Plastics executives can justify a lot of business expenses, but it's tough explaining why your firm is paying the $70,000 salary of the captain of your personal boat.
That's one of the claims laid out in a lengthy report outlining alleged financial wrongdoing at Gitto Global Corp., a Lunenburg, Mass.-based compounder that filed for bankruptcy late last year. The 154-page report from independent examiner Charles Glerum was released Oct. 27 by U.S. Bankruptcy Court in Worcester, Mass., after a legal challenge by the Worcester Telegram & Gazette newspaper.
In the report, Glerum claims Gitto executives Gary Gitto, Charles Gitto Jr. and Frank Miller created false financial records and spent company funds for personal uses for several years. Glerum also said Gary Gitto paid kickbacks to employees of at least two customers in return for business.
A lawyer for Gary Gitto said the report implicates only Frank Miller. Others named in the report had no comment; Miller's lawyer, Mark Foss of Worcester, could not be reached.
The report's many claims include the following:
* That Miller transferred more than $700,000 from a company bank account to his private account between 2002 and 2004.
* That the firm spent more than $2 million on expenses for cars, insurance, phones, air fare, travel and entertainment for the three executives between 2000 and 2002. Since none of the three executives cooperated with Glerum on the report, he said it was unclear how much of the expenses may have been legitimate. Those expenses were in addition to the annual salaries of the three.
* That the company paid the $70,000 annual salary of the captain of Gary Gitto's personal boat.
In the alleged kickback schemes, the report said the firm paid large sums to two employees at Lake Electronic Cable LLC, a maker of plastic and metal cable based in Chicago, to secure business. One Lake employee received $37,000 between 2002 and 2003.
In 2001, Gitto reported sales of less than $420,000 to Lake. By 2002, the figure had skyrocketed to more than $3.5 million. Lake officials declined to comment.
The second alleged kickback involved Hitachi Cable Manchester Inc., a Japanese cable maker with U.S. offices in Manchester, N.H. One Hitachi employee allegedly was paid almost $900,000 between 1998 and 2004 through Nutmeg Tool Corp., a machinery company in Londonderry, N.H.
Hitachi President Ronald Ruggiero also received kickbacks from Gitto between 1999 and 2004, said the report. Payments to Ruggiero were made to Blakely-Hutchison LLC, a firm that has used various addresses in Massachusetts and Delaware since 1996.
According to Gitto records, the firm paid Blakely-Hutchison almost $750,000 between 1999 and 2004.
A Hitachi Cable spokeswoman said Ruggiero left the company in September.
Although the alleged schemes involved providing customers with ``an inferior product that ordinarily would have been sold at a lower price,'' Glerum reported that the kickbacks were ``not a central feature of the borrowing-base manipulation that ultimately forced the company out of business.''
In a statement released Nov. 1, Max Stern, a Boston lawyer representing Gary Gitto, defended his client, pointing out several parts of the report that blame Frank Miller and Miller's wife, Maria, for financial misdeeds. Stern wrote that Miller was in charge of the finances and operations of the firm, while Gary Gitto ``devoted virtually all his attention to sales.''
``The only conclusion one can reach is that the wrongdoing was accomplished not by anyone named `Gitto' at all, but by Frank Miller,'' Stern wrote.
Samantha Martin, a spokeswoman for the U.S. Attorney's office in Boston, would not say if her office is investigating anyone involved with the Gitto case.
Gitto Global, which produced compounds based on PVC and polyolefins, filed for bankruptcy in September 2004, listing total debt of more than $50 million. Its debt to lender LaSalle Bank N.A. of Chicago was estimated at about $30 million. Gitto Global had claimed annual sales of $100 million, when its actual sales were no more than $40 million.
The business was sold in December for almost $9 million to Steven Graham, owner of Toner Plastics Inc., a maker of plastic craft supplies in Agawam, Mass. Graham now operates the compounding business as S&A Specialty Polymers.
In February, Tradex Corp. - a holding company owned by Charles Gitto Jr. - filed for bankruptcy, listing debt of between $1 million and $10 million. Court records said Tradex had guaranteed the debt of Kingsdale Corp., a separate firm owned by Gitto executive Miller. Gitto Global's lenders earlier had claimed Gitto made numerous fraudulent sales to Kingsdale to prop up its own sales figures.