1999-09-08 -- Pagano, Daniel -- Sentencing -- News Release
NEWARK -- Two organized crime figures were sentenced today on racketeering charges based upon the government's "Red Daisy" investigation of the bootleg motor fuel industry, U.S. Attorney Faith S. Hochberg announced.
Daniel Pagano, 46, of Monsey, N.Y., an alleged member of the Genovese organized crime family, was sentenced to 105 months in prison, and Anthony Palumbo, 50, a/k/a "Tony D.", a/k/a "T.D.", of Bronxville, N.Y., an alleged associate of the Genovese family, was sentenced to 46 months in prison, according to Assistant U.S. Attorney Aidan P. O'Connor.
The defendants were charged in a Sept. 10, 1996, Indictment with conspiring to defraud the federal Government of more than $77 million dollars in non-paid motor fuel excise taxes.
The Indictment charged that the defendants were part of an illicit cartel that extorted millions of tribute dollars from emigre Russian organized criminals and others operating illegal or "bootleg" gasoline and diesel schemes in New Jersey and New York. Pagano directed and controlled subordinates who used threats, intimidation and violence to profit from the bootleg fuel market and collected, on behalf of the Genovese family, a "mob tax" based on the gallons of fuel sold each month by the bootleggers, according to the Indictment.
Pagano and Palumbo each pleaded guilty to racketeering charges in a Dec. 18, 1998, Superseding Information.
In addition to the prison sentences, U.S. District Judge William G. Bassler also ordered Pagano to pay a $100,000 fine and to serve three years' supervised release after prison. Judge Bassler ordered Palumbo to pay a $5,000 fine and to serve three years' supervised release.
Under U.S. Sentencing Guidelines, Judge Bassler determined the actual sentences based on a formula that takes into account the severity and characteristics of the offenses and the defendants' criminal histories, if any. Parole has been abolished in the federal system. Under Sentencing Guidelines, defendants that are given custodial terms must serve nearly all that time, Hochberg said.
The defendants conspired to extort protection money from a large group of individuals in the evasion of federal motor fuel taxes by using "daisy chain" schemes, making it appear that the motor fuel passed through a series of wholesale distributors before reaching the retail pump. Each wholesale distributor appeared to be invoiced by the company above it in the chain, with each invoice reflecting a slightly higher price per gallon than the price paid by the seller. The price seemed to increase incrementally, thus giving the appearance of a series of legitimate, arms-length transactions, according to court documents.
All of the apparent "sales" were paper transactions, and the fuel never moved from a storage facility until the last participant in the "daisy chain" sold to a retail outlet. At some point in the chain of transactions, one company which supposedly had a valid IRS fuel tax form, would raise the invoice price of the fuel when it sold the fuel to a company without the form, thereby giving the appearance of having paid the federal and state taxes as required by law. This company - a "burn" or "butterfly" company - was little more than a mail drop, whose purpose was to insulate all the other "daily chain" companies from detection by appearing to be responsible for the taxes. Every three or four months, the "burn" company would vanish, according to court documents.
The "daisy chain" schemes generated so much cash from 1987 to 1993 that the Genovese, Gambino, Lucchese and Colombo families formed an "association" to control the illegal motor fuel industry, according to the Indictment and Superseding Information.
The FBI and IRS created an undercover motor fuel company, which conducted business in Ewing Township until it burned Feb. 10, 1992. Shortly after the fire, an organized crime associate told the business "owners" that they would have to begin paying tribute to operate in the bootleg fuel industry. Other bootleg fuel wholesalers were threatened or physically beaten to dissuade them from trading with the undercover business until it had made its mob-demanded tribute payments, according to court documents.
The defendants remain free on bail until their surrender to federal prison.
Hochberg credited special agents of the FBI, under the direction of William C. Megary, special agent in charge of the FBI's Newark office, and the IRS Criminal Investigations Division, under the direction of Frank P. Nixon, district director, with developing the case against the defendants.
Hochberg also credited the Office of the Inspector General, New Jersey Department of Transportation, under the direction of Kenneth Mead, chief; New Jersey Division of Taxation, under the direction of Joseph Flynn, chief; and the Pennsylvania Department of Revenue, under the direction of Steven Allen, acting director.
The Government is represented by Assistant U.S. Attorney O'Connor of the Organized Crime Strike Force Division in Newark.
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Defense Attorneys:
Pagano -- Paul A. Lemole, Esq., Staten Island
Palumbo -- Thomas R. Ashley, Esq., Newark