Prosecutor Benched After Getting His Man : He Convicted Suspected Mob Figure Twice; MCA Said Rudnick Made Unfair Accusations

For nearly four years, the case of U.S. vs. Salvatore Pisello went nowhere in the Los Angeles office of the Justice Department’s Organized Crime Strike Force.

Pisello, identified by the FBI as a member of New York’s Gambino crime family, was suspected of lying on his 1979 federal income tax return and evading taxes on $50,000 he earned that year as a regional sales representative for Hillshire Farms Sausage.

Except for the organized crime allegation, “it was a run-of-the-mill tax case that had been kicking around the office for several years and that nobody really wanted to pursue,” recalled James L. Waltz, one of a series of strike force attorneys who were assigned to the case but who never followed it through to prosecution.

In the summer of 1984, however, the case was reassigned again, this time to Marvin L. Rudnick, a veteran prosecutor with a reputation for bulldog-like tenacity and a personality to match.

“Marvin was the first guy to shake the dust off the file and say, ‘By God, we’re going to prosecute this thing,’ ” said Waltz, now in private practice in Laguna Hills. “It wasn’t easy. The case was old, dust had gathered, witnesses had scattered and memories had failed. But he pulled it together.”

Rudnick did more than that. In the course of successfully prosecuting the tax case, he learned that Pisello had left the sausage company and was now working out of the executive offices of MCA Records, a division of the conglomerate that owns Universal Studios.

Familiar Face at MCA

Though he was not officially an employee of the company and had no experience in the record business, Pisello had become a familiar face around the record company, where he earned a six-figure income acting as a middleman in a series of business transactions with outside firms.

In one 1984 transaction, Rudnick learned, Pisello had arranged the sale of 60 truckloads of so-called “cutout,” or discontinued, recordings to a Philadelphia man who later was allegedly beaten up by another reputed Mafia figure for refusing to pay for the records.

Rudnick obtained Justice Department approval to open a new tax investigation of Pisello, this one probing money he may have received from MCA.

Interest Expanded

To many of those who watched the case unfold, Rudnick was clearly interested in bigger fish than Pisello. He wanted to use the Pisello case to investigate allegations that the Mafia had infiltrated one of Hollywood’s largest entertainment companies. He wanted to find out if MCA executives had knowingly conducted business with organized crime figures.

MCA fought back. In sometimes bitter, behind-the-scenes protests made to high-ranking Justice Department officials in Los Angeles and Washington, MCA accused Rudnick of making unfair and sensational accusations against the company, a view that several of his colleagues shared.

“I’m sure they’re very, very sorry that they ever signed this guy (Pisello) on,” said William G. Hundley, a prominent Washington lawyer hired by MCA in 1987 to handle the company’s dealings with the Justice Department. “But, God almighty, a major corporation, you got one guy, and bingo, it’s ‘MCA and the mob.’ ”

For now, MCA appears to have won its battle with Rudnick, but the controversy persists.

Shortly after convicting Pisello on a second set of tax evasion charges last April, Rudnick was stripped of most of his cases and reportedly recommended for firing by his boss, Los Angeles strike force chief John L. Newcomer, with the apparent backing of U.S. Atty. Robert C. Bonner.

On the advice of his lawyer, the usually outgoing Rudnick isn’t talking.

However, the Justice Department’s action has sparked a controversy within law enforcement about whether the government reined in a tough prosecutor under pressure from MCA--a company whose political connections include close ties to then-President Reagan (MCA Chairman Lew Wasserman was Reagan’s agent during his Hollywood career) and a board of directors that has included Washington luminaries from both major political parties.

“Politics is written all over this; the whole thing stinks,” said former strike force attorney Waltz. “If you ask me, it’s not Marvin Rudnick’s competency or handling of the Pisello case that should be the issue here, but rather the Justice Department’s apparent muzzling of a prosecutor following pressures placed on them as a result of him poking around.”

Some Say He Overreached

However, several present and former Justice Department attorneys, who asked not to be identified, said that Rudnick may have brought on many of his own problems by trying to sensationalize the Pisello-MCA investigation before he had nailed down anything with which to charge the company or its executives. They think the prosecutor overreached.

Throughout the investigation, Rudnick had been attempting to determine why profits from the 1984 cutout record sale had gone to members of three East Coast organized crime families, and whether there had been a criminal conspiracy between Pisello and any MCA Records executives to siphon money out of the company.

“We believed Sal Pisello to obviously be a member of organized crime,” said John DuBois, who acted as Rudnick’s co-counsel in the investigation. “He had obviously infiltrated MCA, and the strike force has traditionally been interested in the infiltration of organized crime into legitimate business.”

