New Fraud Trial Set for Ex-PMAA President
Published in CSP Daily News
Jury fails to agree on verdict in case against Deluca
TAMPA, Fla. -- A federal judge has declared a mistrial in the fraud case against Florida marketer Stephen Deluca after a jury said it could not reach a verdict on 33 counts of fraud filed against him.
A spokesperson for the U.S. Attorney's Office in Tampa said the government will re-try the case against Deluca. Prosecutors are seeking the forfeiture of $18 million in cash or assets. If convicted on all counts, Deluca could face up to 20 years in prison.
Deluca, a former president of the Petroleum Marketers Association of America (PMAA), was indicted on 32 counts of wire fraud and one count of conspiracy in April last year. The federal charges came after a private finance firm, CapitalSource LLC, accused him of using fake invoices to inflate the value of inventory and accounts receivable used to secure lines of credit for his company, Deland, Fla.-based Delco Oil Inc.
Deluca was the sole shareholder of Delco, which filed Chapter 11 and was eventually forced into liquidation. He also filed for Chapter 7 personal bankruptcy after CapitalSource obtained a court order requiring him to repay $21.56 million. (see Related Content below for previous CSP Daily News coverage).
In that case, Deluca listed 59 pages of liabilities totaling $32.85 million and assets valued at $1.13 million. He also noted 15 lawsuits had been filed against him and his wife. Secured creditors in his bankruptcy case reported claims of more than $24.76 million, according to documents at the time.
Under his credit agreement, Deluca was supposed to deposit proceeds from his business operations into a special bank account that was to be used to pay down the loans. Instead, he lived large on the funds that were lent to him, according to a civil suit filed by CapitalSource.
Citing a deposition by Delco's former comptroller, Richard Hill, CapitalSource said Deluca had taken a $10,000 trip to Aruba, and used another $1 million of its funds to pay off a bank loan. His American Express bills, which later came into the possession of the FBI, included charges for 25 airline tickets, while his wife was allegedly given a $200-a-week no-show job as Delco's marketing manager. Deluca also installed a 10,000-gallon gasoline tank at his residence, kept full courtesy of Delco Oil and which he hid by erecting a building around it, CapitalSource said.
Deluca also spent thousands of dollars of CapitalSource funds on his personal residence, the Thousand Oaks Ranch in Paisley, Fla. According to court documents, he established an "All-Star Sports Camp" business venture at the site. Money was used to build a health-club style workout facility and football and soccer fields and an in-door soccer complex, with some of the expenses later written off as "charitable donations."
For petty cash, he diverted c-store takings that he kept in a bag in his office, dipping into it for as much as $10,000 at a time. The money was never recorded it on Delco's books. Even after court injunctions were issued, Deluca continued to divert funds for his personal use, according to CapitalSource court filings. He "masterminded a massive conspiracy to defraud" by inflating the value of his accounts receivable by a least $9 million and, as a result, was able to borrow at least $13 million more than he was entitled to under credit agreements, the firm said.
The U.S. alleged in its indictment that the fraud scheme began in at least August 2002 and continued to around October 2006. After signing a $6 million loan agreement with Bank of America, Deluca used $5.33 million of the money the very next day to pay off a loan from a Dallas-based Guaranty Business Corp., which is now out of business. A month later he got another $1.64 million from BofA, secured by two pieces of real estate. After that, he borrowed $14 million from Wachovia, and used some of it to pay off BofA, prosecutors claimed.
Hill, the former Delco comptroller, was a key witness in both the civil and criminal cases. Hill said he and Deluca manipulated Delco's accounting system to create phony documentation to back up claims of inventory value, creating two separate sets of books. Hill said the inventory figures reported to CapitalSource were seven to eight times greater than Delco's actual maximum storage capacity. He told investigators that he acted only on Deluca's orders, and that his job was to "cover [Deluca's] ass."
Deluca maintained he knew nothing of the fraud scheme.
In court documents, he said he only discovered what had been going on when Hill took a vacation in November 2006, and then immediately reported the problems to CapitalSource and the local sheriff. The entire scheme was Hill's idea. Hill was such "a clever and determined embezzler" that he was able to deceive auditors, loan officers and four different lenders, Deluca said in submissions to the court.
Hill cooperated with the FBI in the investigation and Deluca was arrested and his passport taken away. Hill signed a plea agreement with the government in 2007, admitting to one count of wire fraud. He was sentenced to 46 months in prison, which was later reduced to 24 months in return for his cooperation in the case.
In June this year, Deluca tried to get the federal charges against him dismissed, citing the time it had taken the government to bring the case to court. Four Delco employees who could have testified on his behalf had died, he noted. His plea was rejected by the court.
Deluca is a former Shell jobber. He was also supplied by Marathon, Sunoco and Valero, who also sued him to recover funds and force him to debrand stations. He was president of PMAA in 2000 and at one time claimed to have sales of $121 million a year, supplying dealer accounts and operating his own c-store chain.
Deluca's lawyer did not return phone and e-mail messages seeking comment.