Daily News from New York, New York • 194

DAILY- NEWS; MONDAY, MARCH 20rl97fr Mow a U.S. Judge helped IHlos Pals By CLAIRE SPIEGEL This is the story of a federal judge and a legal system that allowed a national warehouse chain under his jurisdiction to be ripped off to the tune of countless thousands of dollars. It is a story of laundered checks, questionable invoices, kickbacks, lavish partying and junkets all paid for with the proceeds of a sagging business. It is also a story of cronyism and favoritism that made a mockery of any real efforts to rescue the firm and its creditors. iJ The judge is Roy Babitt, a well-mani cured, naty dresser with a reputation The News probe found no evidence of criminal conduct by Judge Babitt.

But the relationship between the Babitt brothers and Herzog, and the judge's failure to investigate charges brought before him, raise harsh questions about this seldom-examined court and a system that seems to permit, if not encourage, cronyism, incompetence and fraud. Every year, thousands of people and companies go bankrupt across the nation, leaving multi-million-dollar holocausts in their wake. Hundreds of employes lose their jobs as a result and creditors are broken as well, left to settle for ten cents on the dollar and gloom. The remains are picked apart by gangs of lawyers, accountants, fiscal agents and consultants who attach themselves to cases and reap large fees. They are often the only ones who benefit from bankruptcies.

This particular story, the case of D. H. Overmyer began in November, 1973, when by lot, Judge Babitt drew the matter of an empire of 220 warehouses that was in shaky financial condition. Starting out with one warehouse after World War II, Overmyer built dozens more, But after a while he overextended himself. With each new project he fell further and further into debt.

To keep his business growing, he erected a complex conglomerate structure where he borrowed against one for honesty and intelligence in his 14 years on the bench in the bankruptcy court in New York. By poring through thousands of pages of court transcripts and examining hundreds of checks, invoices, expense accounts and other records, an investigation by The News has found that Judge Babitt: Authorized the ouster of the company's owner in a highly unusual move and installed -his own friend as the new manager of the firm. Approved his friend's selection of his brother Ivan Babitt accounting firm to work on the case. Awarded more than $700,000 in preliminary fees to the new management, including $137,000 to his brother's firm and $80,000 to his friend, attorney Robert Herzog. Routinely authorized and signed thousands of dollars in checks, some of which were kicked back to a new management employe or paid out to nonexistent companies in various laundering schemes.

Took no action when allegations of fraud and mismanagement were placed before him in open court, although he had the power and the responsibility to investigate such charges. News photo bv Dan Farrell Judge Roy Babitt anatty dresser with a reputation for honesty company to pay the debts of another. By the late 60's, his empire began to crumble. On Nov. 29, 1973, Daniel Overmyer walked into Judge Babitt's courtroom with more than $25 million in debts.

He was facing additional losses. Creditors' representatives filled the courtroom literally shouting for their money. Overmyer asked the judge for a second chance. He requested time to pare down and reorganize his company, a conventional procedure in bankruptcy court, so he could pay off his creditors slowly and not lose all his holdings. Creditors attorneys argued loud and long with Overmyers's lawyer over how the matter should be resolved.

Most creditors wanted immediate and total liquidation. Babitt wavered between- the two alternatives. Then, after further hearings, the judge made an unusual decision and accepted a third route. Robert Herzog had been representing a creditor in the proceeding. The judge abruptly appointed Herzog trustee of the warehouse chain and then (Continued on page 28, col.

1) xssstsmaamxi A $2,208 check, made out to and endorsed by C.V. Galucci, went to widowed bookkeeper and not to repair firm. 2285 KOBERT P. irKRZOO Rkcksveb avn. otermviuj co.

ixc. I CRKKBAI, ACCOKST Tracmg A Phony Check rtrrn vtw OIt. 2 20SOD Here is how a reporter discovered that a check for $2,208 to a maintenance company in Houston was a phony. The check for a C. V.

Gallucci was based on an invoice from C. V. Callucci at 9611 Philmont for "culvert cleaning, door repairs, rubble, removal and sprinkler inspection." There is no listing in Houston for a Callucci with a but there is one for a Gallucci witha thoughat a different address. This turned out to be V.C. Gallucci Virginia Clarisse Gallucci, a bookkeeper and widowed mother of seven children.

"This is so weird," Gallucci said in a telephone interview, recalling that she used to live at the Philmont address. "I never got a check like that. And I never put in a bill for all those things." However, when a reporter called her a second time, this time mentioning the name Murray Guy. Gallucci said, "Hey, I remember dating this fel low." She said she had met Guy on one of his business trips. Guy traveled around the country on numerous junkets contracting out repair jobs on the Overmyer warehouses.

"I dated him umpteen times," she said. "When he was in town he'd call me up and we'd go out to dinner. A friend from my hometown introduced us." Gallucci recalled that Guy asked her to do a favor in February 1976. She said he told her to go to a coffee shop and pick up a check from a man who would meet her there. The man, who was well dressed and arrived in a chauffeured car, gave her the check, she said.

"I deposited it in my account, and waited for it to clear, and then I pulled out the amount in cash and deposited it in his (Guy's) savings account just like he said to," Gallucci said. "I was doing Guy a favor because he was out of town," she said. "I thought it was strange that he even had a bank account here, but you just don't question everything people do." As it dawned on her during the interview that she'd laundered the money for him Gallucci said, "I can't believe I was set up like this. I hope you catch him. I think it's just terrible that somebody like this just walks into people's lives and uses them." Guy refused to be Interviewed..