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BULL STREET - The art of the Con

Wedtech Corporation,  Political Incorrect

You have all heard of the South Bronx. The Bronx is one of the five boroughs that make up New York City.  When the economy turned down and times became tough in New York, the South Bronx was the first to feel it.  People were out of work, they did not pay their rents, without the rent money coming in, the buildings deteriorated and most in the area became so damaged that it had to be destroyed.  Ultimately, the landscape looked either like a battlefield or part of the moon. Nothing stood on the formally productive property of the South Bronx, neither buildings nor bushes, and the residents, most of whom had nowhere to go, ingested drugs in order to make their days livable while they hung out in front of the burned and bombed out tenements.

New York politicians were looking for just about any solution to the South Bronx situation that they could find.  In the first place, the South Bronx population was primarily black and Hispanic which made up a serious part of New York’s electorate.  Moreover, the pestilence that was plaguing the South Bronx was gradually being exported into the mainstream of New York life and the number of murders, robberies, and drug selling skyrocketed.  The undermanned and underpaid New York Police Department often would not venture into that area themselves and the city could only pray for a savior.

The City and its politicians were constantly on the lookout for some method of making the area both livable and productive again.  Schemes like tax-free zones were created in order to bring business. Incentives were created to start businesses in the area with money coming from both New York and the Federal Government as well.  It was beginning to seem that nothing was going to work and when John Mariotta, an uneducated, mostly out of work tool and die maker with a Puerto Rican ancestry, came along with his plan to create a defense initiative in the area that would put hundreds to work, while training many of the indigent.  God had come to the South Bronx and without hesitation, officials from all of the country wanted to climb on the Mariotta bandwagon.

Not that these characters were trying to be do-gooders; that is not necessarily the way politics is practiced in New York.  Putting these people to work and restoring the South Bronx would make anyone involved a sure bet to sway voters in the coming election and would probably carry both the black and Latino vote big time.  Mariotta success represented elect ability and his medicine was hard money is to a rabid political campaign, ambrosia, the stuff that is only good enough for the gods. 

His fledgling company would be involved in everything that voters are about, putting people to work, rebuilding and area, eliminating a drug culture and making a very dangerous area, safe to live and work in again.  No one needed a picture drawn for them, like lemmings, they all jumped on the bandwagon from the then President of the United States, Ronald Reagan, on down the ladder.  Local politicos got involved with the project in the same way rats are attracted to cheese and the chorus became a crescendo with all of the opportunists that were descending upon this little factory in exchange for recognition.  On most days early, there were more politicians on the plant’s premises than workers.

Mariotta’s company was originally named Wellbilt Electronic Die Corporation, which made baby carriages.  When he brought in a partner and they each put up a couple of thousand dollars, the name was changed to Wedtech. The company would bid on defense contracts and as a minority manufacturers employing indigent people, they would probably be successful in winning anything that they could handle.  Mariotta and his partner, an out of work die maker named Freddie Neuberger soon started to knock them dead.  The Federal Government rolled out the red carpet and started designating the facility for everything under the sun.

Freddie Neuberger was a mechanical engineer, an expert metal fabricator, and a member of Mensa.  With that combination, Neuberger was able to interpret complex government contracts so poorly worded that no one else could read them, much less bid on them.  It was this quirk that really gave Wedtech its start.  Neuberger was a tough guy that wore expensive suits, smoked long cigars, used words that nobody seemed to understand but were offered up in frightening fashion and when added to them, his fabled frown, that seemed to be embedded into Neuberger’ s face made him a very scary kind of guy.  As if that were not enough, Neuberger always packed heat and whether it was just for show or not, many believed that he would use the thing at the drop of a hat. 

An example of that was given by many people that knew Neuberger well.  Whenever Freddie had a free minute or two he would go out in back of the Wedtech plant, pull out the weapon and start killing rats or whatever else there was back there at the time.  They may not have been the only things that he did away with as rumors of Neuberger’ s second wife’s bizarre suicide and third wife’s mysterious disappearance always seemed to point right back to him.  Neuberger’ s game was fear and he would often boast around the Wedtech Plant about how many people that he had killed as an Israeli commando.  Everyone seemed to take him very seriously and not a lot of people were about to call Freddie’s bluff.

Although Mariotta and Neuberger were equal partners at Wedtech, the firm was not really a minority because the government’ criteria was “majority owned.”  Neuberger made up some documents, which superficially made Mariotta a 2/3rds partner while the real documents resided in Neuberger’ s safe.  It had not taken these two much time to embark on their life of crime, as far as that went.