In several interviews, Pisello denied any connection to organized crime and said that he has been made a “scapegoat” in a battle between MCA and Rudnick, who, he said, “took a simple tax case and tried to turn it into a Mafia case.”

Pisello Sues MCA

Currently free on bail pending an appeal, Pisello has also filed a breach-of-contract suit against MCA, which claims it was victimized by him.

Between late 1983 and January, 1985, Pisello was working out of MCA’s Universal City offices nearly every day, using the company’s phones and secretaries to conduct business.

“He had the run of the place,” said one former top MCA executive, who spoke on condition he not be identified. For a non-employee, Pisello’s access was “unprecedented in all my years at the company,” the former executive said.

“Everyone in the (record company) office knew Sal,” said another former executive. Rudnick began subpoenaing MCA business records and calling in current and former executives for interviews in the spring of 1986. One of the first things he discovered was that MCA executives had advanced Pisello a total of $180,000 on three business deals that ultimately failed. He also learned that MCA had accepted unsigned and undated checks from Pisello as collateral on those deals, and that the record company’s chief financial officer had kept the checks in his desk drawer.

Internal Audit

MCA explained the unusual transactions to its board of directors in a May, 1985, report that was compiled by a team of corporate internal auditors. The nine-page report indicated no wrongdoing on the part of any executives, but recommended that a number of internal controls be instituted to prevent similar transactions from taking place. The report portrayed the company as a victim in its dealings with Pisello and its executives as dupes.

The report was among the documents subpoenaed by the Organized Crime Strike Force. According to DuBois, it conflicted with many statements that current and former MCA executives later made in interviews with strike force investigators. “It was clear that the audit report was not accurate,” he said.

It was also apparent to the prosecutors that former U.S. Sen. Howard Baker, then a member of MCA’s board of directors, questioned the audit, DuBois said.

“I recall seeing a document early on, the minutes of a board meeting, where Baker raised questions that were good and on the point, and he was not buying the audit. From the framing of the questions, it was clear that Baker could see there was more to be concerned about.”

Baker resigned from the MCA board in 1987, after being appointed White House Chief of Staff. He did not return a number of calls from reporters.

No Hard Evidence

DuBois, now a prosecutor for the New Mexico attorney general’s office, acknowledged that investigators never had “slam-dunk evidence” that any MCA executive committed a crime. But he said that, besides the questionable internal audit and the uncashed checks from Pisello in the MCA financial officer’s drawer, there was other circumstantial evidence that raised questions about the conduct of MCA officials.

For example, he described as highly unusual the fact that Pisello was allowed by MCA to hand-deliver to Sugar Hill Records in New Jersey checks--up to $300,000 at a time--for the company’s share of distribution revenues. The procedure allowed Pisello to extract from the small record label a 10% cash fee, which he subsequently was convicted of not reporting on his tax returns.

Rudnick wasn’t the only one whose curiosity had been aroused by Pisello’s MCA dealings. In the spring of 1985, federal prosecutors in New Jersey launched an investigation of a number of Pisello’s alleged East Coast organized crime associates who were on the other end of the 1984 cutout sale.

The New Jersey investigation led to the convictions last year of Roulette Records President Morris Levy and reputed Genovese family capo Dominick Canterino on charges of conspiring to extort John LaMonte, the customer in the cutout sale. A third man, reputed DeCavalcante family chieftain Gaetano Vastola, is now on trial in Camden, N.J., on charges of smashing LaMonte’s face. LaMonte had balked at paying for the cutout records, claiming he had been cheated, according to the government.

Executives Balk

Rudnick and DuBois wanted to ask top-level MCA officials what they knew about Pisello’s dealings, but the prosecutors got nowhere, DuBois said. When asked to come into the strike force office for interviews, at least four MCA Records executives indicated in writing that they would exercise their Fifth Amendment right against self-incrimination if called to testify before a grand jury without a grant of immunity.

Prosecutors also tried to subpoena documents from MCA that would explain how the company came to be involved in its various financial transactions with Pisello. Some of the documents trickled in long after they were requested; one came back with a portion missing; others didn’t come at all, DuBois recalled.

“They would say they had been cooperating, but the fact is . . . MCA was not very cooperative,” he said. “I also think MCA could certainly have brought more pressure to bear on their employees to cooperate. It’s one thing when a company says, ‘We’ll cooperate,’ and then they tell their employees to get attorneys.”

