By Staff of Niagara Falls Reporter
(The following report is based on news media reports, sometimes using the exact language of published reports, documents in the public domain, and documents made available to the Reporter from various sources and interviews.)
Niagara Falls Reporter Publisher and Editor in Chief, Frank Parlato Jr., is fulfilling an unusual – if not unique – role.
He is a newspaper owner writing about his own criminal case.
This prompted the prosecution to ask for a gag order at his arraignment on Monday, November 23.
Federal prosecutors asked for restrictions on media coverage during Parlato’s arraignment in federal court in Buffalo, arguing that his newspaper articles in Artvoice and the Niagara Falls Reporter could influence a future jury pool.
“We do not want this case tried in the press,” said Assistant U.S. Attorney Anthony M. Bruce who went on to add that Parlato in this case “is the press.”
“Your honor, (Parlato) has written about this case in the newspapers he controls and I will tell you some of his facts are spot on and some are pure fiction,” Bruce told U.S. Magistrate Judge Jeremiah J. McCarthy. “We are going to have to pick a jury in this case, down the road, and I’d like it to be a clean jury.”
“I don’t write fiction,” Parlato told the Buffalo News in a statement later that day, “and that will become clear as the case unfolds.”
Parlato’s defense lawyer, Herbert L. Greenman, objected to the gag order and, in the end, Judge McCarthy agreed.
“I do not see a basis to do that,” Judge McCarthy said of the government’s request. “We do have a First Amendment.”
Ironically, just three days before the government asked for a gag order, the US Attorney issued a press release which was distributed to every media outlet in Western New announcing Parlato’s indictment which accused Parlato of a raft of crimes.
The US Attorney’s press release was published both locally and in scattered places throughout the nation through the Associated Press, severely damaging the reputation of the accused, but protected under the First Amendment.
Parlato has not only been transparent in writing about the case in newspapers he owns — but, prior to his indictment, he voluntarily shared, according to his attorneys, exculpatory evidence with the government.
A virtual who’s who of local lawyers, including former United States Magistrate Judge Carol Heckman and former New York State Attorney General Dennis Vacco, met with federal prosecutors to urge them to consider this large body of exonerating evidence that they say points to Parlato’s innocence of all charges for which he is presently charged.
One of Parlato’s business lawyers, Ralph C. Lorigo said, “We’ve been presenting information to the United States attorney to show (him) that no crime has been done.”
The Buffalo News reported that, in a letter to US Attorney William Hochul, Heckman said, “her legal team, despite being on the case less than two months, uncovered new evidence that exonerates Parlato” and asked the government to forestall indicting Parlato.
One of Parlato’s attorneys wrote to the government, on November 17, in an effort to avoid an indictment, that Parlato “has been exceptionally open with the Government, bearing the risk of previewing his defenses in any criminal trial in order to share with you exculpatory evidence foreclosing any viable criminal prosecution. Yet we have reason to believe that little, if any, of this exculpatory evidence has been shared with the grand jury.”
The letter listed 67 documents that had recently been placed in the government’s possession, embodying a thousand pages of information, and asked the government to fully consider these.
Less than three days later, on Nov. 20, Parlato was indicted.
“We provided so much information to the U.S. Attorney’s Office on so many topics,” said Lorigo. “I’m very taken aback by what I read in the indictment.”
Parlato was charged in a 19-count indictment, accused of cheating the IRS and others as part of a scheme the government states involves 15 “shell companies,” 50 bank accounts and multiple attorney trust accounts.
Parlato has pleaded not guilty.
Among other exculpatory evidence Parlato’s attorneys attempted to explain to the government prior to the indictment was that the 15 so-called “shell companies” were “disregarded entities”, a legal term of art that permits the profit or loss to flow directly to the owner of the company and that these companies were formed for legitimate purposes and upon advice of legal counsel.
Parlato’s attorneys also attempted to explain to the government that each and every one of the alleged 50 bank accounts had Parlato’s social security number and his address listed on the bank account, something that, his attorneys said, clearly indicates there was no attempt to conceal the identity of any of the accounts.
All of the alleged bank accounts were opened locally with US banks, and not foreign banks, Parlato’s attorneys told the government, and served a legitimate purpose.
It is not illegal in the United States to own any number of bank accounts.
If convicted, the 60-year-old real estate developer, and his codefendant, Ms. Chitra Selvaraj, 40, who is the managing editor of the Reporter, could face up to 20 years in prison and a $250,000 fine.
Parlato and Selvaraj turned down a plea deal on October 28, which would have required Parlato to plead guilty to two felony counts and receive a potential sentence of 12- 18 months.
Selvaraj would have been permitted to plead to a single misdemeanor.
In a letter dated October 21, the US Attorney wrote to Parlato’s legal counsel, that “we are willing to allow Mr. Parlato to enter pleas of guilty to a two-count information …. limiting his sentencing exposure, and we are willing to hold this plea open until the close of business, next Wednesday, October 28….. With a Criminal History Category of I, the resulting guidelines range is 12 – 18 months…..
