The Death of Transcon : Lenny Pelullo got control of a failing firm with millions in assets for $12 in cash; 19 days later, it was out of business.

Transcon Lines, a big Los Angeles trucking company, was running on fumes when Leonard A. Pelullo took the wheel last spring.

It was losing money--$5 million a month--as it tried in vain to compete with such industry giants as Roadway and Yellow Freight. It was late paying its bills; one of its unions had sued to collect an overdue pension payment.

The company was in bad shape. Only a patient investor with deep pockets could reverse its downhill slide. Don’t look to Lenny Pelullo. He hit the accelerator.

Just 19 days after Pelullo’s associates bought the trucker from parent Transcon Inc. last April Fool’s Day, it was out of business. Many of its 4,000 workers lost their jobs.

Hundreds of trucking companies shut down this year, victims of high fuel costs and the vicious rate wars that have plagued the industry since it was deregulated 11 years ago. The war for survival in trucking may have benefited consumers by keeping shipping rates low. But it has wiped out profits at many trucking firms, rendering them almost worthless.

Amid the wreckage, Transcon Lines--with more than 3,500 trucks and terminals in 45 states--stands out. A bankruptcy trustee in Los Angeles has claimed in court that companies linked to Pelullo picked up Transcon Lines for almost nothing and then siphoned millions of dollars from it in just a few weeks.

An unintimidated Pelullo denies the charge and said words can’t hurt him.

“I always make the distinction between allegations and alligators,” said Pelullo, a brash Miami businessman who led the group that acquired Transcon Lines.

This is not the first time accusations of fraud have been hurled in Pelullo’s direction; previous allegations have failed to stick.

Last year, a court-appointed bankruptcy examiner in Miami said in court papers that he suspected fraud involving another money-losing Pelullo company, Royale Group Ltd. of Miami, but lacked the evidence to make charges.

A federal grand jury in Cincinnati indicted Pelullo for his role in an alleged 1984 bank fraud; a jury acquitted him in June.

Pelullo has other potential problems. He is suing the state of New Jersey over a 1985 study by its Commission on Investigation, which called him a “key organized crime associate,” an allegation Pelullo vigorously denies. Meanwhile, a federal grand jury in Philadelphia is looking into his activities there. A U.S. attorney confirmed the existence of that four-year-long probe, but did not provide details.

It may be many months before what happened at Transcon Lines becomes clear, either.

Pelullo said the failure of Transcon Lines was unavoidable. The company was near dead--”on the gas pipe,” as he put it--when his associates purchased it for the token price of $12 cash last April 1.

The acquisition was the first step in a series of ill-fated deals intended to build a trucking powerhouse, Pelullo said. While arranging to buy Transcon Lines, Pelullo and his associates also entered negotiations to purchase PIE Nationwide, a rival trucking firm based in Jacksonville, Fla.

Pelullo said his associates wanted to combine the operations of Transcon and PIE to form one strong trucking firm. But the plan ran into problems. Pelullo said Transcon Lines’ lender wouldn’t work with his group. And, he said, “there was some trouble with the unions.”

The trouble was that the unions--sensing Transcon Lines was on the brink--wanted the company to keep up its pension contributions. The Teamsters’ Central States Pension Fund, in fact, said it was owed $4.1 million in overdue contributions. A federal court in Chicago ordered Transcon Lines to pay the Teamsters’ fund $40,000 a day.

Facing a cash crunch, Pelullo said, he had to act fast to preserve Transcon Lines’ business. The trucker’s routes and trucks were sold or assigned to related companies, which turned the assets over to PIE Nationwide.

Lacking routes and trucks--the essential components of a trucking company--Transcon Lines was out of business.

Pelullo, in an interview, said he was directly involved in negotiations as a consultant, but not as an investor. He is not an officer of any company, he said. However, his associates hold key positions at Transcon Lines and other firms involved in the transactions, and Pelullo’s father, Peter Pelullo, is a shareholder in the companies that acquired Transcon Lines and PIE.

Take Growth Financial Corp., the company that acquired Transcon Lines. Its chairman is Edmund A. Abramson, a Miami investor and former Oldsmobile dealer who once tried to buy financier Victor Posner’s Royal Crown Cola. He met Pelullo in 1989, when Pelullo tried to enlist Abramson’s support for a takeover of Posner’s DWG Corp. Abramson turned him down; Pelullo’s takeover attempt fizzled. After that, court records show, Abramson stepped forward to help bail out Pelullo’s failing Royale Group Ltd.

