04-05-04 -- Luparella, Joseph -- Conviction -- News Release

Morristown CPA Convicted of Tax Conspiracy and Perjury Related to Collapse of New Jersey Securities Brokerage Firm

NEWARK - A federal jury today convicted a certified public accountant of conspiring with the management of the collapsed Millburn securities brokerage firm First Interregional Equity Corp. to obstruct the collection of income taxes, for assisting in the preparation of a false and fraudulent tax return, and for perjury in connection with Trustee depositions, U.S. Attorney Christopher J. Christie announced.

Joseph Luparella, 59, now of Hoboken and whose accounting practice is in Morristown, was convicted on four of the charges in his five-count Indictment returned in September 2002, according to Assistant U.S. Attorneys Amy Winkelman and Joyce M. Malliet, who prosecuted the case.

Testimony in the trial before U.S. District Judge William G. Bassler began on March 3. The jury deliberated over four days and returned its verdict about 2:30 pm. today. Judge Bassler scheduled sentencing for July 12, and Luparella remains free on a $100,000 unsecured bond.

For the conviction on one count of conspiring to defraud the United States by impeding and obstructing the collection of income taxes, Luparella faces a maximum of five years in prison and a $250,000 fine.

For the conviction on one count of assisting in the preparation of a false and fraudulent tax return, Luparella faces a maximum of three years in prison and a $100,000 fine.

The jury found Luparella guilty of two of three counts of making false declarations in proceedings ancillary to a United States Court, each of which carries a maximum of five years in prison and a $250,000 fine. The jury acquitted on one of those counts.

Under U.S. Sentencing Guidelines, Judge Bassler will determine the actual sentence based upon a formula that takes into account the severity and characteristics of the offense, and the defendants' criminal history, if any. Parole has been abolished in the federal system. Under Sentencing Guidelines, defendants who are given custodial terms must serve nearly all that time.

From 1989 until March 1997, Luparella and his firm, Luparella, Florio & Ridilla, CPAs, provided a wide range of auditing and accounting services to First Interregional Equity Corporation and related companies, and also to Herbert Goettlich, the owner of First Interregional, and his family members.

As was established by trial testimony and in prior guilty pleas, the management of First Interregional - Herbert Goettlich, along with his sons Richard, Peter and David Goettlich, and First Interregional employees Anthony Gianninoto and Eileen Laine - engaged in a securities fraud conspiracy that began in the late 1980s and involved the misappropriation and sale of customer-owned securities, and the fraudulent sale of fictitious office equipment leases as investments. The management of First Interregional used the proceeds of this fraud to pay the operating expenses of the First Interregional companies; to launch and finance another company called Sports Entertainment Group ("SEG"); and to bankroll a luxurious lifestyle for themselves and other members of the Goettlich family.

Former First Interregional controller Anthony Gianninoto testified for the government and said that the management of First Interregional concealed millions of dollars in income paid to them by the company, so that they could omit reporting those payments on their individual income tax returns and evade millions of dollars in income tax they owed to the United States. By March 5, 1997, when First Interregional closed its doors, the liabilities of the First Interregional companies exceeded their assets by more than $100 million.

In earlier proceedings, Richard Goettlich, Peter Goettlich, David Goettlich, Gianninoto and Eileen Laine each pleaded guilty to criminal charges arising out of their activities at First Interregional, and have been sentenced to prison terms by Newark Judge Bassler.

Evidence at trial, including deposition testimony of the defendant himself, showed that Luparella and his firm were providing the First Interregional companies and the Goettlich family members with auditing and accounting services during most of the time the First Interregional management of was engaging in the fraud.

Among other things, evidence established that Luparella and his firm: prepared annual audits of the financial statements of First Interregional Equity; prepared annual reports regarding those financial statements for submission to the Securities and Exchange Commission (SEC); prepared federal and state corporate tax returns for First Interregional and its subsidiaries; prepared federal and state corporate tax returns for SEG; and prepared federal and state income tax returns for the Goettlich family members.

Beginning at least as early as June 1994, however, as set forth in the Indictment, Luparella knew that the Goettlichs received large sums of money from First Interregional which were fraudulently disguised on the company's books as temporary loans and advances; that such payments were omitted from the financial statements and corporate tax returns for First Interregional; that W-2 Forms issued by First Interregional for the Goettlichs were not consistent with the company's books or its tax returns, and understated the amount of money the Goettlichs actually received from the firm; and that the management of First Interregional had backdated corporate records to avoid an audit of First Interregional Advisors Corp., a subsidiary through which the fictitious office equipment leases were sold to customers.

According to the Indictment, Luparella conspired with Richard Goettlich, Anthony Gianninoto, officers of First Interregional, as well as Eileen Laine and others, to prepare and file fraudulent corporate tax returns for First Interregional and its subsidiaries, including First Interregional Advisors. The Indictment further alleges that Luparella and his co-conspirators prepared and submitted to the SEC false and fraudulent financial statements and net capital computations regarding First Interregional Equity. Luparella also assisted his co-conspirators in preparing false and fraudulent W-2 Forms which understated the amount of income received by the Goettlichs from First Interregional. Luparella then allegedly used these false and fraudulent W-2 Forms to prepare false and fraudulent individual income tax returns for the Goettlichs.

The Indictment also alleges that Luparella assisted in preparing a false and fraudulent 1995 U.S. individual income tax return for Herbert Goettlich. Submitted with the return was a false and fraudulent W-2 Form that Luparella had helped prepare, which falsely showed that Herbert Goettlich had received a total of $108,682 in wages and benefits from First Interregional during 1995. In fact, as set forth in the Indictment, Herbert Goettlich had actually received at least $876,464 in income from First Interregional in 1995, most of which was fraudulently disguised as temporary loans and advances.

The Indictment also alleges that in 1997, after First Interregional closed down, the U.S. District Court and Bankruptcy Court appointed Trustees to investigate the conduct, assets and liabilities of the First Interregional companies. The charges state that as part of their investigation, the Trustees deposed Luparella. During the deposition, when attorneys for the Trustees questioned Luparella, under oath, Luparella falsely denied knowing that there were substantial discrepancies and irregularities in the books and records of First Interregional Equity.

Christie credited Special Agents of the FBI, under the direction of Joseph Billy Jr., Special Agent in Charge of the FBI in Newark, and Special Agents of the IRS Criminal Investigation section, under the direction of Special Agent in Charge Patricia J. Haynes, with developing the case against Luparella, as well as the defendants who pleaded guilty.

The Government was represented by Assistant U.S. Attorneys Winkelman and Malliet of the Securities and Health Care Fraud Unit of the U.S. Attorney's Office in Newark.

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Defense Counsel: Edward J. Bilinkas, Esq.