupted" by Rapp and his associates and that he aided and abetted in a scheme to defraud the S&L via 22 lines of credit, all of which went into default. The FSLIC charged that Cardascia didn't have the authority to grant the sizable lines of credit. (Several months later Cardascia was dropped from this RICO suit and named prominently as a defendant in a separate suit against just Flushing's former officers and directors, mainly Cardascia and Martorelli.) 

A judge promptly imposed a $7,000-a-month spending limit on Rapp, but in February 1986 U.S. marshals in Miami arrested Rapp for exceeding those limits. According to court records, he had spent $44,000 in one month. The judge charged him with criminal contempt of court. 

By the spring of 1986 the Justice Department had a better picture of Rapp's activities and knew he had to be shut down. One New York law-enforcement official familiar with the case put it this way: 

"We knew what Rapp was up to but there was no program to nail him. He was running around bilking banks and thrifts and he had to be stopped. So we had a meeting down in Tampa. I said, 'This is what he's done and this is how he did it. I have an agent in Oklahoma who knows what he did there.' No one in the Tampa department could get up to speed on this. It was taking too long. So we cooperated—New York, Oklahoma, and Tampa—and we put a case together in six months. " 

A whistle-blower at Florida Center Bank helped bring Rapp's scam there to a screeching halt, but only after Rapp had withdrawn about $12 million to $15 million of a $30 million loan commitment the bank had made to him.11 The three bustkateers, Renda, Rapp, and Bazarian, were indicted in September 1986 and charged with defrauding Florida Center Bank. Assistant U.S. Attorney Stephen Calvacca prosecuted the case and he said it was one of his most memorable trials.

He told us that he was about to present a key point to the jury when he suddenly noticed the jury's attention was focused out in the gallery. He turned to discover, to his amazement, that former heaxyweight champion Muhammad Ali had strolled into the courtroom. CaKacca said Ali attended several sessions of the trial (as did former Gemini and Apollo astronaut Tom Stafford—the Tulsa Tribune reported that Stafford and Ali had both been involved in business deals with Bazarian) and always caused a stir. Calvacca knew the defendants had arranged this tactic, and he hit upon an idea to turn it around. When Calvacca began his closing remarks to the jury, he told them he knew they were wondering why Ali had been in the courtroom. 

"I told them that Ali had long been an admirer of my courtroom style and often attended my trials."12 Caivacea said the consternation at the defense table was extreme, but they had already had their last say in the case and they had no choice but to swallow hard and accept the fact that their little plan had backfired on them.13

Annoying the prosecution was something the three bad-boy defendants seemed to relish. Every day at noon the court broke for lunch, and defendants and prosecutors alike retired for their noon meal. But as prosecutors munched on their Wendy's hamburgers, Rapp, Renda, and Bazarian sat at a table covered with a white linen tablecloth while houseboys served them fresh gourmet delicatessen food flown in that morning from New York: pate, luncheon meats, even fresh cheesecake from Leo Lindy's on Broadway. 

"Hey, Caivacea, ya oughta try some of this cheesecake, it's really goooood," Rapp would taunt. 

In their closing remarks defense attorneys tried to convince the jury that their clients were simply misunderstood entrepreneurs, that stodgy regulators just didn't understand their revolutionary and innovative business deals. They even compared the three with the Wright brothers. Caivacea retorted, "The Wright brothers? These were the Wrong brothers, the Blues brothers, the We-Take-the-Money-You-Lose brothers." Rapp was found guilty of bank fraud in the case and sentenced to 32 years in federal prison and fined $1.75 million. Bazarian was found guilty of three counts of bank fraud and sentenced to two years in prison and fined $100,000. Renda was found guilty of one count of conspiracy and sentenced to two years in prison and fined $100,000.14 

As the investigation into Rapp's role in the downfall of Flushing Federal and other financial institutions continued, Rapp's troubles mounted. Not only was he convicted and sentenced to 32 years in prison for the Florida Center Bank seam but he pled guilty to conspiracy and fraud charges in connection with the Flushing loans as well. He was sentenced to 10 years in prison for the Flushing bust-out, but his term was to run concurrently with the Florida Center Bank sentence. 

