Gasoline bootlegging has existed in one form or another ever since humans invented a way to use it. For example, during World War II, rations imposed by the U.S. government to combat resource shortages prompted the creation of a gasoline black market where mobsters like Joseph Valachi traded in illegally obtained gas stamps.[1] During the 1960s, gasoline bootlegging in New York was done at the retail level mostly by Turkish or Greek immigrants.[2] Their modus operandi was simple: instead of turning over the gasoline taxes collected at the pump to the government, they pocketed it and disappeared before the IRS could catch them. These criminal activities were disjointed, small in scale and short lasting with maybe $600,000 worth of total taxes stolen at a time.[3] It is interesting to note that at the time, New York had the second-highest gasoline tax in the country and was one of only nine states that levied excises on gasoline.[4] In all, the oil & gas industry was not that affected by this petty tax theft as much a different issue was plaguing the sector during the 1970s and it all had to do with something that happened in 1973.
On October 6th, 1973, the Yom Kippur War started when a coalition of Arab nations attacked Israel on one of their holiest days.[5] Due to America’s support of Israel, Saudi Arabia placed an oil embargo on it, creating a shortfall of petroleum supplies.[6] As a response to this, the Department of Energy adopted a formula where a retailer’s profit per gallon was held at the same level their stations made in mid-May of 1973.[7] This meant that if a station operator made a 10 cents per gallon profit in 1973, they were mandated by law to keep the same profit margin in 1979 as well, regardless of inflation or rising in-put costs. Another element to this law was “banking” that dictated retailers’ allocated gasoline volume. When supplies of gas were plentiful, retailers could reduce their profit margin or “bank it” to increase the volume of gasoline sold to remain competitive.[8] Conversely, when market conditions permitted, such as a shortfall in petroleum products, operators could re-apply their profit margins. Since gasoline allocations were based on volume sold in previous years, practically this meant gasoline operators who survived the competitive environment of the mid-1970s, continued to receive large allocations of gasoline and were using “banked” profits to swell the price at the pump and remain profitable.[9] Joseph Aracri, was an example of a new breed of fuels station owners in New York. As president of Pilot Petroleum Associates, he owned and operated 21 non-branded gasoline service stations on Long Island saying, “I’m a little ahead of the game this year [1979]”.[10] In the late 1970s, only a handful of non-branded, high-volume gas stations were showing a profit as inflation wiped out nearly half their profit margin, despite an increase in gasoline prices.[11] Branded gasoline owners, which made up 70% of the New York market, were in an even grimmer financial predicament.[12] Risque Harper, an executive director of the National Association of Petroleum Retailers commented on how the typical dealer was placed under a terrific financial squeeze.[13] Difficult economic conditions are fertile grounds for criminal activity. The failure of governmental policies in the wake of the 1973 Oil Embargo shows why more than ever before, gasoline station operators had the motivation to engage in frauds of all kinds.
Equally important is to understand the “how” part of the equation. How were criminals able to defraud the government so easily and seemingly with impunity? Once again, governmental failures and an archaic tax code aided the criminal element. To alleviate pressures from the 1973 Oil Embargo, U.S. government policies were enacted to stimulate private entrepreneurs in the O&G industry to promote private investments and boost production. Unfortunately for the public, criminal elements quickly took advantage of these policies, and a fair amount of crime took form through tax cheating.[14] To compound the problem, the Intelligence Division of the Internal Revenue Service (IRS) was crippled in the 1970s.[15] Lack of coordination and a disarray of communications among the various state jurisdictions and departments also aided the crooks.[16] Years later when officials asked how Lawrence Iorizzo, a major gasoline bootlegger, was so successful in his criminal conduct he replied, “no Federal agencies checking your operations as to whether you did or didn’t pay”.[17] In 1980, only 10 of 12,389 gas stations were prosecuted for sales-tax theft in the state of New York, with tax audits being exceedingly rare.[18] In fact, overseeing the collection of sales and excise taxes from 450,000 businesses within the state were a measly group of 600 auditors.[19] To check just one retail station, selling 3.6 million gallons of gasoline per year, would take three state auditors a month.[20] On average only 4% of stations would be audited every year by government auditors who knew little about what they were doing and took financial statements prepared by the retailer at face value, failing to verify the numbers independently with the retailer’s supplier.[21] Ronnie Wiener, president of Conlo Petroleum, talked to undercover journalists from Newsday posing as petroleum businessmen about the nature of tax evasion in New York who discovered just how weak the audits were. He commented on how when audits were done on gasoline distributors, “… They’re [the auditors] are checking us, not you [retail gas stations]”.[22] Fraudulent retailers had nothing to worry when their suppliers were being inspected, and in the rare case where a retailer would find themselves being audited, they would only have to show one legitimate quarter in a three year period.[23] The government did not have the resources to investigate criminals or the means to check compliance. Yet, the biggest embarrassment is that the state government of New York couldn’t even determine how much of the total sales tax it collected came from the sale of gasoline and had no systems in place to check for discrepancies between distributor figures and what retailers reported.[24] The final piece of the puzzle lay in the tax code and what the government deemed as a “producer”. According to the law, a producer was characterized as, “an actual producer, as well as a refiner, compounder, blender, wholesale distributor, and a dealer selling gasoline exclusively to producers of gasoline”.[25] At this point in time, retailer stations or other non-producers were responsible for paying motor fuel taxes and due to the broad nature of the “producer” category, the gasoline could be sold tax-free within that chain as long as the buyer and seller were registered with the IRS.[26] IRS Form 637 entitled “Registration for Tax-Free Transactions” gave producers a particular certificate registry number and allowed them to buy and sell gasoline tax-free from other registered producers as long as they recorded the transactions with the appropriate IRS District Director.[27] However, an oversight structure based on the “honor system” is a structure that’s ripe for fraud. This would become important in 1982.
