Lawsuits say Bangor loan agency really Ponzi scheme
By Peter Hall, The Morning Call (Allentown, Pa.) | |
McClatchy-Tribune Information Services |
The union ironworker was working as a welder on an interstate highway bridge project in
"It was just the wrong place, wrong time," said Shaw, who lived to talk about it. With severe burns over much of his body, including his hands, Shaw could never again work the high-iron construction projects he loved. On a friend's recommendation, he hired
More than two years later, Shaw settled his lawsuit. The
With that decision, Shaw joined the ranks of at least two dozen people and families who would lose substantial amounts of money -- in some cases their life savings -- in an alleged Ponzi scheme, the depths and inner workings of which remain undetermined.
The failure of
Cinelli, 84, claims he is also a victim and that part of that figure is the
Documents filed in
"We have documents to show that everything this guy bought and did was paid for with Blue Mountain's money," said
It is one of 24 filed in
No criminal charges have been filed against Cinelli. In a deposition taken last year, Cinelli said he never withdrew money from Blue Mountain and that he only became aware of problems at the company in 2010. As a result, he said, he fired Lambert.
"I think the preference is to let this play out in litigation rather than in the newspaper," Hoffman said.
Lambert, 73, of
Sabatine, 62, of
Cinelli's criminal defense attorney
Assistant U.S. Attorney
Expensive vacations
The victims' filings in Cinelli's bankruptcy allege he used Blue Mountain to transfer cash deposits into and then out of the company under the guise of returns on his pension. They claim Cinelli began using Blue Mountain's money to support his lifestyle about five years after he took over the company in 1979. But it became a "Ponzi scheme," as victims claim in their filings, only after it became insolvent in the late 2000s.
In a Ponzi scheme, people are enticed to hand over their money with a promise they'll receive an attractive return with little or no risk. In reality, the new investments are used to pay earlier investors to give the appearance they're profiting from a legitimate venture. Such schemes usually collapse when no new investors can be found.
Vivian, who is pursuing the claim by members of the Sabatine family that they lost more than
The complaint alleges that from the mid-1980s through 2000, Cinelli took money from Blue Mountain that appeared to be for property and pension investments. Vivian points to a paper trail of tax documents and trusts that lead from Cinelli's penthouse apartment in
"Therefore, [the Sabatines] believe ... Cinelli diverted pension monies and other cash to an offshore account established in the Turks and Caicos," Vivian's filing says.
In what attorneys for the Blue Mountain victims say is an unusual move,
The trustee also alleges in his motion that Cinelli has not satisfactorily explained how he spent more than
In a response to the trustee's complaint, Cinelli's lawyers argue that his financial records have been seized by the
On Wednesday, U.S. Bankruptcy Judge
Earlier this month,
While the civil cases plod toward trial, people who lost money in
Check comes late
Like Shaw, many of the victims of the Blue Mountain failure had hoped to live on the interest their investments paid. They included retired farmers, a disabled mechanic and a laid-off grocery store worker who said in interviews they were taken in by Lambert's pitch.
"I considered him a good friend. Someone I could trust," said
Lerch said she and her husband borrowed money from Blue Mountain to remodel a bathroom, buy a four-wheeler for their son and pay off credit cards. So when she received her husband's life insurance and pension payouts, she combined it with the severance she received when the Laneco supermarket chain folded and went to see Lambert.
Blue Mountain would take customers' money and loan it out to others who wanted to buy washing machines, refrigerators, motorcycles, farm equipment and other goods. The 24- to 26-percent interest Blue Mountain charged borrowers, according to court papers, would allow both the agency and its investors to make a handsome profit.
Lambert told people who made loans to the company that he had never lost anyone's money, investors said in interviews.
Then, in 2010, the Fogels said, Lambert asked them if they minded receiving their payments on the 15th of each month instead of the first.
The couple called Blue Mountain repeatedly and asked to speak to Lambert, but the secretary said he was busy. "One time he was out checking his roof. Another he had to take his wife to the hospital," Fogel said.