When investigators began to learn the true extent of Rapp's activities, they opened investigations in New York, Los Angeles, Denver, Miami, and Orlando. Rapp had kited checks at Sun Bank of Miami (perhaps to the tune of $1 million in losses, some said) in 1984. 15 Similar troubles were also reported by the president of Western United National Bank in Los Angeles. When S.S.D.F Federal Credit Union near Tampa collapsed in May 1986, regulators discovered it had made a large loan to a company allegedly controlled by Rapp because he promised to bring in millions of dollars in brokered deposits. Then, comparing notes with others, regulators learned that Rapp and his friends had tried unsuccessfully to buy several thrifts and banks in Oklahoma and Tennessee. The picture that emerged was one of Rapp and a band of associates clearly running a two-year looting operation while trying everything within their power to get control of a financial institution themselves. 

Early in 1987 Lorenzo Formato, who served as president of World Wide Ventures, was sentenced to six years in prison for stock fraud in an unrelated case brought against him in New Jersey. However, while being sentenced in the New Jersey case, Formato cut a deal with the U.S. attorney's office in Brooklyn and pled guilty to mail fraud charges stemming from the use of World Wide stock as collateral to obtain loans from Flushing. Regulators claimed the World Wide stock was worthless. Formato agreed to cooperate in connection with the Flushing case. 

Also indicted, and later convicted, were Harold Farrell and Robert Wolk. who'd been charged with defrauding Flushing out of $1 million. 16 The assistant U.S. attorney handling the Farrell-Wolk case would later recall how Farrell constantly begged him not to indict: "He came to my office telling me how he had heart problems and how prison would kill him," he said. Wolk and Farrell were both in their early sixties. 'I didn't believe him," he said with a tinge of comic irony in his voice. "He'd been doing the same thing for years with other prosecutors. The other prosecutors listened. I didn't. I indicted him and he was convicted. A couple of months later he actually did die of a heart attack." 

Regulators sued Rizzo in both the Flushing and Aurora Bank cases. Ken Merica, a private investigator in the Aurora case, recalled in 1988 that when Rizzo was subpoenaed he ran out the back door of his house in Rancho Mirage to avoid being served. 

"You know where he went?" recalled Merica. "He ran over to Sinatra's house. He spent the afternoon over there. He thought we'd go away. Well, we waited. He came back four hours later and he didn't see us. We served him while he was walking up his driveway." 

Cardascia was indicted in October 1988 for extortion and misapplication of funds in connection with a $240, 500 loan he allegedly had Flushing Federal make to Donald Luna, a convicted swindler from Nashville, Tennessee. The case came to trial in early 1989, and after hearing all the evidence, the federal judge said Cardascia was clearly "a man of bad judgment " who probably should have been fired, but he found Cardascia not guilty of defrauding Flushing Federal in tlie Luna matter. Instead, the judge excoriated the Reagan administration, the F.H.L.B.B, and Congress for permitting the thrift's failure by their negligence. A disappointed prosecutor said the grand jury investigation of Flushing Federal would continue, and in 1989 Cardascia, Delvecchio, Martorelli, Rizzo, and others were indicted in connection with Flushing loans to World Wide Ventures Corporation, Rapp, and others. Cardascia was accused of receiving kickbacks, in the form of World Wide stock, in return for having Flushing make a $5 million loan commitment to World Wide. Delvecchio was charged with participating in the delivery of the stock to Cardascia, and Martorelli was accused of falsifying a document in relation to the World Wide loans. Cardascia was also charged with illegally making loans to Rapp and his associates in exchange for brokered deposits from Owen Beveridge and First United Fund. (At the time, regulators had forbidden Flushing to take any new brokered deposits.) Delvecchio and Rizzo were charged with using fraudulently overvalued security (the Co-op Investment Bank CD's and the Poconos property) as collateral for loans. 

Rizzo's attorney said, "If it were not for his relationship with Mr. Sinatra, there would be no indictment. Mr. Rizzo is an honorable man." 

In announcing the indictments the U.S. attorney said, "It would appear from the allegations in this indictment and earlier depositions of other borrowers that Flushing Federal was being run like a candy store." 

Investigators were said to be looking into 80 questionable loan transactions at Flushing. An assistant U.S. attorney handling the case didn't want to talk about it, but she said she'd be using Rapp as a witness against his old buddies. Those sued civilly, but not charged criminally, denied wrongdoing in the case. Most of those charged criminally refused to talk. The case was pending as of this writing. 