“We would also insist that, as part of the agreement, Chitra Selvaraj plead guilty to an information charging her with a violation of 26 U.S.C. 7203, a misdemeanor.”
Sources told the Reporter that it might have been possible for Parlato to have negotiated a deal where a judge could sentence him to serve his sentence in a halfway house or with home confinement.
On October 28, Parlato and Selvaraj turned down the plea, risking decades of prison, over the safer bet of a short prison stretch for Parlato and likely no prison at all for Selvaraj.
Neither defendant has a criminal record.
Moments before the deadline for accepting or rejecting the plea deal on October 28, Parlato’s attorneys explained to him that there can be “very rational reasons to accept a plea, even for a crime you did not commit. There are good reasons to do so. Here, the Government has threatened to pursue this case against you and others, if you do not accept the plea. Your personal criminal exposure, should the government indict as promised and convict on some or all of the charges, could be substantial and much worse than the deal as offered.”
Parlato responded, “I understand that I may be tossing away years of my liberty …. However I cannot plead to something I did not do and as I have stated repeatedly jail avoidance is not the goal here. At the risk of sounding corny the goal is justice and in the end the goal is to have liberty of the mind over liberty of the body. But frankly I wish I could have both.”
After Parlato rejected the plea deal, his attorneys sent a letter to the US Attorney stating, “I am writing to inform you that our client does not accept your offer. It would be inappropriate to accept the offer because it would require our client to accept responsibility for crimes that he did not commit. It is apparent that the Government has not reviewed and or has not understood the exculpatory evidence that we have provided last week. With some understanding of this information, I am sure that you would have some appreciation for our client’s good faith position.”
The U.S. Attorney for the Western District of New York William J. Hochul Jr. announced in his press release of Nov. 20, that a grand jury handed up a 19-count indictment against Parlato and Selvaraj with a conspiracy “to defraud the United States and certain members of the public, to obstruct the function of the Internal Revenue Service, wire fraud and wire fraud conspiracy, money laundering, and corrupt interference with the administration of the IRS laws.”
At his arraignment Parlato was represented by Greenman.
Selvaraj was represented by Buffalo defense attorney Joel Daniels.
“Frank Parlato is not interested in any plea deal because he does not believe he did anything wrong,” Greenman said at Parlato’s arraignment. “He is confident, after trial, the jury will agree.”
Lorigo also confirmed Parlato turned down plea offers.
“He wouldn’t plead to something he didn’t do,” Lorigo said. “Frank is prepared to go forward and defend each and every one of these counts.”
Prior to his indictment, the government seized $1 million that Parlato received from Sara and Clare Bronfman, daughters of the late Seagrams liquor heir Edgar M. Bronfman.
Bank records reveal Parlato held the $1 million on deposit in an attorney’s trust accounts – not having spent the million since receiving the money nearly eight years earlier – in January 2008.
Prior to his indictment, Parlato’s lawyers informed the government that Parlato held the $1 million pending a resolution of civil litigation between him and the Bronfmans (see related story about the Bronfmans on page 16).
Parlato has made a claim for the return of the $1 million pending a final resolution of his criminal case.
Parlato also denied the allegation that he cheated the IRS, the Bronfmans or anyone else.
Parlato suggested this case is being driven by the Bronfmans and Shmuel “Sam” Shmueli, a one-time business associate in the One Niagara building who Parlato claims has defrauded more than two dozen lawyers and Parlato, himself.
The investigation into Parlato’s business dealings dates to at least 2012, when prosecutors subpoenaed records regarding One Niagara. The building was the site of a failed plan to build an underground aquarium, and the unfinished project left a huge hole that Parlato filled in and replaced with a parking lot.
Parlato also developed the inside of the then-vacant nine story building which is adjacent to the Niagara Falls State Park – naming it One Niagara. It is today the largest welcome center in Niagara Falls. One Niagara includes a food court, bus tours, retail stores and other attractions and services for tourists.
Prior to the indictment, the grand jury heard testimony from various witnesses, including the current owner of One Niagara, attorney Paul Grenga.
Following Parlato’s indictment, Grenga released a statement in Parlato’s defense calling on the public “not to rush to judgement” in the federal case facing Parlato.
Since its conversion by Parlato from a failed aquarium project, known as AquaFalls, to the successful tourism center, One Niagara has been the focus of numerous civil lawsuits between Parlato and Shmueli.
Grenga represented Parlato in defending some of those lawsuits.
In his statement, Grenga admitted he spoke to the grand jury under unusual circumstances: his client, Parlato, waived the attorney–client privilege.
“Subsequent to my being subpoenaed, Mr. Parlato released the attorney-client privilege, thereby, allowing me to speak freely, and without reservation, to the prosecutors, agents and to the grand jury,” Grenga’s statement read.
Grenga said that the case against Parlato was “unusual” and indicated that much of the wrongdoing charged in the indictment has also been the basis of the civil lawsuits where he defended Parlato.
“Without exception, Frank Parlato’s position was sustained, and he prevailed,” Grenga said, referring to the outcome of the civil cases.
