Star witness in Ray Nagin case unfairly allowed to keep ill-gotten gains, New Orleans businessman argues in new filing _lowres

Advocate staff photo by MATTHEW HINTON--Frank Fradella, former CEO Home Solutions of America, a of disaster management company, leaves federal court after his first day of testimony in the trial of former New Orleans mayor Ray Nagin in New Orleans, La. Friday, Jan. 31, 2014. Fradella was previously found guilty of conspiring to bribe Nagin with trips, cash and truckloads of granite.

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A New Orleans businessman claims in a new court filing that federal prosecutors were so eager to build their case against former Mayor Ray Nagin that they allowed one of their star witnesses, crooked Mandeville businessman Frank Fradella, to keep millions of dollars in ill-gotten gains.

The Monday filing by Scott Sewell says that Sewell — a former business partner of Fradella’s — was cheated out of more than $5 million by Fradella, whose publicly traded disaster reconstruction firm bought out Sewell’s construction company in 2006 but never finished paying for it.

The motion says Fradella stopped making payments when he became aware that Sewell had begun blowing the whistle on Fradella’s efforts to defraud investors and was cooperating with an FBI investigation.

It says Fradella should have been forced to pay restitution to Sewell, who formally sought victim status under federal law in November 2014, but the government did not force him to do so.

U.S. Attorney Kenneth Polite’s office “has at every turn protected the criminal Fradella and obstructed Sewell’s good faith attempts to get the restitution to which he is entitled,” the motion says.

Fradella was a linchpin witness in the 2014 trial that saw Nagin convicted on 20 of 21 corruption counts and then sentenced to a 10-year prison term.

Fradella testified that he paid the mayor more than $150,000 in cash bribes and also sent the Nagin family’s countertop business two shipments of free granite worth at least $50,000. The payments, Fradella said, were in exchange for the promise of a large city redevelopment contract, though the hoped-for deal never came through.

The dispute between Sewell and the government has been simmering for months, but it has mostly played out in court motions that have been kept under seal. The New Orleans Advocate in May intervened in the case, asking the 5th U.S. Circuit Court of Appeals to order the materials unsealed, but the court remanded the matter to the district court, where it remains.

Because so much of the case has been kept sealed, it is unclear why Sewell was not recognized by the court as a crime victim eligible for restitution. The decision was made by U.S. District Judge Susie Morgan, based on a review and recommendation by U.S. Magistrate Judge Joseph Wilkinson.

But a recent filing by the government in response to The Advocate’s intervention in the case offered some hints. That filing said Wilkinson rejected Sewell’s claims in part because Sewell had “contemporaneous knowledge of the underlying fraud of his business associates,” and that this knowledge was “sufficient to impute inequitable conduct to Sewell.”

In layman’s terms, it appears Wilkinson found Sewell's hands were not clean. Case law typically dictates that pleadings that impugn the integrity of people who are not charged with crimes be kept sealed; Sewell has not been charged with any crime related to his dealings with Fradella.

Sewell, a prominent local Republican leader, served as deputy assistant secretary of the interior for land and minerals management and later principal deputy assistant secretary for fish and wildlife and parks in the administration of President George H.W. Bush.

Sewell’s latest pleading, prepared by lawyer Tim Meche, was not filed under seal.

It asks that the entirety of the case be unsealed even though the government has requested that all filings in the matter be sealed, purportedly for Sewell’s protection.

In fact, Meche argues, the government simply doesn’t want any scrutiny of how it handled Fradella, whom Morgan in February sentenced to a year and a day in federal prison.

“The person it meant to protect was the criminal Fradella, who it made sure would not only get an extremely below-guidelines sentence but also escape accountability for an admitted career of frauds and swindles of individuals and government entities (taxpayers victims) without an order of restitution, a meaningful fine or a forfeiture,” the motion says.

Elsewhere, it asks the court “to unseal the documents or at least have someone, anyone articulate a legitimate reason why these documents should continue to be sealed.”

The motion is set for argument before Morgan on Aug. 26.

Fradella was charged in federal court in Texas in 2011 with defrauding investors in his company, Home Solutions of America, in a so-called “pump and dump” scheme.

Prosecutors said he had issued bogus press releases touting phony new contracts for Home Solutions, running up the firm’s stock price; he then sold thousands of shares at a considerable profit. As the scheme unraveled, the stock eventually became worthless and it was delisted. Investors lost tens of millions of dollars.

At the request of federal prosecutors in Louisiana, the Texas case was transferred to New Orleans the following year, and eventually Fradella was allowed to plead guilty to a new bill of information that included one charge related to the stock fraud and a second charge related to his bribery of Nagin.

Fradella faced up to five years in prison under the terms of his plea deal. But Morgan sentenced him to just a year and a day, a light sentence whose leniency resulted in large part from impassioned advocacy on his behalf by the government.

Prosecutor Richard Pickens described Fradella’s cooperation as “invaluable” and said, “Having worked public corruption cases for too long, I have yet to run into a cooperator who was as helpful as Mr. Fradella.”

Such entreaties from the government on behalf of key cooperating witnesses are not unusual. In the Nagin trial alone, a handful of admitted criminals received reduced sentences as a result of their cooperation.

Businessman Rodney Williams, who admitted bribing Nagin, was sentenced to one year in prison, while Greg Meffert, the city’s former chief technology officer, was sentenced to three years, though he had faced as many as eight. Michael McGrath, who was serving a 14-year sentence for a massive mortgage fraud scheme, got that term cut by half after he testified for the government.

Follow Gordon Russell on Twitter, @gordonrussell1.