In the spring of 1986, Pisello was indicted a second time by a federal grand jury, this time on charges of evading taxes on more than $300,000 he earned on the MCA transactions--even as he was serving two years in prison on the original conviction.

During a pretrial hearing, an apparently frustrated Rudnick informed the judge that two MCA executives whom he planned to call as witnesses--MCA Records President Roth and Chief Financial Officer Dan McGill--”have asserted the Fifth Amendment privilege.”

The Last Straw

For MCA, the allegation was the last straw in what the company saw as a continuing effort by the prosecutor to convict MCA in the media when he had been unable to do so through the court system.

MCA attorneys countered angrily that the executives had not actually taken the Fifth Amendment, but had merely formally notified the strike force that they intended to do so if called to testify with no grant of immunity. In any case, for Rudnick to publicly reveal the matter violated federal grand jury secrecy laws, MCA asserted.

They termed Rudnick a “loose cannon on the decks” who was engaged in a “vendetta” against the company.

After the Fifth Amendment dispute, MCA began a concerted effort to get Rudnick removed from the case. MCA attorneys requested a meeting with Rudnick’s boss and top-level officials in the U.S. attorney’s office in Los Angeles and laid out their complaints against the prosecutor who had been dogging the company for more than two years.

MCA was particularly irate at a press release, written by Rudnick but approved by the U.S. attorney in Los Angeles, which characterized the Pisello investigation as an “MCA probe.” Company lawyers said there was no evidence of any wrongdoing on MCA’s part or any proof that the company itself had ties to organized crime, nor had MCA ever been notified that it was the target of any investigation.

Remark Termed Unfair

MCA lawyers were also upset that Rudnick had said in one court hearing that Pisello “might be a man who knows too much . . . who might be hounded to his worst detriment by organized crime on one side and MCA on the other.” They said the remark unfairly implied that MCA officials might harm him physically.

After meeting with then-Chief Assistant U.S. Atty. Richard Drooyan, Robert Brosio, head of the criminal division in Los Angeles, and then-acting strike force chief Richard Small, MCA attorneys drafted a letter spelling out their complaints about Rudnick. In the Oct. 2, 1987, letter to the U.S. attorney’s office that was forwarded to the Justice Department’s office of professional responsibility in Washington, MCA lawyers wrote:

“Given the lack of evidence against MCA and its executives and employees, the government’s use of its powerful position and the media to taint the corporation and its executives clearly constitutes prosecutorial misconduct.”

The much-publicized investigation “has not only caused MCA, its executives, employees and related entities extreme prejudice in their business dealings and damage to their public image (so essential to the success of those in the highly visible entertainment industry), it has also caused irreparable and totally unjustified harm to the personal lives and professional careers and reputations of those involved,” the letter said.

“Such governmental misconduct is intolerable. We urge you to take steps to ensure that it ceases immediately.”

Attorney Dispatched

The company also mounted an attack on another front, dispatching attorney Hundley to Justice Department headquarters.

A respected former chief of the department’s organized crime and racketeering section, Hundley’s portrait still hangs on the wall there. His clients over the years have included former President Richard M. Nixon, the late Atty. Gen. John N. Mitchell and South Korean businessman Tongsun Park. It was Hundley whom E. F. Hutton called in 1985 when the investment firm and its top executives were facing potential criminal charges in a multimillion-dollar check-kiting case.

Hundley met with the chiefs of the Justice Department’s organized crime section, Michael DeFeo and David Margolis, over lunch one day in the fall of 1987.

“I told them obviously there was some kind of war going on out there between Marvin and (MCA),” Hundley said. “I wanted to know what the status of the company was and to tell them we wanted to cooperate.”

‘Went to His Boss’

Hundley denied that his meeting was an attempt to circumvent the investigation by going over Rudnick’s head. “I went to the chief; that’s the logical guy to go to,” he said. “I went to his boss. I don’t feel that was going over his head. I was talking policy and cooperation, that sort of thing.” Hundley said that he has never talked to Rudnick about the case.

Shortly after the meetings, John Newcomer, then the newly appointed chief of the Los Angeles strike force, wrote back to MCA assuring the company that “we have taken the necessary steps to ensure that only relevant statements that are factually accurate will appear in pleadings and oral arguments.”

He added that “neither MCA nor any of its employees or executives are the targets” of the Pisello investigation. Rudnick was not told about the letter and learned about it only later, when MCA attorneys began showing it to reporters as proof that, in their words, “There is no story; the case is over.”

In December, 1987, sources said, Rudnick was called back to Washington and ordered by DeFeo and Margolis to limit his investigation to the tax charges against Pisello. That, in effect, ended the investigation into Pisello’s dealings inside MCA Records.

