Fraud Defendant’s Son Describes $15-Million ‘Bustout’ Scheme

A San Fernando Valley businessman went on trial in federal court in Los Angeles this week on charges of operating a massive fraud that prosecutors said duped a large number of firms out of nearly $15 million.

George Scordel, who has addresses in Woodland Hills and Pasadena and operated businesses from several Valley addresses, filed a series of fraudulent bankruptcies called “bustouts,” federal prosecutors allege.

Scordel’s son, Steve Scordel, 25, of Van Nuys, the opening witness for the prosecution, said his father enlisted him in the scheme in 1981, when he was 19 years old.

“He explained it wasn’t legal. He said the chances of getting any jail time are very slim and would probably only be a year,” the son testified.

The younger Scordel was eventually placed on probation for writing invalid checks during one of the operations, court records show, and was released four weeks ago after serving 19 months in jail for violating the probation terms.

Through a series of front people and sham companies in Hollywood and the San Fernando Valley, the elder Scordel allegedly ordered millions of dollars worth of goods--from gold jewelry and microwave ovens to sunglasses and paper bags--on bogus credit. He allegedly had employees give trumped-up credit references over the telephone and temporarily funneled money into bank accounts to make his firms appear prosperous.

The younger Scordel testified that his father “explained to me that the idea was to order merchandise, build up credit as high as possible, then file for bankruptcy and not pay for any of the liability.”

Income from the scheme brought him $500 to $2,000 a week, the son testified, and allowed him and his father to “live a very good life style.”

At first, they paid their bills so that suppliers would keep raising credit limits and allow them to order more merchandise, the younger Scordel testified. Suppliers who did not raise credit limits were not paid.

When they had used up all their credit and suppliers were threatening legal action to collect, the son said, they would move the merchandise to conceal it from creditors and declare bankruptcy. Then they would form another company and use a “front” person to order more merchandise on credit, he said.

The younger Scordel said he helped in later companies but had to remain hidden so that creditors who lost money to earlier companies would not recognize him.

Prosecutors told the jury that the scheme continued until 1986 under at least nine company names.

Elisa Gallay of Burbank testified Thursday that, when she was an employee in Scordel’s Hollywood office in the summer of 1984, he offered to make her the figurehead president of a new merchandising company, under his son’s supervision.

She testified that Scordel allowed her to use the reversed initials of her name when she chose the title of the new company, Golden Eagle Merchandising of North Hollywood. But she later backed out and another of Scordel’s associates became president of the company, she said.

Charges Include $8 Million

About $15 million was lost through the scheme, but charges stemming from the loss of only $8 million were contained in the 60-count indictment, said one of the prosecutors, Assistant U.S. Atty. Thomas Hagemann.

The indictment named 20 people, including those who allegedly operated as fronts for Scordel, on charges of conspiracy, wire fraud, mail fraud and interstate transportation of property obtained by fraud. Thirteen people, including the younger Scordel, already have pleaded guilty. Four are fugitives.

The elder Scordel, Natore Nahrstedt, 40, and Laslo Pollack, 59, both of Los Angeles, pleaded not guilty. Pollack allegedly operated a front company, and Nahrstedt, an accountant, allegedly prepared false financial statements.

Scordel and two attorneys also were charged with obstruction of justice and subordination of perjury. They allegedly encouraged witnesses to thwart a federal grand jury investigation. The two attorneys face separate trials in March.