updated 2/25/2005 11:20:59 AM ET 2005-02-25T16:20:59

Two brothers, one a reputed member of a New York crime family, have pleaded guilty to conspiring to bilk the government out of nearly $9 million by inflating expenses at a small Missouri telephone company.

Richard T. Martino, 45, an alleged member of the Gambino crime family, and his brother Daniel D. Martino, 54, each pleaded guilty to participating in a conspiracy to commit mail and wire fraud.

Richard Martino, who pleaded guilty in New York last week to federal charges in a separate case, also pleaded guilty Wednesday to one count of mail fraud.

The brothers are controlling owners of Local Exchange Company LLC, a Maryland holding company that owns the Cass County Telephone Co., which serves about 8,000 customers in the Kansas City area.

Prosecutors claimed that the Martinos and CassTel President Kenneth M. Matzdorff decided in 1998 to inflate the company’s expenses so it would qualify for millions of dollars in subsidies and disbursements.

Matzdorff, 48, pleaded guilty in January to conspiracy to commit mail and wire fraud for his role in the alleged scheme.

Phone funds overbilled
Overland Data Center in Overland Park, Kan., which is controlled by Richard Martino, billed CassTel for about $11 million in software and information technology support — but prosecutors estimated the value of the services at only $240,000.

Because of CassTel’s inflated figures, prosecutors said, the company was overpaid about $5.4 million between 1998 and 2003 by the National Exchange Carriers Association, which collects money from phone companies for access and use of other companies’ systems, then distributes the money back to those companies based on their costs.

Prosecutors claimed the fictitious expenses also led to an overpayment of $3.5 million in subsidies from the Universal Service Administrative Co., which was established by the federal government to subsidize high-cost rural telephone companies.

Under the plea agreements, Richard Martino, of Tuckahoe, N.Y., agreed to forfeit $5.9 million to the government and Daniel Martino, of Hawthorne, N.Y., agreed to forfeit $500,000. In his plea, Matzdorff, of Belton, agreed to forfeit $2.5 million.

Richard Martino could get 10 years in prison, while his brother could get five years. No sentencing date was set.

Richard Martino was one of six people to plead guilty Feb. 14 in what federal prosecutors in New York said was a scheme that placed hundreds of millions of dollars in unauthorized charges on unsuspecting consumers’ credit cards and telephone bills.

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