Big Brother and the Bookie

How the feds turned top-secret spy technology against the son of a Mafia don -- and made a low-level wiseguy into a poster boy for the Fourth Amendment

It started out as a run-of-the-mill bookmaking investigation in the Newark, New Jersey, area. Gambling and loan-sharking. Sports bets on football, the colleges and pros. The usual stuff. The book was generating about $5 million a year in action. A decent-size business, it was said to be part of a Gambino crime-family operation.

This investigation had a little more sex appeal than most because one of the targets was the son of a jailed Mob boss. In certain underworld and law enforcement circles, the kid's pedigree carried a lot of weight. In effect, it made him seem more important than he really was, which might explain why the investigation eventually took the course that it did.

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The kid is Nicodemo S. Scarfo. His father, Nicodemo D. Scarfo, also known as "Little Nicky," used to be the boss of the Philadelphia-South Jersey Mob. In his day, the elder Scarfo had a reputation for violence that was unrivaled. He's currently doing 69 years in a federal pen in Atlanta for racketeering charges that included 10 murders. The kid doesn't have that kind of rep. He's always been more interested in making money than making headlines.

The probe began in January 1999. The nuts and bolts of the case are pretty straightforward: A guy bets. A guy loses. A guy borrows money to pay off his debts. A guy pays 104 percent interest. Multiply that by a couple dozen guys and you've got a major book. All standard operating procedure in the underworld.

In this case, the feds zeroed in. Confiscated gambling records and wads of cash. Made arrests. Indictments followed. But on the way to what appeared to be a one-week trial, this standard, no-frills bookmaking case turned into a story about Big Brotherism in the age of high technology, a clash between privacy rights and national security, a Mob case for the millennium.

Think of it as The Sopranos meets The Matrix.

That is the only way to explain how young Nicky Scarfo, 36, with a curriculum vitae that includes surviving a Mob hit in a popular South Philadelphia restaurant in 1989 and serving nearly five years in jail for gambling and weapons offenses in the 1990s, has emerged as a high-tech poster boy for the Fourth Amendment.

Scarfo was indicted in June 2000, following an 18-month investigation. What his lawyers learned as they began sifting through the evidence in preparation for trial was that the FBI investigation had hit a snag when the feds discovered that young Nicky was storing his gambling records--payoffs, bets, loan-sharking credits--on his computer. The tech-savvy mobster had encrypted these records using the latest privacy software, a program so powerful that even the FBI could not crack it--without the password.

How the feds got that password, and the records needed to make the gambling case, is the heart of the story. For in order to gain access to the files, the FBI used a sophisticated, highly classified monitoring device known as a keystroke recorder. The device, which may be no larger than a sugar cube, was planted in Scarfo's keyboard and allowed agents in a remote location to track the letters and numbers that Scarfo typed.

Scarfo's lawyers quickly claimed the feds should have obtained wiretap authorization before conducting that type of surveillance. The prosecutor in the case said the court-authorized search warrant that the FBI had used to plant the recorder was sufficient because the device was not intercepting electronic transmissions.

But when the defense pressed for a more detailed explanation of how the recorder worked, the government refused. They said the device was used primarily in high-tech national security investigations and that the technology was so top secret that "out of 27,000 FBI employees, there are fewer than 30 persons familiar with the underlying functionality" of the system.

Public disclosure of how the recorder worked, they added, could compromise "criminal and national security investigations, and…would possibly threaten the lives of FBI or other government agency personnel."

When federal Judge Nicholas Politan insisted he needed more detail to rule on a defense motion to suppress the evidence, the prosecution retreated behind the Classified Information Procedures Act (CIPA). To disclose details about the system, Assistant U.S. Attorney Ronald Wigler argued in another motion, would present a risk to national security and would violate CIPA, the law under which the technology had been classified. Not only is the technology classified, according to an FBI affidavit supporting Wigler's position, but the guidelines under which it was classified are also classified.

"It's the first case of its kind," said David L. Sobel, general counsel for the Electronic Privacy Information Center, a civil liberties watchdog group in Washington, D.C. "I'm a little surprised at the point at which it's escalated…. It's a question of whether the government is entitled to use technology so sensitive and so secret that it's not willing to disclose to a defendant how they gathered evidence. A defendant is entitled to know what was done during an investigation."

"They used a national security device to track a bookmaker," said Norris Gelman, one of Scarfo's lawyers. "What did they think, Osama bin Laden had a bet on the Detroit Lions?"

Young Nicky Scarfo is no stranger to law enforcement. The FBI and the New Jersey State Police, it seems, have always been a part of his life. He grew up around his father's organization, which was based in Atlantic City at the dawn of the New Jersey casino gambling era in the late 1970s. One of three sons of the Mob boss, he is the only one to follow in his father's footsteps, albeit on his own, decidedly 1990s terms.

The elder Scarfo was in many ways a throwback to a more violent Mob era. During his bloody run as Mob boss from 1981 through 1987, two dozen Philadelphia-area gangsters turned up dead, at least 10 on orders of the dark-haired, diminutive Scarfo Sr. stands about 5 foot 5--Mafia don.