Now that we understand the motivation as to why gasoline operators were willing to commit crimes and how the lack of oversight and enforcement allowed them to get away with it, we can finally begin to discuss the nature of crime in the Oil & Gas industry during the 1970s. The fuel sector was ripe with all kinds of fraud during this time including but not limited to engaging in bid-rigging, price-fixing by gas stations, delivering unbranded fuel to branded gas stations, stealing federal, state, and local motor fuel excise, and selling gas, diesel, and heating oil laced with toxic waste.[28] It is important to note that operators in the space did not view “gasoline bootlegging” as the theft of fuel taxes. For instance, the previously mentioned Lawrence Iorizzo explained how in his mind bootlegging meant selling fuel spiked with toxic waste.[29] The entire value chain of the industry was complicit, with Iorizzo believing that major oil refiners knew of crimes being committed and commented how, “one major [refiner] in order to ‘cover their tracks’ complained to the authorities, and, in the meantime, they continued to supply his organization with fuel”.[30] It wasn’t just the retail gasoline operators or small-time distributors participating in all manners of fraud relating to the fuel industry, the major oil companies and refiners at least knew of if not were outright involved in some of the major crime being committed.[31] We can now begin to understand just how pervasive criminality was in the fuel industry of New York and it is now that we can finally turn our attention to what we normally consider gasoline bootlegging which is the theft of motor fuel tax.
On Long Island, bootleg gas was sold as early as 1973, which coincided with the First Oil Shock.[32] To add fuel to the fire (no pun intended), during the early 1980s a new dynamic in the industry emerged to aggravate gasoline operators further. In January of 1981, President Ronald Regan lifted allocation controls on gasoline following the 1979 Energy Crisis, which effectively severed the bond between a station retailer and their suppliers.[33] This created a dynamic where a score of new gasoline marketers entered the industry to sell-off the excess petroleum supplies.[34] The resulting oil glut increased competition within the sector, forcing gasoline retailers to drop gas prices to remain competitive. The profit margin narrowed to such a degree that gas station operators were forced to start stealing gas taxes to stay in business.[35] By the early 1980s, gasoline bootlegging was an endemic problem, and this happened due to three reasons. One, as outlined before profit margins were incredibly thin and most stations could not make money legally. Two, oversight and enforcement of laws were incredibly poor. If no one noticed it, can you even call it theft? Finally, stealing taxes was becoming more lucrative as time went on. Jack Porte, chairman of the Long Island Gasoline Retailers Association (LIGRA), said in 1981 how, “Five years ago the average sales tax collected on a gallon of gas was 2.5 cents to 3 cents. Today the average is closer to 8.5 to 9 cents per gallon. Obviously it is worth much more to steal all or part of the sales tax collected”.[36] The government of New York didn’t help either, as by 1981, the total annual loss to state and local governments was more than $100 million in tax revenue.[37] Shooting itself in the foot, the government then simply hiked gasoline taxes to generate an additional $100 million and make up for the short-fall in collections.[38] Instead of remedying the issues of collection by actually monitoring and enforcing existing taxes, the government inadvertently encouraged more bootlegging by making tax evasion even more profitable! It was one vicious loop. All this resulted in the sales tax on an estimated one in five gallons being diverted across the state of New York.[39] On Long Island the problem was even worse. Given its population, geography, and lack of public transportation, Nassau and Suffolk counties had the highest per capita gasoline consumption in the state (52% higher than the state average).[40] LIGRA estimated that one in every three gallons sold locally in Long Island was off the books by 1981.[41] The issue of gasoline tax theft was staggering.
As mentioned before, prior to September of 1982, retail gasoline operators oversaw the collection and payment of gasoline taxes owned to the state government. So how was it done? Well, there were multiple ways and dishonest gasoline operators often used a combination of the following methods. Lawrence Iorizzo explained to Michael Franzese that due to the slack enforcement on the government’s part, Iorizzo’s ~300 gas stations could delay their payment of gasoline sales tax for as long as a year.[42] During that time, each station would close, the owners would vanish, and then within a month, the station would re-open under “new” management and start operating again, repeating the cycle.[43] As such by delaying the payments, Iorizzo would pocket the taxes during each cycle and the government could do nothing about it. This basic principle was supplemented by rolling back meters on gasoline pumps, keeping two sets of books for tax purposes, keeping deliveries of and sales of bootleg gasoline off the books, and taking deliveries of fuel at night.[44] Now that the set-up is out of the way, we can finally begin to talk about the first set of players in this racket.
Martin Carey & Lawrence Iorizzo
Martin Carey was a very peculiar individual. According to associates he was a very family oriented and religious man, giving up whisky during lent.[45] Yet at the same time, he had no qualms about defrauding the state of New York out of taxes or contaminating the gasoline he sold with toxic waste, causing mass engine breakdown.[46] Martin Carey is partially responsible for the involvement of organized crime and La Cosa Nostra in the fuel industry and so it is important to discuss his operations and eventual entanglement with Lawrence Iorizzo.
Martin was born into the fuel industry as he worked alongside his three brothers in their father’s business called Peerless Petrochemicals.[47] After the brothers went their separate ways, Martin took over the business’s shipping arm called Marine Transportation of Chemicals.[48] One of his brothers, Hugh Carey, went on to become New York’s governor in 1975 after a landslide victory.[49] This would add an interesting twist in this saga. In June of 1975, Martin Carey decided to expand his interest in the oil industry and founded Petroleum Combustion International (PCI) alongside Bruce Biersack as a 50/50 partner, with Carey becoming the sole owner after some time.[50] The operation started by taking over eight closed British Petroleum (BP) stations, turning them around and subleasing them to other people under the “Gas Value” brand.[51] Ostensibly, PCI wanted to sub-lease as many of its stations as possible so that it could avoid the hassle of running the actual retail locations and focus on just procuring and supplying gasoline to achieve corporate excellency.[52] In reality, this was done to confuse the tax authorities and muddy up any audit trails when it came to determining tax liability stemming from PCI’s operations. The most egregious example of that was the Grodlap Operation that ran up to 21 Gas Value stations in a nine-month period during 1976 and helped PCI dodge at least $149,000 worth of sales tax.[53] PCI claimed that Grodlap leased out its stations (even though a lease was never signed) meaning that Grodlap would be responsible for the taxes, while Grodlap would claim that it merely operated those stations on behalf of PCI and that the tax responsibility lay with it as the true owner of those stations.[54] The Grodlap stations themselves were operated under 10 or 15 different corporations, which further obscured the tax liability.[55] However, given there was no record that Grodlap ever had a sales-tax registration number, PCI and Martin Carey were responsible for the tax liability.[56] A similar tactic used by PCI to reduce or hide its tax burden was to induce its employees like Sebastian “Buddy” Lombardo to set-up corporations and “lease” out high-volume stations from PCI.[57] Marin Carey assisted by his Vice President Richard W. MacKay used three sets of books to avoid paying a large percentage of sales tax at their retail locations.[58] For instance, MacKay who prepared the firm’s sales tax put PCI’s total gas sales for 1977 at 11.6 million gallons, lower than the 14.1 million gallons shown by another set of records.[59] Gas Value, in fact, never paid any sales tax for the first six months of its operations, claiming to follow “industry standards”.[60] Finally, most employees were paid in cash without any social security, disability payments etc. being taken out or reported.[61] In all it used these tactics to evade at least $323,000 and possibly as much as $502,000 in sales taxes over the course of its operation.[62] In a lot of ways Martin Carey and PCI were the quintessential example of the type of criminality plaguing the fuel industry of New York in the late 1970s. Unfortunately, he wasn’t just cheating the government out of taxes, but his customers out of quality gasoline too.
