Federal judge orders defendant in alleged lottery scheme detained

A federal judge Wednesday ordered one of the defendants arrested in an alleged $107 million lottery scam permanently detained as a danger to the community because of threats he made to one of the victims in the case.

U.S. District Judge Nicholas Garaufis in Brooklyn said he made his decision to jail Frangesco Russo, 38, of Roslyn, pending trial based on the alleged threats Russo made to the victim that he, his wife and children would be brutally harmed if the victim did not immediately repay a $250,000 extortionate loan.

In doing so, Garaufis agreed with federal prosecutors who appealed a decision by a magistrate who had ordered  Russo released on $2 million bond on Tuesday.

The extortionate loan charges were a separate set of accusations involving two of the defendants in the main lottery scam in which the winners of three jackpots were allegedly cheated out of a part of their winnings.

Garaufis also noted that Russo had emphasized to the alleged extortion victim that he had purchased “a few tactical shotguns” that he could use and that one such weapon was seized in Russo’s home by investigators.

The judge noted that Russo had no criminal history, but “people are capable of great injury to others…if they feel cornered.”   

In seeking to have Russo detained, Eastern District federal prosecutor Lindsay Gerdes had said in court papers that Russo also reminded the victim of his supposed violent heritage -- that his father had died in federal prison while serving a sentence for murder. Russo ‘s father was Joseph “JoJo” Russo, a captain in the Colombo organized crime family, prosecutors said.    

Gerdes also had argued to Garaufis that Russo was "untrustworthy," having failed to inform federal pre-trial services over  $3 million in his personal assets.

Russo was the only one the four defendants in the overall case who was not released on bond Wednesday as part of the lottery scheme.

Joseph Conway, Russo’s lawyer, argued that another of the four defendants, Francis Smookler, 45, of Oyster Bay, had made similar threats to the victim, but the government had not objected to his release on $2.5 million bond.

Garaufis said he had not been asked to rule on Smookler’s release. 

“We are disappointed that M. Russo was not granted bail, but we are looking forward to presenting our evidence to show his innocence in future proceedings," Conway, who had offered a $2.5 million bail package, said afterward.

The victim of the extortion scheme was identified in court papers as Gregory Alteri, 53, of Melville, who himself had had been charged in July with operating an alleged $200 million Ponzi scheme in which he claimed he could make up to 75 percent returns for investors by buying jewelry at a low prices and reselling them at inflated prices.

In their part of the lottery scam, Russo and Smookler are accused of siphoning off $50 million of the lottery winners take into Alteri’s jewelry operation unaware that it was an alleged Ponzi scheme, according to officials.

While that money was lost, Russo and Smookler were more concerned about getting the $250,000 loan repaid because they, in turn, had borrowed it from unidentified people they told Alteri were “animals,” “really crazy people”, capable of extreme violence, if they didn’t get their money back in “a timely manner,”  according to court papers.

All told Alteri owned $415,000 on his original loan $250,00 loan, counting the extortionate interest, plus the fees Russo and Smookler were supposed to get for arranging the loan, according to officials.

By Robert E. Kessler

Robert.Kessler@newsday.com

Bob Kessler covers federal law, including law enforcement agencies such as the FBI, DEA, IRS and ATF, as well as the federal courts.