Gitto Global's Trail Of Collateral Damage
When Thomas Doherty, a corporate turnaround specialist at Argus Management Corp. in Grafton, took over the management of Lunenburg-based Gitto Global in the fall of 2004, he found a very troubled plastics company.
“In over 20 years of doing this work, I’ve seen similar situations with fraud, but I haven’t seen one that has gone as long as that one did, which is quite unusual,” Doherty said.
And although the alleged fleecing ended back in 2004, the repercussions of Gitto Global’s spectacular financial scandal are still being felt throughout the Central Massachusetts business community today.
Charges Filed
Investigators spent years unraveling the extent of the fraud at Gitto Global, and finally filed charges in September that the father and son team of Charles and Gary Gitto bilked $1 billion from the company they worked for years to build together. According to court documents, they’re charged with setting up bogus companies, cycling money between those shell companies and Gitto Global and fraudulently hiking the value of inventory to receive higher credit limits — and using those ill-gotten gains to buy trips, cars, boats and home remodeling.
While the story continues to play out in court, those intimately aware with the failure, and even some on the periphery within the plastics industry, are left to pick up the pieces.
Of course, when owners and executives choose to steal from their companies, it isn’t just their own firms that gets hurt. “Collateral damage” almost always spreads to banks and suppliers, while creating more cynicism in the community about the life high-flying executives lead.
That’s certainly the case for Gitto Global. After its 2004 bankruptcy, the company’s banks and suppliers took a financial beating as did the reputation of its high-paid executives who had lived in the Fitchburg and Leominster area for a lifetime.
Some of the casualties of the Gitto debacle include LaSalle Business Credit of Chicago, which took a hit of $30 million, and locally, Clinton Savings Bank, which was bilked of several million. Many other companies, including local suppliers, were owed money, at least temporarily.
Even the company’s law firm did not remain unscathed. Earlier this year, the law firm of Bowditch & Dewey of Worcester agreed to a settlement of $2.5 million, which was paid by its insurance company, for “recovery of damages relating to various possible causes of action.”
The damages stem from the law firm’s representation of Gitto Global before it filed for bankruptcy in 2004. And that happened despite the fact that that the law firm had stopped representing Gitto Global in its bank financing in 2002.
Bowditch & Dewey admitted no wrong doing, saying they agreed to the settlement to put it behind them.
But the impact of such deception can spread far beyond direct suppliers, according to Edward J. Ottensmeyer, dean of Clark University’s Graduate School of Management.
“It not only hurts the industry the company is in, it hurts business in general, just like the example of Tyco... A lot of people get hurt by the lie,” he said.
Secret Garden
The recent criminal indictments in the Gitto Global saga included charges against the father, son and four other officers and executives with one count of conspiracy and 12 counts of wire fraud. Those four others are: Frank Miller, a co-owner and director; Louis J. Pellegrine Jr., an accountant hired by the company; William Deakin, the company’s controller; and John M. Moritz Jr., a former employee and then later a consultant.
Gary Gitto is also charged with five counts of money laundering and one count of bank fraud and Miller is charged with an additional charge of bank fraud.
They have all pleaded not guilty in U.S. District Court in Boston.
Although the information about the fraud they allegedly committed came up during the bankruptcy proceedings, the company’s problems became public shortly before the company filed for bankruptcy protection.
In mid-September of 2004, the company laid off its workers and ceased production, as Gary and Charles Gitto and Frank Miller resigned from the company. The company found emergency financing, started back up and filed for bankruptcy protection, which soon became a liquidation bankruptcy.
Soon LaSalle Business Credit LLC filed a lawsuit claiming that Gitto Global officers fleeced the institution of at least $18 million, although it appears now it may be as much as $30 million. The diverted money was allegedly not only used to keep lavish lifestyles, but also to bribe others to keep the ruse going and the company in business.
The men allegedly created three shell companies, whose only use was to cycle $1 billion between them and Gitto Global, with LaSalle claiming the company ran a room called “The Secret Garden,” where a separate set of books for the company was kept and fake documents for fake customers were created to keep the money circulating.
The Legacy
While Gitto Global’s founding executives left the industry, the companies they helped found still operate today.
Gitto Global was not Charles Gitto’s first company. He, along with his brother Sam, started Gary Chemical Corp. of Leominster in 1979.
The company was named for Gary Gitto, who also worked at the company. They sold the company in 1989 to Evode Group PLC, based in England, for $26.2 million.
In 1993, through a merger of its parent corporation, Gary Corp. became known as AlphaGary. It still operates on the original Gary Corp. property at 170 Pioneer Drive in Leominster and is owned by the New Jersey-based Rockwood Specialities.
After selling off Gary Chemical, Charles and Gary Gitto went on to found Gitto Global in 1991. The assets of Gitto Global were sold in December 2004 to S&E Acquisition LLC for $8.95 million. S&E renamed the company S&E Specialty Polymers and it continues to operate in the former Gitto Global building with many of the same workers. It is owned by Steven Graham, who also owns Toner Plastics of Agawam.
“These guys (the Gittos) delivered a lot of product over the years, they had a solid customer base and I knew that I could restructure around that,” recalled turnaround manager Doherty. “The plant was in excellent condition and the workers underneath them knew how to run the business.”
It isn’t clear yet if the case against the Gittos and the other executives will find its way to trial or end in plea agreements, but the bankruptcy is expected to be over by the end of the year.
WBJ Web Partners
Most Recent
Most Recent
0 Comments