Rudnick Denial

Rudnick would not comment on the matter, but his attorney, Michael Kadish, said:

“Mr. Rudnick denies that he did anything improper in the course of prosecuting the Pisello case. He is genuinely bewildered by John Newcomer’s reversal of the department’s policy with respect to MCA during the Pisello case. Immediately upon arriving in Los Angeles (in October, 1987), Newcomer stopped the investigation without discussion or debate.”

At the Justice Department, Newcomer, Bonner, Margolis and DeFeo declined to discuss the controversy. Privately, however, several department officials who had some involvement in the case denied that the investigation was halted as a result of MCA protests, or that MCA tried to halt the probe.

“They (MCA lawyers) weren’t saying to us that it was improper for anybody to investigate MCA,” said one Justice Department official, “and they weren’t saying that if there was an investigation of MCA, that it should be halted. We would never tube an investigation because there were complaints about the way it was being handled.”

Courtroom Clashes

Pisello finally went to trial in Los Angeles federal court last April. Throughout the proceedings, Newcomer sat by Rudnick’s side, taking notes and passing messages to the prosecutor as he questioned witnesses. The two men clashed openly a number of times, on one occasion arguing in front of reporters in the hallway. In another instance, Newcomer sought to have Rudnick cut off his cross-examination of a defense witness who had launched into an angry diatribe against MCA.

Visibly irritated, Newcomer got up from his seat, walked to where Rudnick stood and handed him a note. “Marvin, this does nothing for our case; please wrap it up,” the note read.

According to sources, Rudnick had wanted to call a number of MCA executives to testify at the trial--including Myron Roth and Irving Azoff, chairman of MCA’s music entertainment division--but was forbidden to do so by Newcomer.

The only MCA executive to testify, under a grant of immunity, was Dan McGill. During barbed questioning by Rudnick, McGill testified that he accepted three undated checks from Pisello--totaling $180,000--as collateral on the business transactions, knowing that the checks were worthless. McGill said he kept the checks in his desk drawer without telling anyone else at the company.

Testimony on Checks

McGill testified that he had asked Pisello for the checks because the record company “was being audited by Price Waterhouse and they needed something to reflect that they were making some effort to collect” on the collateral.

John DuBois said it was “absolutely incredible” that neither Roth nor Al Bergamo, former head of MCA’s record distributing division, were called to testify at Pisello’s trial. MCA has said that Roth was the executive who ultimately approved the payments to Pisello.

“There were witnesses with absolutely pertinent, relevant testimony who were not called,” DuBois said.

In fact, McGill is the only MCA executive who has ever been called to testify in court about the company’s dealings with Pisello.

No MCA executives would agree to be interviewed for this article, referring all questions to the company’s lawyers.

Company Satisfied

But in an interview last year with American Lawyer magazine, MCA President Sidney J. Sheinberg said company officials are satisfied there was no wrongdoing on MCA’s part. “How (Pisello) managed to get inside the company and basically con the company out of its money isn’t a question that we have decided needed investigating,” he said.

Pisello did not testify at either of his tax evasion trials. But, in interviews with The Times, he said it was MCA who victimized him, not the other way around. “How can they say I conned or swindled them when they made millions of dollars from what I did for them?” he said.

Shortly after he was sentenced to four years in prison on the second set of charges last July, Pisello testified before a federal grand jury under a grant of immunity. This time, however, it was not Rudnick doing the questioning, but Newcomer.

Once again, Rudnick apparently was not told of his superior’s action until after the fact. According to several sources within the Organized Crime Strike Force, the rift between Rudnick and Newcomer has become increasingly bitter in recent months.

Job on the Line

At the moment, Rudnick’s job fate would seem to hang on some sort of Justice Department ruling on whether he acted improperly in the Pisello case.

The 41-year-old prosecutor, who is married to Kathryn Harris, a Los Angeles Times business reporter, is a 1972 graduate of the University of Kentucky Law School. He has handled a number of high-profile, white-collar criminal cases during his 13-year government career. As an assistant U.S. attorney in Florida in the late 1970s, he directed the only successful prosecution of a power company for manipulating oil prices during the Arab oil embargo.

In the early 1980s he was attached to the strike force in Las Vegas, where he successfully prosecuted two owners of the Aladdin Hotel for tax evasion on kickbacks from a loan from the Teamsters Central States Pension Fund.

In the Los Angeles investigative community, Rudnick is generally regarded as an honest--if sometimes bumptious--career government attorney who can be trusted.