As mentioned before, Carey’s initial foray into the oil industry was through inheriting Marine Transportation of Chemicals which processed toxic liquid waste in Queens.[63] Another company of Martin’s was called Carey Resources and it owned a petroleum tank farm in Mattituck, Long Island.[64] You see, Martin Carey wasn’t just satisfied in juicing corporate profits through tax theft, as he also made a bundle by blending his fuel with petroleum by-products and waste. Adulterating Gas Value’s gasoline with toxic chemicals brought almost six times the profits the firm earned on straight gasoline, earning PCI at least $274,000 in additional profits.[65] The economics were simple, while Carey purchased fuel from suppliers at 51 cents per gallon, he procured heptane at 20 cents a gallon and petroleum waste from Mattituck for 10 cents a gallon.[66] Between 1977 and 1978, PCI’s operation bought at least 2 million gallon of waste, and MacKay commented on the harm this was doing to customers’ car engines by saying, “I could tell how much [expletive] they were running by how many cars were stranded on the expressway”.[67] Far from being the only corporation to dabble in this, the waste oil industry would continue to be an enormous liability for the state of New York in the coming years to the point that by 1984, at least ten percent of marketed oil in New York was contaminated with toxic waste (that’s 300 million gallons per year!).[68] Garbage and oil? You know La Cosa Nostra had a hand in that.
Carey and his corporations were always under great financial stress. Despite going on a purchase spree of mansions, Carey was barely able to keep up with his mortgage debts.[69] Likewise his corporations were ran poorly, and this caught up with PCI by 1977 when its regular supplier stopped delivering gasoline due to a lack of pay.[70] A certain Lawrence Iorizzo, owner of Vantage Petroleum, however, swooped in and agreed to supply Carey’s operation with gasoline on credit.[71] Their interests were further intertwined when in the spring of 1978 Vantage leased Mattituck terminal from Carey Resources, with Carey filing a false affidavit to counteract a 1977 EPA order of closure.[72] In late December of 1978, Vantage Petroleum essentially took over PCI’s operations for non payment of gasoline and Carey was hired as a consultant.[73] At the beginning of their association, Iorizzo reckoned a relationship with the Governor’s brother would be beneficial.[74] Yet, that takeover, as Lawrence Iorizzo would come to believe in time, was the start of Vantage Petroleum’s headaches that would make him turn towards organized crime.[75]
Lawrence “Larry” Iorizzo was a colossal figure, standing at six foot, four inches.[76] He was twice the size of a normal man, and so naturally had to have two wives to make up for it.[77] Larry had vast experience in the fuel industry, peddling aviation, diesel, and gasoline at various times since at least 1966.[78] Originally starting out as a gas station operator and running an air taxi service at Republic Airport[79], Iorizzo ran into his first trouble with the law in 1976 when he was convicted of attempted grand larceny and possession of a forged document in a bad-check case where he received five years’ probation.[80] While things may have looked grim for his career after an attempt to defraud a bank, Larry would get his first big break the following year. Northville Industries, operating one of Long Island’s largest fuel terminals, had to divest its retail gas operation, called Vantage Petroleum, for legal reasons.[81] Lawrence Iorizzo and his “legal” wife Cheryl bought this operation on credit[82] for $550,000 and began to rapidly expand the business.[83] As part of the agreement, Iorizzo agreed to “kick-back” one half cent per gallon to Northville’s credit manager Farrell.[84] By the start of 1980, Vantage had become Long Island’s largest independent gasoline retailer owning 250 stations with 60 of them flying the Vantage logo.[85] Moreover he branched his operations further through supplying other gasoline wholesalers (like Carey’s PCI) and retailers so that by 1981 he controlled or supplied over 300 stations.[86] In 1978, Vantage Petroleum got a big boost to their operations when they won a state contract to operate eight Long Island parkway gas stations.[87] As with anything involving Iorizzo, however, the auction process was marred with controversy. When the tender went up in 1977, only two firms, Vantage Petroleum and 338 Automotive, submitted bids to operate the seven stations at that time.[88] In a move that should not surprise anyone, Gas Value was the reported supplier of 338 Automotive, the same Gas Value owned by Martin Carey’s PCI who got their gas from Vantage.[89] By offering a mere $45,000 more than the other “phantom” bidder, Vantage won the initial contract to operate the seven stations.[90] Iorizzo would later get another station for free because the state deemed that he was performing a “public service”.[91] Eight stations don’t seem that consequential given the near 300 stations he owned or supplied, but in the summer of 1979 it along with Iorizzo’s other tactics proved to be extremely lucrative.