The company that bought PIE is named Olympia Holdings Corp. and its president is Manuel Ferro Jr. He is senior vice president-finance for Royale Group.

David G. Hellhake, vice president of two Pelullo companies and president of a third, is vice president and secretary-treasurer of Transcon Lines and parent Growth Financial Corp.

PIE’s board is packed with Pelullo’s associates. Royale Group Vice President John W. Cooney sits on PIE’s board, as does Royale Group Executive Vice President Jacob der Hagopian. Abramson and Pelullo are also on PIE’s board.

Lawyers and others involved in discussions over the trucking companies say it is clear to them that Pelullo is in charge. “Pelullo calls the shots,” said Thomas C. Nyhan, general counsel for the Teamsters Central States Pension Fund.

Records on file in bankruptcy court suggest that the demise of Transcon Lines was more than a simple business failure.

“Within a few weeks of Growth’s acquisition of Lines, Lines became a shell,” trustee Leonard L. Gumport said in court papers. “Though the liabilities remain, virtually all Lines assets, other than accounts receivable, are gone.”

Documents filed in court indicate that two days after a firm linked to Pelullo acquired Transcon Lines, the trucker’s bank accounts started to shrink. In a series of transactions, the documents state, $1.875 million was transfered to trust accounts at law firms in Rhode Island and New Jersey.

It isn’t known where all the money went. Records show that $280,000 went to a New Jersey printing company that Pelullo runs. Other court testimony indicates that $355,000 went to a consulting firm that Transcon Lines hired the day it was sold. The bankruptcy trustee alleges that the consulting firm, Growth Investments of Miami, is linked to Growth Financial, Transcon Lines’ owner; the president of Growth Investments denied that in court.

Hellhake, vice president at Transcon Lines, said $600,000 was distributed to lawyers, truck lessors and others. What happened to the rest of the money is still in dispute.

Gumport, an attorney with Hufstedler, Miller, Kaus & Beardsley, contends in court documents that $400,000 was used by the Miami investors to buy PIE Nationwide. But Pelullo associate Edmund Abramson denied that the money was used for an acquisition.

Other court records state that the cash transfers made it even harder for Transcon Lines to pay its bills. James Fox, a Transcon Lines executive who remained with the trucking firm as a consultant after the sale, testified that he warned the firm’s new president that paychecks might bounce if money wasn’t returned to Transcon Lines’ bank accounts.

Fox said that on April 3, Transcon Lines’ new president, Herbert Lefkowitz, transferred $1.7 million from a Transcon Lines account to the Rhode Island law firm trust account, leaving just $33,000 in the Transcon account. “Before this, Lines was already unable to pay its creditors,” Fox said in court. “After the transfer . . . my concerns increased.”

Lefkowitz obliged Fox. On April 4, the Rhode Island account wired to Transcon Lines $1 million. Hellhake later testified that the $1 million was a loan because the $1.7 million had been “a partial payment for services rendered to (Transcon Lines) it.”

Nonetheless, the company closed down on April 20 with lightning speed, according to a former Transcon Lines driver. Gary D. Peterson said that by nightfall, the company’s terminal in West Valley City, Utah, had been cleaned out: no freight, no spare tires, no repair tools. Nothing. The trucks were gone too.

Peterson didn’t go to work the next day. “It was pretty clear I had no job,” he says. Two weeks later, he got a layoff notice in the mail.

On May 1, Transcon Lines’ creditors--including the Central States Pension Fund--placed the trucker in bankruptcy proceedings. The creditors, citing Pelullo’s links to Transcon and his alleged ties to organized crime, among other things, asked that a trustee be appointed to run the company. It is now being liquidated. It listed assets of $85.24 million and liabilities of $119.25 million.

Those alleged ties to crime figures have been a source of controversy. A 1985 report by the New Jersey Commission on Investigation linked Pelullo to the Philadelphia mob. But Pelullo has vigorously denied any association, and is now suing the New Jersey commission to have his name removed from the report.

The report, which took a look at the presence of organized crime in boxing, described Pelullo as a “key organized crime associate from Philadelphia, currently based in Florida.” The report examined, among other things, activities of his brother Arthur R. Pelullo, a boxing promoter who got into the business to stage fights for Royale Promotions, a Royale Group subsidiary.

Transcon Lines’ creditors and its trustee have raised questions about the sale of the trucker’s routes and trucks to a group of interrelated companies. They allege that the other Pelullo-related firms paid very little to take over Transcon Lines’ assets.

