Nearly three decades before federal officials shut down his $16 million alleged Ponzi scheme in January, Richard C. Piccoli was busted by a U.S. Bankruptcy Court judge for charging a Tonawanda widow illegal interest rates on a home mortgage.
Piccoli, now 82, sidestepped state usury laws on personal mortgages in 1979 and 1981 by forcing the woman to form a corporation, according to a transcript of the bankruptcy proceedings for Marcia Larivey.
He then charged her a corporate interest rate, 18 percent on one loan, 19 percent on another, court records show. Her original home mortgage was 8.5 percent.
"I think there's a statutory provision specifically designed against this kind of skullduggery," Bankruptcy Judge Beryl E. McGuire told Piccoli, according to a court transcript. "If that's the case, then the report will be sent to the appropriate authorities."
McGuire held an extremely rare usury hearing. At the time, New York set limits on mortgage rates before the federal government lifted the state limits.
The judge took testimony from the woman and Piccoli, then stripped Piccoli of his two mortgages, according to federal bankruptcy court records.
The woman, who has since died, did not have to repay Piccoli the money.
But there is no mention of any follow-up by authorities, and McGuire, now retired and living in Florida, did not recall the case.
It marks the third warning that authorities had issued for Piccoli's questionable business practices before federal postal inspectors and the IRS raided his Williamsville offices in January.
The Buffalo News earlier reported that an attorney representing a Piccoli client, Ralph Sigl, wrote to the IRS in 1993, complaining that Piccoli was cheating on corporate taxes.
The News also reported that in 1998, former IRS lawyer Thomas J. Sciolino told a State Supreme Court justice in the same Sigl case that Piccoli was running an illegal Ponzi scheme.
Piccoli, The News reported, came with a lawyer and brought a Knights of Columbus bartender as a witness to Sigl's room in the Veterans Administration Hospital.
Sigl, who had been declared incompetent two weeks before by a judge and was hospitalized for alcoholism, then rewrote his will naming Piccoli as executor and chief beneficiary to Sigl's $800,000 estate.
Piccoli was later stripped of the executorship in Surrogate's Court because of his "undue influence" in rewriting the will, but by that time, his estate was mostly gone, records showed.
Like the bankruptcy case, there is no record the warnings were heeded.
Piccoli today stands accused of a criminal charge of mail fraud and is named in a civil complaint by the Securities and Exchange Commission with running a Ponzi scheme. The SEC got a court order freezing Piccoli's assets and an injunction against his business, Gen-See Capital Corp.
Attorney Joel L. Daniels, who with lawyer Richard T. Sullivan is representing Piccoli, declined to comment on the usury case.
Gen-See Capital, started by Piccoli in 1975 and named for its location in the Genesee Building, is the same company that lent the money to Larivey for her second and third mortgages.
Larivey, according to the court records, filed for bankruptcy Nov. 13, 1981, and hired attorney Jeffrey M. Freedman to represent her.
Freedman saw that she had three mortgages on her house and asked her about the two mortgages held by Gen-See Capital. She told him she had to form a corporation to get the loan.
After Freedman brought the corporate interest rates to McGuire's attention, the judge ordered a usury hearing.
During her testimony, Larivey kept referring to Piccoli as Richard Rhodes.
Piccoli's attorney, Peter C. Wiltse, asked him about that.
"Mr. Piccoli, you've been identified here today by Mrs. Larivey as Richard Rhodes," Wiltse said. "Could you straighten that out for the court, please?"
"Well, for the protection of home harassment and not having the desire to have an unlisted phone, we use the name of Mr. Rhodes," Piccoli said.
Wiltse, who is still practicing law, said he had no memory of the Larivey case.
Wiltse also asked Piccoli about Gen-See Capital, the company that was shut down with the IRS and Postal Service raid last month.
"Essentially, Gen-See Capital Corp. is a, it's sort of a marriage bureau between lenders and borrowers," Piccoli testified. "Gen-See Capital has no assets, whatsoever to speak of, and we just bring lenders and borrowers together."
McGuire, the judge, asked Larivey why she formed a corporation.
"My understanding, when I got the loan, is that in order to get the loan, I had to become incorporated because it was a corporate loan," she testified. "That was the only way I could secure the loan."
"And they told you before they would lend it to you," McGuire continued, "you had to form a corporation and, I take it, they formed it for you?
"They filed," she said.
Piccoli, whom she knew as Richard Rhodes, approved two loans for Larivey under her new corporate name, Genius In Art Inc. She said she tried to simply use the name Genius, but it was taken.
The first loan in 1979 was for $4,500, she said. By the time money was deducted for forming a corporation, and Piccoli's broker fees, she said she received $2,947 at 18 percent interest.
She came back two years later for a second, $5,000 loan, again through a corporation, and this time received $3,229 at 19 percent interest.
Her lawyer, Freedman, got Piccoli to admit that 60 percent of those who applied for mortgages from him had to form a personal corporation.
The hearing was enough evidence for McGuire, who threw out the two mortgages.
"McGuire found it to be a violation of the usury statutes. Therefore, he declared them void," Freedman said of the Piccoli loans. "I practiced for years before Judge McGuire. He usually didn't do things like that."