Two plead guilty in phone scam

KANSAS CITY, Mo. -- Two brothers, one a reputed member of a New York crime family, pleaded guilty Wednesday to conspiring to bilk the federal government out of nearly $9 million by inflating expenses at a Kansas City area telephone company.

Richard T. Martino, 45, of Tuckahoe, N.Y., an alleged member of the Gambino crime family, and his brother Daniel D. Martino, 54, of Hawthorne, N.Y., 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 to one count of mail fraud Wednesday.

The brothers are controlling owners of Local Exchange Company LLC, a Maryland holding company that owns Peculiar-based Cass County Telephone Co.

Prosecutors had claimed that the Martinos and CassTel president Kenneth M. Matzdorff decided in January 1998 to inflate the expenses of the telephone company so the business would qualify for millions of dollars in subsidies and disbursements from the National Exchange Carriers Association and the Universal Service Administrative Co.

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

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 alleged the value of services actually performed by Overland Data Center is estimated at $240,000.

The government alleged that CassTel included the fake expenses in documents filed with 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. Because of CassTel's inflated figures, prosecutors said, the association overpaid the company about $5.4 million between 1998 and 2003.

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 terms of the plea agreements, Richard Martino agreed to forfeit $5.9 million to the government and Daniel Martino agreed to forfeit $500,000. In his plea, Matzdorff agreed to forfeit $2.5 million.

CassTel serves about 8,000 customers in Cass County and a small number of customers in Kansas.

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

On Feb. 14, Richard Martino was one of six people to plead guilty 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.