Moreover, some truck lessors have demanded the trucks back. One lessor, Chrysler Capital Corp., argued in court that its lease with Transcon Lines was broken when the company was first sold. It wasn’t easy to round up Chrysler’s 170 tractor-trailers; PIE said at first that it couldn’t find 17 of the huge trucks.

Questions about asset sales are not new to Pelullo. Shortly before Royale Group Ltd., his real estate firm, sought bankruptcy protection, it transfered many of its valuable properties--including its landmark art deco hotels in Miami Beach--to other Pelullo-related companies. An examiner appointed by the bankruptcy court questioned the transactions.

Jeffrey H. Beck, the examiner, said the transfers appeared “intended to deprive creditors . . . of some potential asset.” He further asserted: “It would appear that there could be a substantial argument made that a fraudulent transfer was effectuated.”

Responding to Beck’s findings, Pelullo reversed the transactions, giving the properties back to Royale Group, and its subsidiaries.

By the end of the case, Judge Sidney M. Weaver was suggesting that there was something phony about Pelullo’s Royale Group.

“I feel like I am part of a shell game and I have come to the conclusion in this case that I’m not even sure there is a pea under any of the shells,” he declared in court. “I have had just about enough of this case.”

Weaver dismissed the bankruptcy in October, permitting a lender to foreclose on the hotels. Pelullo--who runs his companies from an office in one of the beachfront hotels--is trying to reverse the foreclosure in federal appeals court.

Pelullo has suffered other setbacks.

A one-time consultant to Victor Posner, a convicted tax cheat, Pelullo received widespread attention last year when he unsuccessfully tried to take control of DWG Corp., the parent of Arby’s and Royal Crown Cola and the last remaining jewel in Posner’s fallen empire. Pelullo is now involved in a bitter court dispute with Posner over money. Pelullo claims Posner’s DWG Corp. owes him $8 million in consulting fees; Posner claims he doesn’t owe Pelullo a cent.

On another front, Pelullo is fighting a claim that he owes the government money. In Miami, the Federal Deposit Insurance Corp. wants $2.64 million from him--and another $28 million from companies he runs--for loans made by a failed Florida bank that is now under government control. Pelullo says he isn’t responsible for the debts.

Transcon Lines creditors and employees aren’t the only ones unhappy that the company collapsed so abruptly. The seller, Transcon Inc. of Beverly Hills, is angry, too.

Transcon Inc. Chairman Orin Neiman said that when he agreed to sell the trucker for $12, he presented Pelullo and Abramson with one absolutely non-negotiable demand: the buyers would have to take on Transcon Lines’ huge truckload of debt. Call it a leveraged sellout.

“They promised to assume the lease agreements on the trucks, to make payments to the lenders and so on,” said Neiman. What happened next? “They forgot to pay everybody.” And what next? “Everybody is suing us.”

Transcon didn’t do very well after a Pelullo-related company bought it, but what about PIE? The successor to Pacific Intermountain Express--a name familiar to Californians who, as children, hoped for a pie from the PIE truck--inherited Transcon’s routes, undelivered freight, trucks and other equipment. It got Transcon’s customers too.

The new business didn’t help; PIE sought bankruptcy protection in mid-October. It laid off 2,600 of its 7,800 workers and dropped some out-of-the-way destinations. The firm’s chances to survive are uncertain.

Have two disasters in six months ruined Lenny Pelullo’s taste for the trucking business? Not by a long shot.

His sights are said to be fixed on Landstar Systems Inc., one of the nation’s largest trucker holding companies.

According to a lawyer who has seen the letter of intent between Pelullo and Landstar parent IU International, Pelullo plans to buy Landstar and transfer its trucks to a new company that will also own PIE’s trucks.

“It is incredibly complicated,” this lawyer said. “It took three of us nearly a whole day to figure it out.”

Meanwhile, there may be yet other fallout from Transcon Lines.

Ex-driver Peterson figures Transcon Lines owes him $17,486 in back wages, unpaid vacation and sick days. He also figures he may have to file bankruptcy himself to keep his three bedroom ranch home--especially since the Coca-Cola plant nearby isn’t hiring drivers now.

He is driving a truck for delivery company, but that doesn’t pay enough to make ends meet.

And Peterson never even heard of Lenny Pelullo.

TRANSCON LINES AT A GLANCE Headquarters: Los Angeles

Employees: 4,000

Terminals: 247 in 45 states

Assets: $85.24 million

Liabilities: $119.24 million

‘89 Revenue: $226.5 million

‘89 Loss (est.): $31.6 million