When they finally were able to confront him, Fogel said, Lambert told them there was no money left in
"It's a shame; that was our life savings," Fogel said. "We used to live free and do what we wanted to do. Now we live on our
Shaw, now 53, said he and his wife, Victoria, are struggling to avoid a financial free-fall. Without the interest checks from Blue Mountain he had counted on, Shaw faces foreclosure, had his truck repossessed and was forced to sell his welding tools. He watches as his wife works long hours at a nursing home to keep food on the table.
Shaw said he can't afford heating oil, so he uses wood to keep their home warm.
"They tell me the wheels of justice are turning, but they're turning slow and I don't know how much longer I can hang on," Shaw said. "I don't have anything left to sell unless I start selling furniture."
In their efforts to recover the missing money, lawyers have registered the Blue Mountain victims as creditors in both the company's and Cinelli's bankruptcy cases to claim a share of whatever money is raised by the sale of assets.
Blue Mountain's assets, however, appear to be limited, and their sale so far has raised only about
Among the assets sold are a commercial building in
With the bankruptcy court's approval last year, the company sold the horse farm on 66 rolling acres in
The company also sold a home on A Street in
The properties sold for a total of
"I am quite fortunate in that I am quite wealthy myself. As a family member, I wanted to do something to help," he said in a telephone interview.
"When I heard we might lose the house, I was shocked," she said.
In 2012, Koury, the
That means Blue Mountain is on the hook only for the victims' losses, plus interest. Under fraud and other torts, investors also would have been able to win damages that seek to punish the company and deter other loan agencies from similar behavior.
But Vivian said he and other attorneys believe they can hold Cinelli personally responsible for their clients' losses if they can show that his personal financial affairs were so intermingled with those of the company that Blue Mountain's standing as a separate corporation was meaningless.
"Once you pierce that corporate veil, that company becomes Cinelli and vice versa," Vivian said.
Small-town doctor
Although Cinelli was merely the owner in the background for many investors in
Upon his return, Cinelli attended
He married his wife Eleanor in 1952 and went on to graduate from
His is a familiar face in the borough of about 5,250 people, many of whom he has treated for maladies ranging from colds and flu to heart disease. He continues seeing patients at his
"He's the kind of man who takes eggs from his patients if they don't have money," she said.
Cinelli became involved with
Lambert managed the day-to-day operations of Blue Mountain while Cinelli provided long-range oversight, he said. Cinelli met with Lambert weekly, Cinelli said.
"He would give me the corporate story for the week, which was pretty much always the same," Cinelli testified. "We are doing well. This quarter we may be down a little bit, but next quarter we are going to be up here. So those are the kind of stories he used to feed me."
In the deposition, Cinelli said he had no inkling that the company was in trouble until
Fusacchia, who claims in the bankruptcy case to have lost
His suspicions aroused, Cinelli said in the deposition, he hired an accountant to examine Blue Mountain's books and confronted Lambert.
"Well, after he gave me his explanation, I didn't know any more than I did when I started," Cinelli testified. "It reminded me of the three-shell game ... they moved around the shells to look for the nugget and I couldn't follow his explanation."
Cinelli said he fired Lambert a short time later.
In the three decades he owned Blue Mountain, Cinelli said his goal was to reinvest any profit back into the business, and he denied that he ever withdrew any money from it.
But Lambert painted a different picture in his deposition last year.
Asked by attorney
Confronted at his own deposition with Lambert's characterization, Cinelli said he disagreed. He conceded, however, that he may have used Blue Mountain's assets for personal reasons.
Over the course of nearly 350 pages, transcripts show Bellafatto and Vivian grilling Cinelli about money flowing in and out of Blue Mountain.
In the deposition, Cinelli said he directed Lambert to buy and develop the horse farm as an investment for Blue Mountain at a cost of about
Cinelli also said trips to
He couldn't explain why Blue Mountain's office, which was a single room rented from Sabatine that housed two or three employees, generated costs for furniture and fixtures of
He was also at a loss to explain checks cut on company accounts paying his children, his car repair bills and his grandchildren's tuition at
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