As for Mike Rapp, we never expected to hear from him. But in September 1988 Rapp called us collect from his jail cell in the North Dade Correctional Center in Miami in response to a letter we'd sent him asking about the Flushing Federal case. The first thing he wanted to know was how we found out where he was doing time. 

"A law-enforcement official told us," Paul Muolo replied. 

"No one's supposed to know where I am," he said. 

Rapp sounded concerned. "What's your book about?" 

"The bust-out of S&Ls." 

"Yeah, what's your angle?" 

"Our angle is that the mob and others are busting out thrifts and banks. What do you think?" 

"Yeah, that's partially true," he said, and then he paused. Rapp said he hoped we weren't going to sensationalize his role in financial failures. He rambled on about how "there was nothing illegal in my deal"—a reference to the Florida Center Bank case—and how he never told a lie on the witness stand. "Lending money to your friends shouldn't constitute fraud, " he complained. 

"Really?" 

"I can't talk about any of this, not yet," he said. "I'm appealing my case. I may write another book of my own. I've had a couple of offers." Rapp said the real "story" behind the S&L debacle "is the regulators." He said they were, and are, "incompetent," but he declined to elaborate. 

Paul told Rapp that we had a host of questions we wanted to ask and that we would send him a letter outlining our areas of interest. 

We sent him a list of very frank questions about the Florida Center scam and waited. Two weeks passed and not a word from Rapp so Paul decided to call. Rapp was angry. 

"Yeah, I got your letter and I don't like your questions. When are you going to start being a reporter and stop being a prosecutor? Don't bother me anymore. My lawyer is sending you a letter." Paul told him we'd add it to our growing collection. Rapp hung up. The lawyer letter never arrived. 

Later, Tony Delvecchio told us that he did not participate in any of Rapp's swindles, but he did admit that "a lot of innocent people got hurt. Prominent people were swindled." He said Rapp and Napoli knew each other well in Florida and added, "One of these days I'll tell all about Rapp and World Wide Ventures. . . . Yeah, now the feds are talking to Napoli, trying to find out who all the top gears are." He said, "Rapp's money is in offshore banks. If he's smart enough to con all these people, he's smart enough to have offshore accounts." 

Then Delvecchio hit the point that had been bothering us. "It's amazing. Rapp did all these scams 20 years ago and then he writes a book and does it all over again. He was good, Rapp was. He convinced a lot of people. " 

The beauty of the Rapp operation, from our point of view, was that it was so typical of a wise guy in action. Rapp loved to spend his days figuring out schemes. A brilliant man, he could have been successful as a legitimate businessman, but the excitement of swindles held too powerful an allure for him. From the day thrifts were deregulated, it was inevitable that Rapp would loot them. Opportunities of that magnitude could not possibly go unnoticed by swindlers like Rapp. But the unanswered question in the Rapp story (and in many of the other cases in this book) was—where did the money go? Delvecchio said in depositions that Rapp spent $500,000 on jewelry for a girlfriend and $500,000 in Las Vegas, which still left a large amount unaccounted for, since in a couple of years he got over $20 million from thrifts and banks. 

One answer to that question finally came to us from a law-enforcement official who told us that two New York crime families, the Lucchese and Genovese families, were making demands on part of the take. When a dispute broke out over how the money was going to be divided up, the matter was finally settled, the official told us, when a friend of Rapp's, an officer in one of the families, organized a sit-down at which the families decided how the shell corporations would split up the loan proceeds. How much was divided up? Rapp's not saying. 

Finding Rapp doing business with Renda and Bazarian was a real surprise. When Paul first got the tip to check out Flushing Federal, we did not know of any connection at all between the three men. But there they were, on Halloween 1985, at Bazarian's Oklahoma City mansion, planning a scam. It was a graphic illustration to us of the way the network of swindlers worked. They heard about each other by word of mouth. Some were Mafia members and associates; some weren't. But they all did business together, and the distinction between organized crime and mere white-collar crime blurred until it became almost meaningless. The looting of the savings and loan industry was carried out by a band of swindlers who operated, and cooperated, in their own best interests. We kept a list of the people we found looting each savings and loan we investigated. Bazarian would one day taunt us by bragging that he knew everyone on our list.

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