The Providence Journal
2 Firms Seized From Patriarca
The action comes after the companies default on $7 million in federal Small Business Administration loans, including some to known mob associates.
W. ZACHARY MALINOWSKI-,MIKE STANTON
PROVIDENCE - Authorities have seized control of two federally backed loan companies controlled by financier Arnold Kilberg, the long-time accountant for former New England crime boss Raymond J. "Junior" Patriarca.
The action comes after the two Kilberg companies defaulted on more than $7 million in loans, including $2.25 million to convicted felon and mob associate Ralph Velleco.
Another loan, for $1.25 million, went to a local company to help purchase a luxury hotel in the Virgin Islands. One of the hotel's managers, Benedetto A. Cerilli Jr., was a key figure in the 1991 Rhode Island banking crisis; another hotel manager, his brother, developer Joseph M. Cerilli, would later admit to paying bribes to obtain a state lease from the administration of Gov. Edward D. DiPrete.
U.S. District Judge Mary Lisi has named the federal Small Business Administration the receiver for Moneta Capital Corp. and Fairway Capital Corp. and barred Kilberg, who has a financial interest in both firms, from liquidating any of the companies' assets.
Spokesmen for the SBA in Washington and Margaret E. Curran, U.S. Attorney for Rhode Island, declined to say whether there will be a criminal investigation.
Kilberg has run afoul of the SBA before.
In 1994, The Journal reported that Kilberg helped arrange a $750,000 loan to a Lincoln real-estate development controlled by Patriarca's wife, Barbara. The loan, which included $300,000 in SBA- backed funds, violated federal guidelines that SBA loans be used to boost small business and create jobs.
The loan was repaid, and an FBI investigation determined that the federal government did not lose any money. But the SBA consequently forced Kilberg to remove himself from the operations of Fairway and Moneta.
In 1996, Kilberg was rebuked by the U.S. General Accounting
Office, a government agency that acts as an investigatory arm for Congress, for violating SBA regulations by misusing loan money, using funds to pay personal debts, and participating in prohibited real estate loans.
The Patriarca loan was among those cited.
Kilberg, who has offices at 284 Governor St., and 99 Wayland Ave., on Providence's East Side, has been Patriarca's accountant for years. His Governor Street office bears a metal plaque with the name of several of his businesses, including Moneta and Fairway.
Kilberg did not respond to a request for an interview last week.
THE RECENT federal complaint alleges that in 1988 and 1989, the SBA provided $5.5 million in financing to Moneta to provide loans to small businesses. The financing required Moneta to make semi-annual interest payments.
But in September 1997, according to the complaint, Moneta stopped making payments on two of the unsecured debts, or debentures, placing them in default.
Then, the SBA called for full payment on the other two debentures but never received any money. The complaint alleges that through last October 4, Moneta owed the SBA nearly $6.7 million, with interest accruing at $1,349 a day.
Meanwhile, the SBA says that as of Nov. 18, 1999, Fairway Capital owes $670,504 and the firm is being charged about $142 a day in interest.
Moneta and Fairway were federally licensed Small Business Investment Companies, or SBICs, with access to SBA loans guaranteed by U.S. taxpayers.
The unsecured debts were for Rocky Point/C&R Amusements in Warwick, $1 million; American Shipyard in Middletown, $1 million; Legend Resorts in Providence, $1.25 million; and Chateau Enterprises, $2.25 million.
Rocky Point and American Shipyard filed for bankruptcy several years ago.
American Shipyard was sold to New England Boatbuilders of Portsmouth.
And Rocky Point, valued by the city of Warwick at $6.3 million, went on the market last year for $10 million.
"We've got some good solid people really giving it a good look, so my feeling is sooner rather than later we'll have something to present to the Bankruptcy Court and the receiver," said Peter M. Scotti, a Providence real estate broker who has been hired to sell the property.
Warwick Mayor Scott Avedisian hopes to "leverage" a state open- space grant with a $3.5-million bond and transform the 124-acre waterfront site into recreation space.
Chateau Enterprises runs the Alpine Motel and Smithfield Motor Lodge, according to records at the secretary of state's office. It is operated by Ralph Velleco, a convicted felon from Cranston.