As part of Vantage’s contract to operate the eight Long Island parkway gas stations, the prices charged were supposed to be, “the standard retail prices as the adjoining sections of Nassau and Suffolk counties”.[92] However, Vantage’s stations were charging 5 to 15 cents above other nearby stations, taking down the maximum federally permitted profit margin of 16.1 cents per gallon.[93] The Energy Department later accused that between April 1st to August 31st, 1979, Vantage overcharged motorists and dealers by almost $1.3 million.[94] In fact, the 1979 Energy Crisis proved to be a boon for Vantage Petroleum as it diverted hundreds of thousands of gallons allocated by the federal and state hardship program meant to combat petroleum shortages.[95] Instead of fulfilling existing agreements with other fuel firms like Award Petroleum[96], Vantage closed 20 stations and sold its excess ‘hardship’ gasoline to speculators on the spot-market at a profit of upwards of 55 cents per gallon (3.4x the legally allowed maximum profit margin) where fuel was often shipped out of state![97] At the height of the energy crisis, Vantage illegally stored 800,000 gallons worth of gas in its Mattituck terminal.[98] The political underhandedness is about to get worse as you will recall this tank farm was owned by Martin Carey at the time. The state knew that the terminal did not have the required permits to operate, yet it allowed the terminal to go about its business for 15 months until it leaked gasoline and forced the closure of a nearby beach.[99] It seemed the state avoided enforcing its rules for as long as it could until the public denounced and pressured it to close its Mattituck terminal.
Larry Iorizzo’s scheming and profiteering would come back to haunt him. In 1980, Iorizzo was indicted on bid-rigging charges by Suffolk county in relation to the state-owned Long Island parkway stations.[100] In a surprise twist, Patrick Henry, Suffolk’s DA, called Martin Carey to testify in the case under grant of immunity.[101] The indictment was dismissed without merit, but it did foreshadow Larry’s future legal troubles. When allegations of Iorizzo’s price gouging on the state-owned stations finally reached law enforcement’s ears, Vantage pled guilty to charges of criminal contempt and agreed to temporarily lower prices at its retail outlets.[102] By this point, the relationship between Vantage/Iorizzo and Martin Carey were at an all-time low, as Vantage sued Carey over the latter’s false affidavit that the Mattituck terminal had all its permits.[103] At the same time as Vantage was getting subpoenaed and indicted on a variety of charges, Lawrence Iorizzo was quietly informing to law enforcement and state officials on the pervasiveness of criminality within the fuel sector. In 1979, for instance, he reported extensive tax fraud in the gasoline industry to the government.[104] Around that time he also snitched on his first business partner to the IRS and FBI alleging that Martin Carey stole gasoline taxes to help finance his brother’s re-election campaign.[105] In fact, Jeremiah McKenna, counsel to the Senate Crime and Correction Committee, disclosed in 1987 that they were probing Martin Carey for skimming $2 million in gas taxes for use in his brother’s re-election campaign.[106] Unsurprisingly, he stepped down “to limit political damage” to his boss…[107] The snitching backfired for Larry and about a month after telling the tax state agency about this allegation and supplying certain documents, Iorizzo’s legal troubles intensified.[108] Carey, by the way, would be indicted in 1982 for evading $122,000 in gasoline state sales taxes but an appeals court ruled that he could not be tried for the crime because of the immunity granted to him by Patrick Henry.[109] Very convenient indeed… But for Lawrence Iorizzo, things were about to go from bad to worse.
The Colombo’s Enter the Fray with Michael “the Yuppie Don” Franzese
While Lawrence Iorizzo wasn’t above engaging in criminal behavior, at that point in time it seems he wasn’t yet stealing gasoline taxes. To the contrary, Vantage Petroleum was under great financial pressure as Vantage station owners and managers, wishing to not pay any gasoline excises themselves, bought their fuel from bootleggers instead of the parent company.[110] Iorizzo was a victim of fuel racketeers! To add to his ever-growing list of woes, another set of criminals sought to muscle in on Vantage itself.[111] Michael Franzese in his book claimed these individuals were small fry associates of another Family.[112] However, another source claimed that the takeover was engineered by an Oklahoma oil fraudster, and one of his employees, Andy Gazzara, who came to Long Island and threatened Iorizzo.[113] Once again, Larry contacted law enforcement for help without avail after supposedly supplying incriminating tapes to both the Southern and Eastern Districts of New York.[114] Years later when a Senate committee investigated fuel tax fraud, some funny exchanges happened from officials rightfully chewing out the FBI for sitting on their thumbs and doing nothing when businessmen in the industry came to them for help.[115] Running out of options, Lawrence Iorizzo decided to contact Colombo captain John “Sonny” Franzese to help out with his duel problem.[116]
(L-R): John “Sonny” Franzese, Sebastian “Buddy” Lombardo, and Peter Raneri
The Franzese family and Iorizzo had a long history. While in his book Michael makes it seem like he met Iorizzo in 1981[117], they had known each other for quite a bit longer. In the mid 1970s, Michael Franzese bought cars from Iorizzo when both were in the automobile dealership industry.[118] Later, when Iorizzo got into the fuel business he supplied Sonny’s auto dealerships with gas.[119] Apparently, the elder Franzese had also done some unidentified favor for Larry and in return, Sonny asked that the “fat man” kept his his son, Michael, in mind for any future business deal.[120] In 1981, it was time for Iorizzo to play his trump card and he sent one of his employees, Sebastian “Buddy” Lombardo, to Sonny Franzese to see if the gangster could help him out.[121] “Buddy” was referred to his son, Michael, to square away the problem.[122] Michael’s rank within the Family at the time is a bit of a puzzle. While Andrew Russo was his original caporegime[123], Michael recently did say he was under Joseph “Joe T” Tomasiello for a while[124], whose crew wasn’t formed until August of 1980.[125] However, in the same video Michael says he was promoted to caporegime in 1980[126]. It’s more likely he was still a soldier under Joe T’s crew or at best an acting captain for his father during his fateful meeting with Iorizzo. Regardless, in 1981 the life of Michael would forever be different. Franzese said it wasn’t until 7 months after Buddy’s initial approach that he finally met with Iorizzo, as he was concerned about the oil man’s ties with law enforcement following the Carey debacle.