His son and namesake--taller, stockier, with blue eyes and light-brown hair--is more sophisticated. Likes the business end of the business. Wears stylish wire-rimmed glasses. Loves computers. A former lawyer and friend calls him "a geek." This description is backed up by snippets of phone conversations recorded by the FBI in 1999, at the start of the investigation. Mixed in with discussions about the "vig" (the vigorish, or interest) and the "tab" (the principal on a debt), there is Scarfo boasting to another young wiseguy about his new computer.

"I got a monster," he says. "I got a fucking DVD in there… 128 megs of ram, a Pentium III, 450…a 19-inch monitor and Digital Surround Sound. The whole fucking nine yards."

The kid's first serious brush with the law came in 1989 when he was the victim of a Mob hit. On Halloween night, a guy wearing a mask and carrying a trick-or-treat bag walked into Dante & Luigi's restaurant in South Philadelphia, where Scarfo and a friend had just sat down to dinner. The young mobster was having clams and linguini--his favorite dish, according to a friend--when the masked man walked up to Scarfo's table, pulled a MAC-10 submachine pistol out of his bag, and opened fire. Scarfo was hit eight times. Miraculously, he survived, and two weeks later, he walked out of the hospital. You just can't make this stuff up.

In investigating the shooting--to this date, no one has been charged with the crime--detectives seized a laptop computer Scarfo was carrying with him that night. On it, they found gambling and loan-sharking records. Back then, Scarfo wasn't into encryption.

Scarfo hid out in North Jersey after the hit, which most believed was orchestrated by a renegade faction of the Philadelphia Mob upset with the reign of his father. Since the elder Scarfo was in jail at the time, his son became a proxy target.

A year later, young Nicky was popped by the New Jersey State Police on charges involving the sale and distribution of illegal video- poker machines. Scarfo eventually pleaded guilty and served about three and a half years. In 1997, while still on parole, he got involved in a barroom fight in Atlantic City. He again pleaded guilty, this time to a weapons charge, and was sentenced to another 18 months.

Along the way, Scarfo also managed to spend time in the Clearwater, Florida, area working for a computer software company run by a friend. The company's name was America's Most Wanted Software.

The kid has always had a sense of humor.

It was back in North Jersey in 1998, after his release from prison on the weapons charge, that Scarfo showed up again on the FBI's radar screen. A Gambino crime-family associate who was about to go to jail needed someone to oversee his bookmaking and loan-sharking operation. Scarfo, the feds say, was tapped to handle the job

.

In December 1998, the FBI began tracking Scarfo. The first search warrant was issued on January 15, 1999. The feds seized data from one of the computers in his business office in Belleville, a small town adjacent to Newark. They also grabbed three wads of cash from the young mobster, which was not surprising. January 15 was a Friday. Friday is the day when bookies settle up with their bettors.

Scarfo had $6,011 in cash in his pockets that day. The money was separated into three bundles, each wrapped with rubber bands. He also was carrying what investigators identified as a "computer generated printout" of gambling and loan-sharking records.

The FBI took the contents of the hard drive from Scarfo's computer and transferred it to a disk. During a later analysis, investigators discovered that one document, labeled "Factors," had been encrypted in a program known as PGP--Pretty Good Privacy. Available in most software outlets, the 128-bi PGP encryption program is considered one of the best on the market and is virtually impossible to crack. "Factors" had last been modified on January 12, a Tuesday.

According to an FBI affidavit that is part of the investigative file, Tuesday is the usual day for finalizing wins and losses in an illegal gambling operation. "Attempts to decrypt this file without the pass phrase were unsuccessful," the affidavit notes.

Stymied, federal authorities went back to court and asked for a search warrant that authorized another break-in to Scarfo's office. In May, the FBI's black-bag operatives hit the business and planted the keystroke recorder. While the specifics remain under wraps, the prevailing theory is that a tiny, battery-powered device was secreted in the keyboard of Scarfo's computer. The recorder then sent a signal to an FBI surveillance post--perhaps a van not far from Scarfo's office--from which the feds could monitor the activity occurring on Scarfo's terminal.

The court order approved monitoring for about 60 days. In fact, authorities now say, they were "up" on the keystroke recorder for only 14 days. In the end, the feds found the pass phrase that gave them access to what prosecutors now claim are gambling and loan-sharking records. Those records are the heart of the case against Nicodemo S. Scarfo.

A year later, on June 21, 2000, a grand jury handed up a three-count indictment charging Scarfo and an associate with gambling and loan-sharking. But the trial has been on hold while lawyers argue over privacy rights, the Constitution, and what critics contend is an egregious example of 21st-century Big Brotherism. The issue, says Sobel of the Electronic Privacy Information Center (EPIC), is "how a Fourth Amendment search should be conducted in an electronic environment." The fact that it is a Mob bookmaking case, he adds, is immaterial.

In their legal briefs, Scarfo's attorneys claim they need to know how the keystroke recorder works in order to fashion a motion seeking to have the evidence thrown out. The attorneys believe that investigators did not have the proper court authorization to secretly monitor Scarfo's computer activities. At the very least, his lawyers say, the FBI should have sought a more difficult-to-obtain wiretap authorization.

