Copyright 1991 Globe Newspaper Company  
The Boston Globe
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January 29, 1991, Tuesday, City Edition
SECTION: ECONOMY; Pg. 23 p

LENGTH: 1524 words

HEADLINE: Investor's fall left R.I. fund on shaky ground

BYLINE: By Brian C. Mooney, Globe Staff

DATELINE: PROVIDENCE

BODY:
If Michael Lolicata had a gift, it was his remarkable ability to part men from their money to bankroll his wild financial dealings.

In fact, by the time his house of cards tumbled in 1989, a bankrupt Lolicata had funneled almost $ 21 million in bank and other loans into a maze of companies. Much of it was squandered or cannot be accounted for. And in one case, $ 400,000 found its way to a company owned by a business associate of reputed New England mob boss Raymond J. (Junior) Patriarca.

Ultimately, Lolicata's machinations contributed to the collapse a month ago of the Rhode Island Share and Deposit Indemnity Corp. and the banking crisis that followed the folding of the private insurer.

He helped drive into insolvency the Jefferson Loan and Investment Bank of Cranston, which financed his ventures with risky loans of $ 4.3 million, or one-third of its total assets. Simultaneously, he left out in the cold 280 individuals who invested $ 13.3 million in commercial paper floated by a Lolicata-owned equipment leasing company. The US attorney's office in Providence and the Securities and Exchange Commission have targeted Lolicata in a securities fraud probe that is nearing completion, sources said.

The Jefferson failure loosened the underpinnings of RISDIC by draining assets from the private insurer before its collapse last fall after the more widely publicized failure of the Heritage Loan and Investment Co. of Providence.

Heritage was the apparent victim of another wheeler-dealer - its own president, Joseph Mollicone Jr., who allegedly embezzled $ 13.8 million before he vanished last Nov. 8. State investigators are trying to determine if organized crime figures played a role in the failure of Heritage, which banked substantial amounts of mob money.

An examination by The Boston Globe of the Jefferson failure and Lolicata's role illustrates the underlying weakness of the loosely regulated, freewheeling and privately insured banking system that existed for more than two decades until RISDIC fell.

"I don't know what kind of business Jefferson was engaged in, but it bore little resemblance to banking," said one source familiar with the Jefferson collapse..

Not only did Jefferson gamble by advancing one-third of its assets to a single customer, but the legitimacy of the loans are now in dispute in the Boston US Bankruptcy Court proceedings of Lolicata's firms, Commercial Management Service and Financial Equity Service, both of Warwick.

They are a key part of the effort by a court-appointed trustee, Stephen S. Gray, to liquidate what he can find of Lolicata's holdings to distribute to Lolicata's creditors.

A bankruptcy examiner, however, has been unable to find about $ 4 million on Lolicata's company books, and his creditors may receive less than 30 cents on the dollar.

Some of the loans to Lolicata went to buy equipment for his leasing companies, records show. Others were used to buy other small businesses he purchased or to support his high-flying lifestyle.

Lolicata, 39, could not be reached for an interview, but bankruptcy records reveal he bought art paintings that cost $ 410,000, a ski resort condominium in New Hampshire and received a salary of at least $ 130,500 a year. He also owned a home in Lincoln worth $ 250,000, and his companies leased several vehicles, including a BMW 735i and a Porsche 944. They also purchased two properties in Hawaii where Lolicata had set up a subsidiary equipment leasing firm.

Gray has filed suit claiming the Jefferson transactions were part of a larger scheme by Lolicata and Jefferson's principal stockholders, Benedetto A. Cerilli Jr. and Steven R. Salvatore, to inflate the value of the bank's stock for a public offering. At the same time Lolicata's companies were receiving huge loans from Jefferson, he paid Cerilli and Salvatore $ 500,000 for bank stock he never received and "consulting fees," the suit charges.

Of the stock scheme charge, Salvatore's lawyer, Joel D. Landry, said in an interview, "That's absolutely wrong."

"I think Lolicata left everyone high and dry," said Landry, who is representing Salvatore in bankruptcy proceedings. "He was checked out all over the state, and he came back sterling. Whenever he said he could do something, he did it."

Attempts to reach Cerilli were unsuccessful.