[127] On October of 1981, they finally met at Peter Raneri’s Long Island restaurant with Iorizzo explaining to Franzese how the gasoline business worked and the large quantities of cash it could generate for the young racketeer if only he could solve his problems.[128] To that end, Franzese sent a squad led by Vincent Aspromonte to scare away the Oklahoma oil fraudster.[129] As for Iorizzo’s bootlegging issue, the two men agreed to use one of Iorizzo’s Panamanian shelf companies, called Galion Holding Corp., to supply the cheap tax-free fuel Vantage dealers craved.[130] The partnership was officially in business starting in December of 1981.[131] To insulate themselves from law enforcement scrutiny and mask their involvement, John Garbarino, a retired union official became Galion’s President and Aspromonte was appointed its Vice President.[132] The economics of the partnership were also extremely interesting to show how the scheme evolved over time. In his book, Michael, outlined the economics of the deal as follows: 20% of the profits off the top would go to the Colombo Crime Family, with the rest being split 50/50 between the two.[133] At the height of their operation, they were stealing at least 20 cents worth of tax per gallon, which meant in effect Michael and the Colombo Family took a 12 cents per gallon kick-back.[134] Years later, a grand jury in New York was told that Franzese and the Colombo’s were receiving 15 cents per gallon and that Iorizzo only took down a penny for running the whole scheme.[135] Whatever the exact payout ratio was, it is clear the Italians were receiving the greater percentage of the money being stolen. This will become important later. When Franzese realized what he had with this operation, he went to his Boss, Carmine Persico, and promised, “to show more money than you [Persico] ever saw” provided he helped him win all the sit-downs to prevent other Families from getting in on the scheme.[136] At the time, Carmine probably didn’t realize just how dependent the Colombo Family was going to be on this gas tax tribute.[137]
(L-R): Lawrence “Larry” Iorizzo and Michael “the Yuppie Don” Franzese
Galion was one of about a hundred dormant Panamanian “bearer share” companies Iorizzo was able to activate throughout the course of the scheme.[138] Bearer share companies were useful because whoever held the physical stock certificate “owned” the corporation.[139] This allowed Franzese and Iorizzo to hide their control of those businesses and whenever the government did make the trip to Panama to talk to these supposed owners, all they would find were sugar plantation workers[140] and office window washers.[141] The story of how Lawrence Iorizzo was first introduced to Panama is somewhat conflicting. In the early 1980s, Larry associated with V. Leslie Winkler and Mario Renda, expert financial criminals with organized crime connections.[142] Renda, in particular, assisted Paul Castellano, Gambino Crime Family Boss, with laundering money in part through U.S. Savings & Loan institutions.[143] Renda also introduced Iorizzo to the idea of using Panamanian companies as collateral for credit and then to take them into bankruptcy.[144] In return for this kindness and others, Renda possibly received a 49% stake in Vantage Petroleum.[145] Another source, however, described that Iorizzo was introduced to Panama (and later Austria) by an elaborate conman named Eric D’Antin, who pretended to be the Duke of Alba and who managed to snag for himself a real Hapsburg princess.[146] D’Antin introduced Larry to a former president of Panama who received a large payoff for this venture to go down.[147] In Panama, Steve Samos had plenty of experience incorporating phony companies for criminals (mostly drug traffickers) and helped Iorizzo set up his corporations through Inter Credit Trust.[148] Regardless of which story is truer (it was likely a combination of both), Iorizzo now had plenty of anonymous companies he could use to either secure his own registration numbers or use to buy licenses from other companies that had them.[149]
The creation for Galion Holdings was necessary to start providing bootleg gasoline to Vantage Petroleum and to distance Iorizzo and Franzese from the now famously scandalous company.[150] While dealing with organized crime helped Iorizzo solve some of his problems, the association brought with it issues of their own. Michael Franzese contended that his relationship with Larry was fairly smooth[151], whereas Iorizzo complained that it got off to a rough start. When Galion was first created, Vantage extended it credit to kick-start the operation.[152] Franzese and his cronies, however, used that arrangement to loot the Vantage treasury out of $3 million dollars with Iorizzo never receiving a dime.[153] When Iorizzo confronted the Colombo soldier, Mike sent his goon Frank “Frankie G” Castagnaro to threaten the fat man into submission.[154] This petty thievery would continue by various members of Michael’s entourage which is quite puzzling to me given the amount of money they were earning.
Starting from November of 1981, Vantage stopped paying the state of New York rent on those eight Long Island parkway stations mentioned previously.[155] By September of 1982, it owned $232,000 in back rent.[156] Conveniently at some point before August of 1982 it also subleased the stations to a new Franzese/Iorizzo shell company[157] called Down to Earth Management.[158] The pair appointed Louis Fenza as it’s president and the corporation ran those stations until the fall of 1983.[159] The company did a lousy job at maintaining the stations as consumers constantly complained about the filthy wash rooms and the piles of trash.[160] One thing Down to Earth was good at, however, was price gouging customers, and the parkway stations’ gas prices were 9-10 cents higher than the Suffolk county average.[161] By summer of 1982 Vantage was once again in great financial trouble. Its treasury was looted, its stations were supplied by a “competitor” and now Vantage did not have the funds to pay their creditors because Down to Earth Management refused to pay a $133,000 debt.[162] On August 2nd, 1982, Vantage Petroleum officially filed for bankruptcy with the bankruptcy court appointing trustee, George W. Hudwalker Jr.[163] Incidentally, on July 9th, 1982, just before filing for bankruptcy, Vantage Petroleum assigned its distribution rights to Krell Petroleum whose royalty payments were assigned to Houston Holdings.[164] As a side note: Houston Holdings will be most important Iorizzo company as it underpinned a lot of the simultaneous conspiracies in the gasoline bootlegging racket. Besides Houston Holdings, Vantage issued sweetheart leases to Galion Holdings on some of its station leases[165]. Moreover, Vantage dealers paid in cash sums ranging from $60,000 – $100,000 to secure their leases which never went to the parent company, not to mention the other litany of frauds and crooked tactics used to strip Vantage of almost every asset.[166] In the end, all the creditors got was an empty husk of a company. While Vantage Petroleum ceased to exist as an entity, its memories would haunt Lawrence Iorizzo in the years to come.