Referring to the fact that civil lawsuits only require “a preponderance of evidence” as opposed to the higher standard of “beyond a reasonable doubt” required for a criminal conviction, Grenga added, “The United States government is no doubt entitled to once more test these same transactions in a different context. But, bear in mind that the [government’s] standard of proof, in order to sustain these charges, will be far greater.
“This is not a case where anyone should rush to judgment.”
The indictment refers to Clare and Sara Bronfman by the initials C.B. and S.B. and claims Parlato cheated them out of $1 million, an allegation that dates back to at least 2011 when the sisters filed a notice of claim against him.
Parlato denies the allegation and in the past insisted that the $1 million is at the center of a civil lawsuit, that he held the $1 million in escrow pending the outcome of the suit, and that the $1 million should – if he prevails in his lawsuit – be rightfully his based on work he did when he successfully represented the Bronfmans in a dispute over a luxury housing development in Los Angeles.
Parlato’s relationship with the Bronfmans began several years earlier when former Erie County Democratic Party Chairman G. Steven Pigeon recruited him to help them as a consultant.
Court records show that Parlato went to California on the Bronfmans’ behalf and, convinced they were cheated out of millions of dollars, worked out an agreement that gave them majority control over the Los Angeles development.
The dispute led to lawsuits by both sides, including one involving Nancy Salzman, president of NXIVM, a group based in Albany that supporters say is a successful executive coaching program. Detractors say NXIVM uses brainwashing and other psychologically damaging tactics, including separation from members’ families, to manipulate followers.
The Bronfman sisters, who live near Albany, have been among NXIVM’s better known followers.
Their late father, Edgar Bronfman Sr., called it “a cult.”
Prior to the Bronfman sisters turning against Parlato, Clare Bronfman said in sworn testimony in a civil trial in Los Angeles County Court, in March 2011, that Parlato “helped determine that there was a serious problem with a huge [$26 million] investment that my sister and I had made, and he was willing to be the person out here trying to uncover everything that was happening. So I’m very grateful for that…..
“I think what he did was very helpful for us. He uncovered a very problematic situation….. I’m very glad that he did uncover the situation…. (H)e discovered what had been going on.”
Clare Bronfman also explained in the 2011 trial that Parlato did not defraud them out of the million dollars, testifying under oath that “we loaned Mr. Parlato a million dollars…. it sounded like a lot of money. It is. Compared to $26 million it was worth it to us.”
After Parlato helped the Bronfmans win their lawsuit in Los Angeles, the Bronfmans filed a criminal complaint against Parlato telling an entirely different story to local federal agents, than they had testified in Los Angeles, prompting Parlato to suggest that Clare Bronfman may have lied to the FBI, which is a federal crime.
The other alleged victim in the case has been identified as the late Lawrence Reger who passed away on March 24, 2015.
The indictment claims Reger was defrauded out of more than $1 million, yet just 13 days before he died Reger testified in a bench trial before Justice Timothy Walker that Parlato was a good partner and that Shmueli was the cause of the problems.
Records show that Reger made a substantial profit during his partnership with Parlato and that Reger never claimed he was a victim.
Reger’s lawyer of 38 years, who also represents his estate, has taken exception to the government trying to accuse Parlato of defrauding Reger.
Attorney Gregory Photiadis stated in a letter to US Attorney Hochul, dated Oct. 6, 2015, that the late Larry Reger was “a sophisticated investor and savvy businessman who understood complex transactions. He was not shy in protecting his interests, when necessary, through civil litigation.”
“I am familiar with Larry’s business dealings with Frank Parlato along with the multiple civil litigations involving Shmuel Shmueli,” Photiadis wrote, “…. During his partnership with Parlato, Larry never claimed that he was defrauded or cheated by Parlato nor did he initiate any civil action in that regard. To the contrary, his testimony in the various Shmueli civil actions was complimentary of Parlato. Likewise, it is the position of Larry’s family – who now owns his Niagara Falls interests – that Larry was neither cheated nor defrauded by Parlato….. (W)e ask that neither Lawrence Reger nor the Reger Family be viewed as victims of Frank Parlato.”
As part of his battle with the feds, Parlato has countered with his own allegations.
In a letter to prosecutors handling the case, Assistant U.S. Attorneys Anthony M. Bruce and Elizabeth Moellering, he asked them to recuse the local U.S. Attorney’s Office from the case.
Parlato alleged that there is a perception of a conflict of interest because of Lt. Gov. Kathleen Hochul, Hochul’s wife, and her political relationship with Niagara Falls Mayor Paul Dyster, a fellow Democrat.
Parlato, as owner of the Niagara Falls Reporter, has been critical of Dyster and Governor Andrew Cuomo over the years.
During Parlato’s arraignment, Assistant US Attorney Moellering asked for – and was granted by Judge McCarthy – three months to provide voluntary discovery to the defense since she said there are “voluminous” records involved in the case.
Another six months was granted for the defense to review all the documents and file motions.
The next court hearing in the case is scheduled for October 18, 2016.