Landry maintained that Lolicata wanted to buy a quarter of the bank for $ 2 million but defaulted after making a $ 350,000 down payment. The consulting fees were for work Salvatore and Cerilli did in locating another bank Lolicata wanted to buy but never did, Landry said.

It is a common thread in the months and days before Lolicata filed for personal and corporate bankruptcy in March 1989: six-figure legal fees for aborted deals; huge down payments forfeited for acquisitions that fell through; big loans forgiven.

In one case, $ 400,000 went to a Patriarca business associate, Frank Zammiello, owner of Northstar Aviation Inc., which operates an aircraft service hangar at T.F. Green Airport in Warwick.

State Police Capt. Brian Andrews said Zammiello "is heavily involved with Junior in the development of Kendall Estates and quite possibly the Bridlewood development in Lincoln," referring to a pair of luxury residential developments in the Limerock section of the affluent suburb.

A Lincoln town official, who requested anonymity, confirmed Zammiello's involvement in the Patriarca project at Kendall.

Lolicata's $ 400,000 payment to Zammiello's firm was a nonrefundable down payment toward Lolicata's purchase of Northstar, according to a deposition of Providence lawyer Joseph J. Rodio, whose firm represented both Zammiello and Lolicata at various times. Lolicata, however, defaulted on future payments, and the deal was never consummated..

Zammiello's Patriarca connection goes beyond building homes. Last April, he offered to post $ 5 million in Bridlewood real estate toward securing $ 12 million in bail after Patriarca's indictment on federal racketeering charges. Also, he put up $ 488,000 worth of real estate in Rehoboth, Mass., as bail security for Matthew Guglielmetti Jr., reputed to be a Patriarca lieutenant, who was indicted in the same case. Patriarca, who is being held without bail despite the offer of Zammiello and others to post security, and Guglielmetti are awaiting trial.

Moreover, Zammiello's appearance in Lolicata's dealings did not end with Northstar. He resurfaced in Lolicata's collapsing empire on the day before the bankruptcy filing: Zammiello's signature appears as a witness to Lolicata's forgiveness of two loans totalling $ 128,050 to Thomas DiIorio, a Lolicata employee and the apparent middleman in a series of gas station deals Lolicata was involved in, court records show.

Gray, the bankruptcy trustee, asserted in court papers seeking the return of the funds that DiIorio never repaid a dime of the loans.

Neither DiIorio nor Lolicata could not be reached by the Globe to comment. Attempts to reach Zammiello were also unsuccessful. He did not return several Globe calls to his offices in Providence and Warwick last week.

But Richard M. Egbert, a Boston lawyer representing Lolicata in the ongoing federal investigation, described Zammiello as "a fine businessman in Rhode Island . . . He has been involved in real estate development and business for years. I don't believe he has been involved in anything unlawful."

Egbert declined to comment on the status of the Lolicata investigation.

Besides the DiIorio loans and the payments to Jefferson officers, Gray is seeking to recoup some of the more than $ 800,000 in legal fees paid to Rodio's Providence law firm in the months shortly before Lolicata went belly up.

Rodio did not return calls from the Globe, but during his deposition, he could not document most of the firm's services, maintaining that most of the fees were retainers for legal services and advice in connection with up to 25 Lolicata acquisition proposals, almost all of which fell through. They included a television station, a poultry company, a New Orleans hotel, out-of-state banks, Rhode Island gas stations and a Newport "dinner train."

Another involved Lolicata's failed attempt to buy Valley Maid, a Tennessee-based lace manufacturer represented by Rodio. In that case, Lolicata forfeited at least $ 30,000 and perhaps as much as $ 128,000, according to court records.

Of the legal fees to Rodio's firm, $ 100,000 was used to set up a Washington office and pay the $ 20,000-a-month salary of former chairman of the US House Banking Committee Fernand St Germain of Rhode Island, who became Rodio's partner in December 1988 after his defeat at the polls. St Germain, whose role in the deregulation of the nationwide savings and loan industry has been criticized, was hired to locate ailing S&Ls for Lolicata to buy. But he never bought any, and St Germain left the firm a year ago.

It was like so many of Lolicata's financial gyrations. Hundreds of thousands of dollars of his investors' money ended up in someone else's pocket, and leaving others, like Rhode Island's private bank insurer RISDIC, holding the bag.