While Iorizzo was busy plundering Vantage for its every nickel and dime, Michael Franzese’s cronies continued with their petty theft. Louis Fenza attended a meeting hosted by Michael and Iorizzo in a Huntington restaurant where he told the duo, “We banged O.K. and we banged O.B”.[167] What Fenza meant was that his company, Down to Earth Management, issued fraudulent checks in October of 1982, one for $40,064 to O.K. Petroleum and one for $10,213 to O.B. Petroleum to purchase gasoline for his stations.[168] As we will see this move is quite perplexing given the amount of money they were already generating. It is also funny because O.K. Petroleum would soon be working quite closely with Iorizzo and Franzese to further their collective scheme. By this time the group was already making enormous quantities of money, and they needed financial institutions to help launder all their ill-gotten proceeds. Luckily for Franzese, his crew member Vincent Aspromonte had a connection with Extenbank, one of Spain’s largest banks.[169] Aspromonte’s cousin, George Ruggiero was a vice president with the bank and in charge of its Hauppauge branch on Long Island.[170] Between April and November of 1982, at least $11.5 million was laundered through the bank branch.[171] I always see people doubting Franzese’s claims about the money they were making, but this shows the money was real and it was only going to get realer. 1982 was a special year for the mobsters because the government enacted two additional policies that allowed the criminals to take their scam to the next level and nation wide.
The First Fuel Cartel is Formed
By the middle of 1982, the state of New York realized that the problem of gasoline bootlegging was indeed serious. By 1980 perhaps as much as half of all unbranded gasoline sold on Long Island was bootlegged which took a major toll on legitimate distributors.[172] They were becoming such a problem that even major oil companies like Power Test started to complain. A Newsday article investigating this problem quoted Power Test’s President, Leo Liebowitz, as saying, “The bootlegger has no allegiance to anyone”.[173] This statement would become quite ironic in hindsight given his actions. As such, on September 1st, 1982, a new tax law went into effect in the state of New York whereby the responsibility for tax collection went from the 10,000+ gas retailers to the 445 wholesale distributors.[174] Incidentally, Governor Hugh Carey initially vetoed the bill that proposed the change, but the Legislature overrode it.[175] Former prosecutor Ray Jermyn summarized the results of this law change best by saying, “New York went from 6,000 little thieves to 600 big ones”.[176] Raymond Dearie, U.S. Attorney for the Eastern District was more colorful in his characterization of the new law by stating, “The legislature opened a window of vulnerability big enough to drive Jones Beach through”.[177] Now wholesalers collected the taxes after selling their fuel to a non-producer like gas station retailers or to wholesalers who did not possess the coveted IRS Form 637. Within the “producer” chain, firms could sell to each other tax-free. The IRS would monitor a fuel firm’s transactions and collect the taxes via IRS Form 720 filed quarterly.[178] This would create severe liabilities within the system that would be exploited shorty. If that law change wasn’t enough, Christmas came early during 1982 when news started trickling in about some of Ronald Reagan’s proposals. In December of 1982, Reagan sought funding to help repair the U.S.’s crumbling bridges, roads, and mass transit systems.[179] To pay for this massive program, the President sought to raise $5.5 billion worth of proceeds from more than doubling the federal gasoline excises.[180] On April 1st, 1983, the federal tax on a gallon of gasoline went from 4 cents to 9 cents.[181] The feds unintentionally made it twice as profitable to steal the federal gasoline tax and the fuel racketeers would take full advantage of it.
This change in the law was beneficial for two reasons. First, fuel racketeers were no longer volume dependent. Before, the bootlegger could only steal taxes at the retail level and so they were limited by the volume of gas sold at the stations they controlled. Now theft at the wholesale level enabled fuel racketeers to sell to other wholesalers, steal the tax and not worry about finding enough stations to sell-off their fuel inventories. It also made stealing taxes less cumbersome as it eliminated the downtime necessary when skimming at the retail level. As mentioned before, retail stations would have to close for a month or so after stealing taxes to allow for “new management” to take-over and start the bootlegging process again. Now that didn’t happen anymore which meant more excises were stolen. Stealing on the wholesale level without getting caught, however, necessitated the creation of daisy-chains schemes whereby gasoline is “burned” through a licensed dummy corporation that absorbed the tax liability. Who came up with this method? Well, it is a contentious matter. Some credit Lawrence Iorizzo with the invention of the daisy-chain.[182] However, it was probably as an associate and co-conspirator of Iorizzo by the name of George Kryssing who came up with the idea.[183] He proposed to steal federal, state, and local gasoline taxes by using a series of fictitious transfers among licensed wholesale firms in which the last one was supposed to be untraceable.[184] A real life example of this chain is shown below.[185] In this case, gasoline is “burned” through either Cabot Petroleum or Houston Holdings leaving them with the tax liability. When the IRS came to collect, they found that those firms disappeared off the face of the earth.
Seeing their opportunity to take advantage of the new legal weaknesses, the first Mafia-led fuel cartel was formed. According to authorities, Franzese brought, “all the illegal dealers… together to prevent violence”.[186] The original masterminds behind this first co-operative were Lawrence Iorizzo, George Kryssing and Bernard Short and in late 1982 they started to recruit additional individuals to join their new co-op.[187] Larry Iorizzo of course owned dozens of Panamanian shelf companies, while Kryssing and Short owned an unlicensed firm called Petroleum Haulers, Inc.[188] One of the first individuals they reached out to were Joseph Aracri and John Papandon, co-owners of Pilot Petroleum Associates which was a licensed gasoline wholesaler.[189] Iorizzo and Kryssing seem to have had a relationship with these businessmen before the New York law change went into effect. For instance, at least as far back as 1981, George Kryssing, who also owned Keri-Lynn Petroleum, got his gasoline from Pilot, and seemed to have already been engaged in gasoline bootlegging at the retail level or at least helped facilitate it.[190] Galion Holdings and Down to Earth Management switched from Nobek Distributors to Pilot sometime before September 21st, 1982, due to Pilot’s cheaper gasoline prices.[191] The gasoline cartel worked as follows. A fixed price for gasoline was established that would be distributed by the bootlegging cartel which would buy and store their fuel at the General Oil Terminal in Inwood, New York.[192] Moreover, a fee was to be, “assessed on a per gallon basis on each member/bootlegger company to launder the stolen tax monies through the use of false and/or fraudulent invoices”.[193] Finally, Michael Franzese and the Colombo Crime Family would provide the necessary force to make this all work.[194] Another benefit Franzese claimed to have provided were crucial political connections in Albany, New York. Apparently, the Colombo’s had “a guy” at the commissioner of revenue’s office at the State House in Albany who could get the necessary licenses.[195] With this structure set-up, the racketeers went to work.