Wiretap laws require that the authorities stop listening when what is being said is not relevant to the criminal investigation. For example, if a bug is placed on a target's phone and the target calls his doctor rather than his partner in crime, those listening in are required to shut down their listening device. The conversation with the doctor is private. And it is protected. In contrast, sifting through a hailstorm of keystrokes--including, presumably, personal correspondence--to find a computer password doesn't allow for that kind of se-lective snooping. In fact, the defense claims, the investigation was a blatant and illegal invasion Scarfo's privacy.

In court filings, the government has insisted that it did not intercept any electronic communications from Scarfo's computer to the outside world and that therefore it was not necessary to obtain wiretap authorization. Furthermore, the FBI maintains that the recorder was specifically set to "capture the pass phrase and key-related information." But without a more detailed explanation, defense attorneys remain skeptical. Following a hearing in August, Scarfo's lawyers joked about how the feds had overreached in the case, employing the high-tech surveillance that should have been used to track terrorists and other threats to national security to build a case against the son of a jailed Mafia don, a son who happened to be more computer-literate than your typical wiseguy, but who was a low-level wiseguy nonetheless.

"It's hard to believe the government would risk national security on a gambling case," said Vincent Scoca, one of the defense lawyers, who compared the investigation to domestic spying. "These are the same techniques used to hunt down terrorists," he added. Norris Gelman, another Scarfo lawyer, then weighed in with his comment about Osama bin Laden betting on the Detroit Lions. At the time, his sardonic, off-the-cuff comment seemed to capture the David-and-Goliath and Big-Brother-Is-Watching elements of the case. But after the attacks of September 11, no one was laughing.

In the initial hearings about the keystroke recorder, Judge Nicholas Politan expressed skepticism about the government's less-than-forthright explanations of the technology. Three times he referred to the high-tech jargon that was spread throughout the government's motions as "gobbledygook." But two weeks after the attacks on the World Trade Center towers and the Pentagon, prosecutors met with Politan in a private, ex parte hearing and provided the judge with classified information about the device. Following the hearing, Politan ruled that the government did not have to give defense lawyers a detailed description of the keystroke recorder. Instead, the judge said, a nonclassified summary description would suffice.

Even Gelman, a leading defense attorney in the Philadelphia area, concedes that these are trying times and that, in special circumstances, some individual rights may have to be sacrificed. "I have absolutely no compunction, if you are looking to stop a bombing or some other form of terrorist attack, to calibrating the rights of privacy in regard to the gravity of the offense," he said. "If someone is planning to strap on a bomb and blow himself and others up or if someone is planning to fly a plane into a building, then privacy rights may not be the paramount concern.

"But bookmaking would not be in that category of offenses."

So while many people--probably many more now than before September 11--may concede the need for more government secrecy and greater investigative access to certain files and records, a fundamental issue raised in the Scarfo case remains unanswered. How and when should that secrecy and access be permitted? The sweeping new electronic surveillance powers that were signed into law in October--broader use of wiretaps and the expanded ability to track emails, for example--further underscore the concerns raised in the Scarfo case. Among other things, the case shows that the potential for abuse and misuse of those powers was high even before September 11.

With more and more people storing their personal, private, and business records on computers, Sobel, the general counsel for EPIC, says there is a need for legislation to clearly define what the government can and cannot do in this new, ever-changing electronic age. At this point, Sobel says, technology has outpaced existing law. Neither the framers of the Constitution, with its Fourth Amendment privacy-rights protection, nor the authors of the Title III wiretap laws, which have long governed how and when Big Brother can listen, envisioned the sophisticated electronic world in which we now live, work, and communicate.

Alan Hart, who heads the Department of Criminal Justice at Burlington County College in New Jersey, said the issues raised in the Scarfo case are Orwellian. "This doesn't 'smack' of Big Brotherism," he said. "It hits you over the head like a baseball bat."

Young Nicky Scarfo has politely but firmly declined to discuss his case. "Talk to my lawyers," he told reporters following one hearing in Newark late last summer. "It's all in their [motions]. You got more than enough to write about."

Then he went on to tell a story about his new wife and a problem with a mouse in their apartment. His wife wanted him to use "humane" traps to capture the rodent, he said. For days, no luck. "It was a smart mouse," he said.

But the mouse went too far. Thought he had the run of the place. One night he munched his way through a bag of Doritos, one of Mrs. Scarfo's favorite snack foods.

The next day, standard mousetraps baited with peanut butter and cheese were in place. A short time later, the mouse problem was solved. Scarfo laughed. He wasn't a violent person, he said, but then, borrowing a phrase that came up a lot during his father's day, he noted that sometimes "you gotta do what you gotta do."

The kid has always had a sense of humor.

Consider the pass phrase he was using for his encrypted files. When the feds got the keystroke recorder up and running, they were finally able to identify it: nds09813-050.

Nds09813-050 is the coded federal prison identification for the kid's father, Nicodemo D. "Little Nicky" Scarfo.

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