Strong Defenders

Rudnick’s strongest defenders are the two attorneys who worked with him on cases at the strike force, James Waltz and John DuBois.

“Marvin is not the prosecutor for every case; he’d probably turn a simple bank robbery into a nightmare,” Waltz said. “But for complicated, white-collar and organized crime cases, it takes someone who is incredibly tenacious, who keeps going when most guys would give up. And that’s Marvin. He’s a wonderful prosecutor and he’s getting railroaded.”

Said DuBois: “He’s one of the best prosecutors I ever met. I think Marvin Rudnick should be cloned and one should be put in every U.S. attorney’s office in the country--but just one.”

One Justice Department official defended the government’s action in the MCA-Pisello-Rudnick affair philosophically.

“All I can tell you is I’ve been doing this for 15 years, and whenever I’ve looked into an industry or a problem, I know that most questions will be left unanswered, and many targets of the probe will not be prosecuted,” he said.

Questions Remain

“Our ability to find out the truth is very, very primitive. It relies upon other individuals to perceive things correctly, and then have a will to tell the truth.”

Whatever the outcome for Rudnick, more than three years after his MCA-Pisello investigation began and more than a year after it was halted, the questions he first raised about possible organized crime infiltration of MCA refuse to go away.

It was recently revealed, for example, that another top-level MCA executive, home video division President Eugene F. Giaquinto, is under investigation by the Los Angeles Organized Crime Strike Force for his alleged dealings with organized crime figures, including Gambino family boss John Gotti. Giaquinto has denied any organized crime connections, and no indictments have been returned.

MCA’s attorney, Ronald L. Olson, said that the company “has been advised repeatedly that it is not the target” of the Giaquinto investigation. However, Justice Department spokesman John Russell said the government has given MCA no such assurance outside the Newcomer letter, which, he said, “makes it clear we are talking about one aspect of the investigation.”

In October, a federal prosecutor in New Jersey seemed to be picking up right where Rudnick left off. At a sentencing hearing for Morris Levy and Dominick Canterino, the two men convicted of conspiring to extort Philadelphia record buyer John LaMonte in the 1984 MCA cutout sale that Pisello arranged, Assistant U.S. Atty. Bruce Repetto told the judge:

“It’s never been satisfactorily explained how Sal Pisello ended up in MCA.”

Noting that Pisello was “engineering this (cutout sale) from the inside of MCA,” Repetto said: “The charade that this somehow was a legitimate business deal that somehow went awry is over. It was an organized crime concept from day one.”

This article was reported by Times staff writers William K. Knoedelseder Jr., Kim Murphy and Ronald L. Soble.

KEY FIGURES IN PISELLO CASE Marvin Rudnick--Special attorney with the Justice Department’s Organized Crime Strike Force who prosecuted Salvatore Pisello, investigated MCA and faces possible disciplinary action for the effort. According to a fellow prosecutor, Rudnick, a nine-year Strike Force veteran, “is one of the best prosecutors I ever met.”

Salvatore Pisello--Reputed member of the Gambino organized crime family. Convicted of evading taxes on hundreds of thousands of dollars in income earned through deals with MCA Records. “How can they say I conned or swindled them when they made millions of dollars from what I did for them?”

John Newcomer--Transferred from the Detroit strike force, he became chief of the Los Angeles strike force in October. Reportedly recommended firing of strike force prosecutor Rudnick after Rudnick’s successful prosecution of Pisello for tax evasion.

James L. Waltz--One of a series of Strike Force attorneys who were assigned to the MCA case, now in private practice in Laguna Hills. “If you ask me, it’s not Marvin Rudnick’s competency or handling of the Pisello case that should be the issue here, but rather the Justice Department’s apparent muzzling of a prosecutor following pressures placed on them as a result of him poking around.”

William G. Hundley--Prominent Washington, D.C., lawyer-lobbyist and former chief of the Justice Department’s Organized Crime and Racketeering Section, hired by MCA in August, 1987. His job was to deal with MCA’s potential government problems growing out of the Pisello tax evasion prosecution. “I’m sure they’re very, very sorry that they ever signed this guy (Pisello) on. But God almighty, a major corporation, you got one guy, and bingo, it’s ‘MCA and the mob.’ ”

John DuBois--Former federal Strike Force prosecutor in Los Angeles who worked with Marvin Rudnick in the 1986 tax evasion prosecution of Pisello. “We felt that, as a hypothesis, the probability was absolute that someone inside MCA had done something wrong with regard to Pisello’s activities,” said DuBois, now a prosecutor for the New Mexico attorney general.