One of the first daisy-chain used by this cartel centered around Northbrook Associates. As mentioned above Iorizzo and Kryssing approached Aracri and Papandon to discuss burning “gasoline” through another firm they owned called Pilot International.[196] As part of their agreement to sell Pilot International’s license, it was required that Iorizzo re-name the company so that the license’s true owner Don Kuss would remain ignorant of the group’s machinations and to conceal Aracri and Papandon’s involvement in the scheme.[197] Kryssing paid Aracri and Papandon $41,000 for Pilot International’s license which became Northbrook Associates and the business was acquired by one of Iorizzo’s Panamanian shelf companies.[198] One of the first daisy-chain schemes worked like this. Pilot Associates acquired gasoline tax-free from General Oil and made false invoices representing the transfer of that fuel to Northbrook as a legitimate tax-free transaction.[199] Northbrook would then “sell” the gasoline as “tax-paid” to Future Positions, another Iorizzo company, which then transferred it to Petroleum Haulers.[200] Now that taxes were supposedly paid, Petroleum Haulers would sell some of the gasoline back to Pilot, Anthony Zummo’s Pride Oil Corp., and other companies.[201] From late 1982 through 1984, Northbrook sold about $150 million worth of fuel per month, taking down $30-$40 million in federal and state taxes each month.[202] This was just one of the several simultaneous daisy-chains schemes performed by this group and it was about to get bigger and better.
Another big addition to the growing Colombo fuel syndicate was Sheldon Levine. In his book Franzese described him as a frizzy-haired Jewish man with a big gasoline operation and no protection.[203] Unfortunately, Franzese’s book also doesn’t provide a satisfying account of the actual business relationship between the two men as Franzese condensed a lot of the events into a couple of pages. Lawrence Iorizzo already had several meetings with Sheldon Levine in 1982 (probably late 1982 when the law change went into effect) to work out new methods to launder stolen gas monies and ultimately join the growing cartel.[204] This was a big win for Franzese and the growing syndicate because by 1986 Sheldon Levine would be described as the largest marketer of non-branded gasoline on Long Island whose companies exceed $100 million in transactions.[205] Their relationship, however, would not always be very smooth. Entering 1983, members of the Colombo fuel cartel must have felt over the moon and soon their syndicate would get a big boost from some major players.
(L-R): George Kryssing, Ronald Weiner, and Sheldon Levine
Power Test CEO Leo Liebowitz aspired to become a major player in the oil business and by the late 1970s, he was well on his way to achieving his dreams. [206] In March 1978 Power Test purchased 158 retail service stations in the New York City area from M. Spiegel and Sons (whose sister company was SOS Fuel Oil).[207] The aftermath of the deal proved to be quite chaotic as Power Test sued George Spiegel in 1981 for continuing to supply those stations with gas and fostering dealer resistance against converting to the new Power Test brand from the existing the Amoco logo.[208] These actions are funny given they eventually unwittingly worked together through intermediaries. In the meantime, the illicit Colombo fuel syndicate was taking a toll on legitimate competitors. By January of 1983, 55 new gasoline distributors were licensed and approved to sell gasoline tax-free within the state of New York.[209] Coincidentally, the very same Power Test experienced a 60% decline in gasoline sales to their stations since September of 1982.[210] Other major legitimate oil firms experienced the same pain, attributing the slide to suppliers who were evading tax payments.[211] Once again this shows just how meaningful this syndicate had become in such a short time, although of course other bootleggers contributed as well. Not wishing to see his ambitions fail, Leo Liebowitz threw in the towel and ordered his subordinates to buy bootleg gasoline.[212] Although more famous for working with another fuel racketeer, Power Test did collaborate with Iorizzo and the Colombo fuel assembly. Starting in 1983, Louis Cohen, Vice-President at Power Test in charge of the supply and distribution of gasoline, created false invoices reflecting payment of taxes between Power Test, Conlo Service Inc. and several Iorizzo controlled companies.[213] Conlo Service[214] and Conlo Petroleum were both controlled by Ronald “Ronnie” Weiner.[215] While he was most likely one of the original members recruited by Iorizzo in late 1982, Ronnie was certainly part of the cartel by 1983, with more members on the way. The aforementioned George Spiegel of SOS Petroleum also joined the cartel by 1984 at the latest, although it is likely he joined in 1983 given his firm’s close transactional association with Houston Holdings.[216] Additional joiners by 1983 included identical twin brothers Robert and Richard Kennon who used their three fuel firms – Jenny Oil, Oil City Enterprises, and Mount Vernon Energy Terminals – as part of Iorizzo’s schemes.[217] Martin Meyer, owner of Dart Oil[218] and Apache, firms used for tax scamming purposes, was certainly part of the scheme by 1984, but given Meyer’s closeness to Ron Weiner, he was already likely part of the syndicate by 1983.[219] Marvin Kramer, George Kryssing’s lawyer, was about to take this Mafia enterprise to the next level.[220]
The Russians of Brighton Beach
Being Jewish in the Soviet Union was for the most part a liability. Despite being well-educated, Jews were effectively barred from the highest echelons of the Communist Party, holding a major rank within the military, and the circles of “high society” at large.[221] Soviet Jews would, however, catch a big break when Gerald Ford signed into law the ‘Jackson-Vanik Amendment’ with the USSR, requiring the communist regime to grant exit visa to Soviet Jews in exchange for receiving trade benefits.[222] Some 90,000 Soviet Jews would take advantage of this law change between 1975-1980 as they made their way for the ‘Land of Opportunity’.[223] Among the tens of thousands of immigrants were thousands of hard-core nominally Jewish criminals recently released from Gulags by the KGB.[224] Criminal life in the Soviet Union equipped many of these “Russian” gangsters with an extensive toolkit and skill set perfectly suited to commit white-collar crime once they came to America.[225] They perfected forgery, counterfeiting and knew how to navigate around complex bureaucracy.[226] A Philadelphian police officer summarized the attitude of this novel criminal group by saying the new wave of Russian émigrés viewed the U.S. as a big candy store with no one minding the front counter.[227] The most popular destination for the new arrivals in New York was Brighton Beach, Brooklyn.[228] By 1998, more than 30,000 Russians called Brighton Beach home, with 40,000 to 50,000 more living in the surrounding New York area.[229] A key differentiator between this new wave of criminals and their entrenched Italian counterparts stemmed from the way they organized themselves. Soviet criminals did not seem to form complex organizational hierarchies, and instead individuals joined together on an ad-hoc basis for a specific criminal venture.[230] This will become particularly relevant as it related to the gas tax scheme in a post Franzese-world. The first Russian gangster of any importance to the gasoline scheme was Evsei Agron, Brighton Beach’s first ‘don’.[231] Coming to America in 1975, Agron was a vor (an “elite” criminal group formed in the Soviet prison system) who quickly took over the criminal scene in Little Odessa by running a vicious extortion ring.[232] By 1980, he sat atop the most powerful crime group in Brighton Beach, with outposts in at least half a dozen other American cities.[233] We will re-visit him shortly.
