Ex-Labor Secretary’s Trial Opens : Donovan, Co-Defendants Greedy, Prosecutor Claims

The long-delayed grand larceny and fraud trial of former U.S. Labor Secretary Raymond J. Donovan opened Tuesday with a state prosecutor saying the case is about “greed, plain and simple.”

Bronx Assistant Dist. Atty. Stephen Bookin told the jury that Donovan and his 10 co-defendants “stole over $7 million” from the New York City Transit Authority over a six-year period by use of inflated billings and false records during construction of a $186-million Manhattan subway tunnel.

Donovan personally co-signed at least $1.8 million in checks and $300,000 in interest-free loans and “had a lot to do” with the allegedly fraudulent contracting scheme, Bookin said in his three-hour opening argument in a state court in the Bronx.

Donovan Denies Charges

But Donovan, 56, who resigned his Reagan Cabinet post in March, 1985, to fight the 137-count indictment, denied to reporters that he had stolen any money or participated in an illegal conspiracy.

“Where’s the meat?” Donovan asked, his wife, Kathy, by his side, during a break in Bookin’s argument. “I saw none.”

Donovan predicted that he and his co-defendants would be acquitted “across the board . . . if there is justice in this country and the Bronx.”

Lead defense lawyer Ted Wells told the jury that the defendants, who worked for either the Schiavone Construction Co. of Secaucus, N.J., or the Jopel Contracting & Trucking Co. of the Bronx, actually built the 63rd Street subway tunnel for $180 million, or $6 million under the bid price.

“That’s why I say these allegations are bizarre, twisted,” said Wells, standing before an 18-foot-long plexiglass and plastic mock-up of the tunnel. “We saved the city of New York millions and millions of dollars.”

Owned 40% of Firm

None of the charges concern Donovan’s role as labor secretary. He was executive vice president of the Schiavone company and owned 40% of the company stock during the alleged fraud. He is the nation’s only Cabinet officer ever to resign under indictment.

The complicated case involves the Schiavone company’s use of Jopel between 1978 and 1984 to meet the transit authority’s goal of 10% involvement by minority-owned subcontractors in the tunnel construction.

Jopel was jointly owned by black state Sen. Joseph L. Galiber and a reputed organized crime figure, William P. Masselli. Both men are co-defendants in the case.

Bookin said that Jopel was initially set up in 1976 to work with the Schiavone company to excavate dirt and rock from the eight-story-deep tunnel. But Bookin said Jopel was a front because Galiber “had no control” and the company “had no equipment, had no workers and had no experience.”

‘Never Intended to Comply’

Bookin said that the Schiavone company “never intended to comply” with the goal of subcontracting $18.6 million of the $186-million contract to legitimate minority-owned business enterprises.

“They intended to keep one half the money, and they intended to pull the wool over the eyes of the transit authority,” Bookin said.

Bookin said the Schiavone officers used Jopel “in a sham arrangement” to rent Schiavone’s own heavy earth-moving equipment and bill the transit authority for the “fraudulent rentals.”

“They arrived at the rental agreement just so they’d reach the 10% requirement,” he said.

According to the agreement, Bookin said, Jopel would invest no money but would be paid 7 1/2% of the total cost of the subcontract.

“Jopel would be a vehicle, a make-believe entity,” Bookin said. “Schiavone’s equipment was just going through Jopel’s books.”

In addition, Bookin said, Schiavone’s own workers did much of the excavation work in the tunnel and shaft that Schiavone then attributed to Jopel in billings to the transit authority.

‘Had to Pay Them’

Jopel “didn’t hire, they didn’t use, they didn’t supervise these workers, but they had to pay them on their payroll,” Bookin said. He said some of the equipment billed to the transit authority was never used.

He said transit authority inspectors never caught onto the scheme because the minority business enterprise program was new and the city agency was “understaffed and many times inefficient.”

In all, Bookin said, Schiavone billed the transit authority for $12.4 million to pay Jopel but paid it only $4.8 million because of the hidden rental agreement.

“In effect, the transit authority believed Jopel got more than $12 million,” Bookin said. He said the Schiavone company “never would have kept the contract” if the transit authority had known the truth.

Bookin said Donovan personally signed 28 checks to Jopel totaling $1.8 million. But Bookin said seven of the checks had notes attached “indicating a fraudulent rental” totaling $1.7 million.

Interest-Free Loans

He said Donovan co-signed two interest-free loans to Jopel totaling $300,000 to help the company pay its workers.

Bookin said he will rely on six types of evidence: wiretaps made by the FBI during an unrelated investigation of Masselli’s meat-packing business, interviews with the defendants by law enforcement officials, sworn statements by the defendants, company business records, transit authority records and eyewitness accounts.

The indictment was filed Sept. 24, 1984, and charges one count of grand larceny in the second degree, 125 counts of falsifying business records in the first degree and 11 counts of offering a false instrument for filing in the first degree.

Attorneys said they expect the trial to last about four months.

In addition to Donovan, Galiber and Masselli, the defendants include both companies and Schiavone officers Richard C. Callaghan, Joseph A. DiCarolis, Morris J. Levin, Albert J. Magrini, Gennaro Liguori and Robert Genuario.