Six former officials of defunct compounder Gitto Global Corp. have been charged with a series of financial crimes in U.S. District Court in Boston.
William Deakin, Charles Gitto Jr., Gary Gitto, Frank Miller, John Moritz Jr. and Louis Pellegrine Jr. each were charged with a single count of conspiracy and 12 counts of wire fraud, according to a Sept. 10 indictment. Gary Gitto and Miller also were charged with single counts of bank fraud; with Gary Gitto also being charged with five counts of money laundering.
Gary Gitto had been an owner and director of Lunenburg, Mass.-based Gitto Global, while his father, Charles, served as chairman. Deakin was the firm's controller, Miller was an owner and director, Pellegrine was its accountant and Moritz was an employee and consultant.
The 25-page indictment alleges that the six executives took specific actions between 1998 and 2004 to allow Gitto Global to access funds from local banks that were ``far in excess of what Gitto Global's actual inventory and accounts receivable would support.''
Gary Gitto's lawyer, Max Stern of Boston, said his client will plead not guilty to the charges.
``There's no credible evidence that Gary Gitto knew anything about or had anything to do with this scheme,'' Stern said in a Sept. 11 phone interview. ``He was the sales guy — he was on the road.
``Other people are trying to tie a lot of this in to Gary, but he wasn't there a lot of the time. He wasn't involved with any of this and didn't know what was going on.''
When Gitto Global filed for bankruptcy in September 2004, its actual sales of PVC and polyolefin compounds were found to be around $40 million. The company had claimed sales of more than $100 million. At the time, Gitto Global reported debt of more than $50 million, including almost $30 million to LaSalle Business Credit LLC of Chicago.
The indictment singles out Miller and Charles and Gary Gitto, saying that they ``treated Gitto Global as a limitless source of personal funds, regardless of the state of the company's actual revenues, and removed substantial monies from the company for their personal use.''
Steps allegedly taken by the six officials to access financing included:
* Establishing shell companies Direct Wood & Paper Products Inc., Hemisphere Distribution Corp. and Kingsdale Corp., which did business as J&J Chemical Distributors. These firms were listed in numerous transactions with Gitto Global.
* Recording sales to Gitto Global customers that exceeded the amount of actual purchases.
* Altering the value of goods in Gitto Global's inventory reports, and relabeling some inventory to fraudulently inflate its value.
* Scanning and altering copies of checks and other documents in order to further support these false sales and accounts receivable records.
Officials often would move money from the shell companies to Gitto Global to create the appearance of large sales, according to the indictment. Money then would be returned to the shell firms, which officials later would pass off as material purchases.
The indictment estimates that more than $1 billion was moved between these various accounts over a period of 3½ years. ``By at least 2000, [the conspiracy] implicated virtually every department at Gitto Global plus secretarial staff,'' the indictment stated.
A report released in late 2005 by U.S. Bankruptcy Court in Worcester, Mass., claimed that Miller transferred more than $700,000 from a company bank account to his private account between 2002 and 2004. In mid-2006, LaSalle Business Credit filed a motion in U.S. District Court alleging that Miller, Pellegrine, Gary Gitto and Charles Gitto had used $6.1 million advanced by LaSalle for their own personal benefit.
The bankruptcy report also alleged that Gitto Global spent more than $2 million on cars, insurance, phones, air fare, travel and entertainment for Miller and the Gittos between 2000 and 2002. The company also paid the $70,000 annual salary of the captain of Gary Gitto's personal boat, according to the report.
The 2005 report further alleged that Gitto Global paid almost $1.7 million in kickbacks to employees of cable maker Hitachi Cable Manchester Inc. between 1998 and 2004. The 2006 LaSalle motion also details a case where Gitto Global relabeled PVC resin inventory — at the time valued at 40 cents per pound — as Teflon-brand fluoropolymer, valued at between $6 and $21 per pound.
Miller and the Gittos also had 20 boxes of financial records removed from the Gitto office shortly after a local bank closed the account of one of the shell companies, the motion said.
Gitto Global was sold in late 2004 for $9 million to local businessman Steven Graham, who reopened the firm as S&E Specialty Polymers. Charles Gitto had launched Gitto Corp. in 1990, shortly after selling his original business, Gary Chemical, which he had named after his son.
Attempts to reach the indicted officials were unsuccessful. According to the indictment, Charles Gitto, Gary Gitto and Deakin still reside in Massachusetts, while Miller is in California, Pellegrine is in Florida and Moritz is in Pennsylvania.
Summons have been issued for the accused, but no court dates have been set, according to U.S. District Court spokeswoman Christina Sterling. The case will be heard by District Judge F. Dennis Saylor in Worcester.
If convicted, Gary Gitto faces up to 65 years in jail and a maximum fine of almost $2 million. Miller faces up to 55 years and a maximum fine of $1.5 million. The other four defendants each face up to 25 years and maximum fines of $500,000.