Mariotta had not been particularly successful in anything that he had touched and Ronald Reagan who was running for election to the Presidency in 1980 needed to affiliate with a winner.  It seemed to Reagan’s people that Mariotta couldn’t screw up what was going on the South Bronx if he tried, so they joined the Mariotta bandwagon in earnest.  For a time the partnership delivered to each of the participants exactly what they were looking for.  Reagan in a speech at the Waldorf introduced Mariotta with the words, "Today, through Wedtech, he not only has built a successful corporation, he's helping hundreds of people who would otherwise be condemned to menial jobs or a life on the dole.”  Reagan hitched himself to the right star and for the next several years, everything seemed to work as planned.  Wedtech had booked over $250 million in orders and a lot of Russian and Hispanic immigrants had become ensconced in productive jobs.

Mariotta and Neuberger were quick learners and started making friends with everyone and anyone they could glad hand in Washington.  They bid on non-competitive minority contracts and early on were unsuccessful when their bids always seemed a tad to high, like double the next highest bid.  On the other hand, they now had friends in high places and determined to maximize these relationships. Lyn Nofziger took to the brash young men and tried to help. He contacted Elizabeth Dole, then head of the office of public liaison. She twisted an arm or two and soon they were the proud processors of a contract to build $32 million worth of small engines  for the army. 

Therefore, you had these two partners that were going out to save the world.  The first was a supposedly a minority Hispanic who seemed to have few roots to the community and did not understand a word of the language.  He had failed at just about everything in life that he had attempted and although Wedtech seemed like the really thing, it could never have survived its management.  Neuberger, as we have pointed out seemed to make it clear to any concerned that crossing him would be the fastest way to the grave that anyone could ever find. These people set out to change the world and to some degree, they did.  

The only problem was that the whole thing was a fraud and a bunch of people got caught in what happened next.

“Mariotta's firm would become a symbol of one of the nation's worst modern scandals one brimming with shakedowns, pay-offs, thievery, forgery, racketeering, fat-cat lobbying and plain old-fashioned influence-peddling.”

“John Mariotta, the South Bronx success story, would go to jail.  And so would a who's who of Bronx politicians: 10-term Rep. Mario Biaggi, a highly decorated ex-cop with mayoral aspirations; the once- promising Rep. Robert Garcia, and Stanley Simon, the Bronx borough president.”

“The web of corruption spread even wider to three retired generals, a couple of politically connected Maryland legislators and a gaggle of political operatives close to Edwin Meese, a White House lawyer and later Reagan's attorney general.”

“In all, 20 government officials, along with Wedtech’ s officers, would be convicted.  Meese himself, despite being a Wedtech investor, would be exonerated of any wrongdoing by a special prosecutor.”  ([154])

Nofziger was well paid for his help in shares of the company and when a public offering was completed of Wedtech shares, he became overjoyed with his newfound good fortune.  He wasn’t alone in trying to get a good deal.  Of all of the politicians that came to call, none was more over-reaching than Mario Biaggi, the senior congressional representative from New York.  As Neuberger testifying to in court, “Biaggi threatened to destroy Wedtech unless his law firm was given consulting fees and $1.8 billion in stock.”  Neuberger went on to say that the congressman was “like a cop on the beat, putting the arm on the corner bookie.”  ([155])

While Biaggi’s demands were absurd, many were met.  Everyone else wanted in on the gravy train as well, even if it was just to be a high paying no show job for a distant relative.  Both Mariotta and Neuberger learned that they now had developed a magnet that would attract every politician from miles around.

While both Mariotta and Neuberger had become multi-millionaires and Reagan had seen his first four years go smartly by, it was now four years later and the President once again determined to make Mariotta the key element in his campaign.  Wedtech’s  income at this point was not keeping pace with its expenses and they had recently found that by double billing the government cash flow could be improved dramatically.  A production line was set up to turn out phony invoices, which soon topped the astronomical level of $6 billion, and simultaneously, Neuberger was slowly eating Mariotta’s lunch.  With Mariotta relegated to an inferior position, the company could no longer be really considered a minority firm and things started to go to hell in a hand basket. 

Neuberger was primarily concerned with the fact that he believed that Mariotta was a weak link in all of the criminal transactions that Wedtech was involved in.  Neuberger was convinced that should a problem come up, Mariotta would start singing on everybody.  With this in mind, he initiated discussions with other senior officials about the possibilities of sending Mariotta on an early trip to the great beyond.  Neuberger met with everyone including some Teamster officials that were on the Wedtech payroll and discussed the fact the Mariotta could squeal and that wouldn’t work for any of them.  The teamster people were extremely sympathetic to Neuberger’ s point of view and the demise of Mr. Mariotta was actively pursued until the fraud that was Wedtech was uncovered and it no longer mattered.

Another important player in the Wedtech conspiracy was Anthony Guariglia, a highly respected accountant with the firm of KMG Main Hurdman and one day while doing his work, Guariglia found some strange things going on with Wedtech’ s financial statements, which included years of cooking the books.

