New Haven Independent

That admission came in federal court Wednesday afternoon during the first day of testimony by the star witness in a trial related to the multi-million-dollar scams that took place when New Haven Savings converted from a community-focused mutual bank into a public corporation called NewAlliance in 2004. Wealthy out-of-town investors funneled millions to local New Haven Savings depositors in order to have them pretend to buy stock for themselves in the newly public bank — then resell the stock and share in the huge, immediate windfall.

The star witness/ mastermind’s name is Robert R. Ross. He testified in the third afternoon of a trial that’s putting on display some of the rampant greed at all levels that surrounded the bank’s conversion. He’s scheduled to continue testimony Thursday morning.

Ross, a 61 year-old graduate of Fairfield University and Catholic University’s law school, lives in Fairfield and runs a Manhattan investment firm. He has admitted that, along with two fellow “New York millionaires” (the prosecution’s term), he schemed to buy $4.2 million of stock to which he legally was not entitled. (About $2.8 million of that was Ross’s own money.) To pull off the scheme, Ross needed a middleman who knew the New Haven area and could find bank depositors.

He allegedly found that man in John Lucarelli, an Orange native, Yale School of Management graduate, and Greenwich broker. (Lucarelli, 34, is shown in the top photo behind the outstretched arm of his attorney, Dominic Amorosa, outside the federal courthouse on Church Street Wednesday.) The government alleges that Lucarelli rounded up a host of depositors, arranged meetings between them and Ross, and performed crucial errands like picking up their stock certificates.

Mastermind Ross pleaded guilty. Ross is cooperating with the government. Middleman Lucarelli pleaded not guilty. So the mastermind, who allegedly recouped 80 percent of the profits on his investments, may be looking at a few years in jail. And middleman Lucarelli, who allegedly received a mere 10 percent cut while doing most of the legwork, is battling to avoid being sentenced to spend the rest of his life — and them some — in the Big House.

In a low voice punctuated by short single-cough blasts, Ross answered questions Wednesday afternoon from Assistant U.S. Attorney David Ring. He described how he recruited Lucarelli and met with New Haven-area depositors in a local diner to convince them to go in on the deal.

Ring asked Ross about a Feb. 26, 2004, New Haven Advocate article that described how other investors, too, were recruiting depositors for similar illicit get-rich-quick schemes, and how officials were warning people against it. Ross said he’d seen the article. “I think John Lucarelli brought it to me.”

“Did he challenge you in any way or express concerns… about the illegality?” Ring asked.

“I don’t we believe we discussed those aspects of the article,” responded Ross.

Ring: “Did he express any concerns that [the deals] might be illegal?”

Ross: “Not that I recall.”

Ross proceeded to say, though, that he reassured Lucarelli that, while regulations existed that seemed to prohibit these transactions, no one ever got in trouble. Earlier in his testimony, too, he said that he told people involved in the scheme that despite the legal problems, “it was being done time and time again,” the government never prosecuted these cases.

Which was true. Until the New Haven Savings/NewAlliance case. The government has pursued a bunch of these cases connected with the 2004 conversion.

Lucarelli’s attorney, Amorosa, will probably get his shot at cross-examining Ross Thursday. In his opening statement Monday Amorosa portrayed Lucarelli as “victimized” by both Ross and a “greedy” bank turning a blind eye to the massive unfolding scams in order to reap more than $1 billion in investment and pocket obscene bonsues and stock allotments for directors and execs.

Bank-Friendly Regulator

Amorosa made no headway with that approach earlier Wednesday, when the government put a federal regulator on the stand.

The regulator was John Paul Henry of Virginia. Title: Section chief of the Risk Management and Applications Section of the Federal Deposit Insurance Corporation (FDIC). Henry supervises conversions of mutual banks into stock corporations. He supervised the New Haven Savings conversion.

Assistant U.S. Attorney Michael S. McGarry walked Henry through a series of steps New Haven Savings officials took to warn people against participating in scams like Ross’s. He showed Henry a letter the bank sent to state banking regulators when the Feb. 26 Advocate article appeared. “Is that what you expect a bank to do?” McGarry asked. Henry’s response: yes.

Same went with a letter the bank sent to New York investors approaching local depositors to take money to buy stock in their names and share the profits; with a New Haven Register article in which a bank vice-president warned people that the law prohibits these transactions; with warning notices posted inside the bank; and with a letter thanking a bank conversion-center employee named “Bonnie” for advising a depositor against getting involved with the scam.

Henry spoke of how the law clearly intends for a mutual bank’s depositors to be first in line to profit from an initial public offering in a conversion. He spoke of how these scams, in which outside investors make most of the profit, cheat the depositors of that right. In the New Haven Savings case, the bank sought to raise roughly $1 billion. Fueled by all these scams, orders for some $1.8 billion came in. So the bank returned some of the money and limited depositors to just 70 percent of the stock they’d ordered.

On cross-examination, Amorosa pressed Henry about whether these transactions were clearly illegal. He asked him to cite regulations by number; without the codes in front of him, Henry couldn’t. But he didn’t budge from insisting the transactions broke the law whenever outside investors shared in the profits.

More significantly, Amorosa pressed the regulator to criticize the bank. He noted that the bank had to submit three versions of its application for the conversion before the FDIC approved it. The bank changed the application under intense community opposition to the deal. Henry repeatedly declined to characterize the bank’s changes to its original application as noteworthy. “It’s not uncommon to make multiple submissions,” Henry said.

Amorosa similarly tried to present the bank’s actions as inadequate on Tuesday, when NewAlliance’s chief financial officer testified.