Velleco received the SBA-backed loan from Kilberg's firm in 1991, three years after he pleaded guilty to felony gambling-related charges.
In 1986, the Alpine Motel was in the news after the House Judiciary Committee held hearings to explore Rhode Island Supreme Court Chief Joseph A. Bevilacqua's ties to organized-crime figures.
Testimony revealed that a twice-convicted felon had booked discounted rooms in the motel for Bevilacqua.
Last year, federal, state and local police arrested Velleco, his wife, and two of their adult children, as well as seven others, on racketeering, gambling and drug charges.
Velleco, described by the authorities as a known mob associate, pleaded no contest to four criminal charges last summer. He received a 20-year suspended sentence and 20 years of probation.
MICHAEL STAMLER, spokesman for the SBA in Washington, said his agency prohibits anyone with a felony conviction from managing SBA- backed loans.
It's possible, however, that an SBA-backed lender, such as Kilberg, could provide loans to a convicted felon, Stamler said. That wouldn't come to the SBA's attention until after the loan was granted and reviewed by the SBA, he added.
One of the beneficiaries of another defaulted Kilberg loan cited in the complaint was convicted last year in a fraud case stemming from the 1991 state banking crisis.
Lawyer Benedetto A. Cerilli Jr. was involved with Legend Resorts, a Providence partnership that bought a hotel in the Virgin Islands, Hotel on the Cay.
The partnership received $1.25 million in loans from Kilberg loan companies.
Cerilli's brother, Joseph, was also involved in the hotel venture. In the early 1990s, Joseph Cerilli admitted to a grand jury that he and his partner in another venture, Joseph Mollicone Jr., gave about $12,000 in cash to Rodney Brusini, DiPrete's long-time confidant and chief fundraiser, to secure a state lease.
DiPrete went to prison last year for taking bribes for state contracts, although he did not admit to taking the bribe that Cerilli testified to.
Mollicone is still in prison after his conviction for embezzling millions from his failed Heritage Loan & Investment, which helped trigger the 1991 state banking crisis.
Kilberg's Fairway Capital not only was a lender in the Virgin Islands hotel venture, but a partner as well, according to corporation papers filed with the secretary of state.
During the same time period, Benedetto Cerilli was the major stockholder and vice president of Jefferson Loan and Investment Bank, whose collapse in 1990 helped topple the state's privately insured credit-union system.
Cerilli pleaded guilty to filing a false document in connection with a $300,000 loan that he had said was to prop up the financially troubled Newport Offshore shipyard, of which he was a part owner. Instead, Cerilli used the money to prop up Jefferson, which was on the verge of collapse.
The bank and the shipyard subsequently failed anyway.
When Newport Offshore was resurrected as American Shipyard, in 1991, it was with the help of another Kilberg loan another one of the loans that authorities now say is in default.
Stamler, the SBA's spokesman, declined to discuss specifics of the Moneta and Fairway loans.
THE COMPLAINT also accuses Fairway and Moneta of unlawfully transferring its SBA-backed loans to another company, Participation Services Corp., which included Kilberg among its officers.
Records at the secretary of state's office show that on Feb. 25, 1998, Participation Services Corp. changed its name to Pantheon Enterprise Inc. Kilberg is the director of Pantheon.
The government contends that the transfer of assets to an associated company is "self-dealing," a violation of the federal Small Business Association Act.
There has been a longstanding business relationship between Kilberg and Patriarca.
In August 1996, FBI agents traveled to a federal prison in Milan, Mich., where Patriarca was serving a sentence on racketeering charges. The FBI was exploring the mobster's relationship with Rhode Island's Arthur A. Coia, then president of the Laborers International Union of North America.
During the interview, Patriarca told the FBI agents that Kilberg has served as his personal and business accountant for many years. He described Kilberg as "a ruthless businessman," but also as "a close friend and trusted business associate."
Patriarca also told the FBI that a number of banks in the Providence area had turned down his bids for loans to finance the Kendall Estates development. He said that Kilberg managed to obtain $750,000 for him and his wife and some of that money was used to develop the land.
In return, Patriarca said, Kilberg got $20,000 to $30,000 when each lot was sold.
Kilberg, the FBI agents wrote in their report, "was described as the best accountant Patriarca ever ran into."