At the same time as Agron was busy menacing his community, another Jewish immigrant was busy marketing his electronic receipt-producing meter to the Taxi and Limousine Commission.[234] In the end, that taxi meter was at the center of a major city scandal involving commissioner Jay Turoff.[235] Michael Markowitz, the inventor, was a Romanian by birth and immigrated to the U.S. from Israel in the spring of 1979 after completing a master’s degree in science, math, and engineering.[236] With his taxi venture failing, he became involved in the gasoline business in a very small way in 1981 after answering a newspaper advertisement placed by Joseph Skolnick.[237] Markowitz learned the ropes quickly and the two soon became partners, buying fuel from M&Q (Manhattan and Queens) Terminal.[238] In the summer of 1982, they decided to become fuel importers by bringing barges to M&Q and General Terminal from abroad.[239] To do so, the duo needed a New York State distributor’s license and they turned to Markowitz’s accountant for help.[240] Together they founded Shoppers Marketing Incorporated (SMI) in June of 1982,[241] and installed one of Skolnick’s gas station attendants and a Polish immigrant named Szpila Toduesz, as the President and sole shareholder.[242] Their names started to appear on corporate records in November of 1982, after becoming confident in their operations.[243] In January of 1983, Markowtiz wanted to dump SMI and form a new corporation, with Skolnick dissuading the Romanian and offering him stock in his company, Gas Stop, instead.[244] Attorney Marvin Kramer got Gas Stop licensed too.[245] Around the same time as Gas Stop got licensed, Markowitz started expanding his criminal connections and got in contact with Leo (Lev) Persits, one of Brighton Beach’s more important gangsters.[246] Persists immigrated to America from Tashkent, Uzbekistan in 1975 and for a time owned a Mobil station in Manhattan.[247] Markowitz wanted to sell SMI and Persits helped connect him with another individual in the fuel business named David Bogatin.[248] After shooting down American war planes in Northern Vietnam, Bogatin decided to move to New York in 1977.[249] By December of 1982 at the latest, he got into the fuel business through forming Lesez Petroleum, a gasoline wholesaler.[250] Bogatin became a partner in SMI with a $100,000 buy-in that was equally split between Markowitz and Skolnick after Persits took a $20,000 finder’s fee.[251] The new partnership booted Toduesz and installed Mieczyslaw Szczepkowski as the new front man.[252] The four individuals set-up their own daisy chain with Szczepkowski and SMI bearing the tax liability and leaving Lesez with all the money.[253] This group of Russians (through Gas Stop) also bought and controlled 200 retail stations in Brooklyn and Queens.[254] For the next couple of months both Michael Markowitz and David Bogatin made considerable sums of money, with Lev Persits and Joseph Skolnick making not as much.[255]
(L:R): Michael Markowitz, David Bogatin, Joseph Skolnick, and Phillip Moskowitz
As such the earliest Soviet emigree group to become involved in fuel daisy chain schemes were the group led by Michael Markowtiz and David Bogatin.[256] This is of course contrary to some of the comments floating on the internet and on Wikipedia claiming that Evsei Agron or Marat Balagula “invented” the scheme. It should now be clear that the Russians didn’t invent this particular scam and certainly didn’t bring it to the Italians. The Iorizzo group under the direction of the Colombo Crime Family did it first. Relating to that, I have also wondered where the Markowitz group fit in the broader Brighton Beach Russian mob or “Organizatsiya” as it was called.[257] Lev Persits is the easiest one to place as he associated with several Russian heavyweights, most notably Brighton Beach’s second “Godfather” Marat Balagula.[258] Another prominent Russian criminal Persits was involved with was Efrim Laskin, a major heroin smuggler and associate of Boris Nayfeld.[259] Boris Nayfeld, himself, was one of Brighton Beach’s most powerful criminals, involved in gasoline bootlegging and narcotics trafficking.[260] Michael Markowitz’s position or influence within the Russian mob is harder to establish. Markowitz self-admitted to being a member of an organized crime group of Eastern European immigrants in Brooklyn.[261] Elsewhere, newspapers identified him as being “in” the Russian mob.[262] Federal and Suffolk investigators also described Markowitz regularly meeting other Russian crime figures at a popular nightclub in Brighton Beach.[263] In 1985, authorities said he was the leader of a “Soviet mob”.[264] I have also seen Evsei Agron being described as Michael Markowitz’s boss.[265] Bogatin seemed to be the most “straight” person in the group, although as mentioned before he did associate with Leo Persits.