 “Obligated under the law to expose his findings, Guariglia opted instead to conceal the company’s fraud and strike a handsome deal to go to work for Wedtech.  This was a perfect situation for Wedtech because Guariglia had appeared clean and was intimately involved with the way KMG Main Hurdman went about their audits.  Guariglia was installed as an $80,000-a-year senior officer and received a large block of company stock just in case he needed something to cuddle up to at night.  By 1984, his salary with bonuses was $155,769 and growing.  Guariglia also had developed a huge gambling habit, squandering thousands of stolen company dollars in Atlantic City’s glittering casinos.” ([156])

Guariglia had indeed become a trusted employee and merrily went about leading the Main Hurdman people down Wedtech’ s South Bronx garden path.

Neuberger, Mariotta and Guariglia were joined in their endeavor by Mario Marino, Neuberger’ s right hand person.  Mareno was the Hispanic that Mariotta could not be, the mingler that Neuberger because of his gruff demeanor was not and as an academic, he was a person that could figure how to get things done in a hurry.  Marino was a diseased gambler that was so warped that it was more important for him at time to be at the tables than to be tending to business.  On the other hand, he lived such an inconspicuous life away from gambling, that it was literally incongruous.  He owned a small home in the Bronx that cost him $80,000 and secretly furnished it with almost a million dollars stolen from Wedtech, including an opulent swimming pool and an upscale greenhouse. 

Two years later, in 1986, Wedtech went under and the as the regulators started to move in, the canaries began to sing in unison in exchange for lighter sentences.  Mariotta was convicted of running a racketeering enterprise, tax fraud, and bribery.  Simon, Garcia, and Biaggi ([157]) along with others were found guilty of racketeering and extortion.  Nofziger was indicted as well.  Garcia and Nofziger later were exonerated but they had already been too closely tied to Wedtech and its strange goings on ever to regain their former stature[158].

Among the charges against Wedtech was that it really wasn’t a minority firm.  In addition, Wedtech was charged with selling securities to the public based on totally fictitious financials and flawed projections.  It is interesting to note that Wedtech at all times had a negative net worth and lost money on every single contract that it received.  Yet, the accountants certified the totally fraudulent numbers causing the public and probably the government as well to lose $100s of millions of dollars.  The litigation went on for six years and it was ultimately determined that accountants, Peat Marwick Main, Successor to KING Main Hurdman and Touché Ross & Company, were derelict in doing their accounting, that the underwriters hadn’t done their due-diligence for the public offering and the law firms representing the corporation had been less that forthcoming.  Thus, although the Securities & Exchange Commission never took action in the case, probably because of the harm it would have done to many high-ranking political figures, a substantial recovery was made for the shareholders and creditors from funds recovered from the derelict professionals.  The total recovery was $77.5 million, the most ever recovered in a class action to that date and it equaled almost seventy percent of the total losses incurred.

In allied Wedtech maters, Alphonse D’Amato had received an illegal campaign contribution from the company in exchange for the Senator’s help in securing military contractors.  In the meantime, D’Amato became a substantial advocate of Wedtech causes.  Wedtech subcontracted with Steamco for the job that D’Amato had secured for the company.  Steamco also had contributed to the D’Amato fund raising campaign.  D’Amato’s former Chief of Staff, John Zagame went to work for Steamco.  Steamco was barely into the deal when Wedtech tanked causing D’Amato to get an extreme case of stomach problems.

We’ve seen a lot of important people fall by the wayside because of the shenanigans pulled off by the Wedtech people and most of it was pretty serious stuff.  In the just having fun department, the gremlins that seemed to follow Wedtech were not finished yet.  The company was bankrupt and yet the facility was still in reasonably good shape.  The Board of Education of New York thought that the manufacturing facility could be easily converted into a school.  Thus, the school board entered into an agreement with which they believed were the then owners of the property to lease it for 15 years at a rental of $12 million of the life of the lease.  In addition, the board agreed to put in another $12 million in alterations in order to facilitate a 1,000-student high school.

The only problem with the deal was the fact that the people with whom the Board of Education entered into their agreement did not own the property. Once the agreement with the Board was inked, the Holand family of the Bronx purchased the property for $400,000 at a foreclosure sale.  In reality, they already held a mortgage on the property for $400,000 so they paid themselves the money.  In effect, what had occurred was that they now had a property that was free and clear of any encumbrances and were ready to embark on a new and more lucrative transaction with a brain dead Board of Education.  To add insult to injury, the mortgage originally was $6 million, which the Holand’s purchased for $400,000 when the owners of the mortgage were led by the purchasers to believe that nobody would probably ever again be interested in this bad-luck property.

Naturally, the Holand family had brought in some serious talent to finesse the deal’s timing.  They hired Robert A. Shahid who had been a supervisor in the Board of Educations real estate division where he had overruled an architect’s finding that indicated that the property was not fit to be used as a school.  It turns out the Shahid did not only grant the Holand family the benefit of his wisdom, but he did the same for a number of others after he left the board.

Shadid didn’t seem to think that he was breaking the law but the stench from what he had done caused a total stoppage of a $170 million conversion scheme.  For whatever it is worth, board of education conflict-of-interest law forbids former employees for being paid for thing that they were in charge of while employed by the city government.

 

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