Transcon Lines, a big Los Angeles trucking company, was running on fumes when Leonard A. Pelullo took the wheel last spring.
It was losing money--$5 million a month--as it tried in vain to compete with such industry giants as Roadway and Yellow Freight. It was late paying its bills; one of its unions had sued to collect an overdue pension payment.
The company was in bad shape. Only a patient investor with deep pockets could reverse its downhill slide. Don't look to Lenny Pelullo. He hit the accelerator.
Just 19 days after Pelullo's associates bought the trucker from parent Transcon Inc. last April Fool's Day, it was out of business. Many of its 4,000 workers lost their jobs.
Hundreds of trucking companies shut down this year, victims of high fuel costs and the vicious rate wars that have plagued the industry since it was deregulated 11 years ago. The war for survival in trucking may have benefited consumers by keeping shipping rates low. But it has wiped out profits at many trucking firms, rendering them almost worthless.
Amid the wreckage, Transcon Lines--with more than 3,500 trucks and terminals in 45 states--stands out. A bankruptcy trustee in Los Angeles has claimed in court that companies linked to Pelullo picked up Transcon Lines for almost nothing and then siphoned millions of dollars from it in just a few weeks.
An unintimidated Pelullo denies the charge and said words can't hurt him.
"I always make the distinction between allegations and alligators," said Pelullo, a brash Miami businessman who led the group that acquired Transcon Lines.
This is not the first time accusations of fraud have been hurled in Pelullo's direction; previous allegations have failed to stick.
Last year, a court-appointed bankruptcy examiner in Miami said in court papers that he suspected fraud involving another money-losing Pelullo company, Royale Group Ltd. of Miami, but lacked the evidence to make charges.
A federal grand jury in Cincinnati indicted Pelullo for his role in an alleged 1984 bank fraud; a jury acquitted him in June.
Pelullo has other potential problems. He is suing the state of New Jersey over a 1985 study by its Commission on Investigation, which called him a "key organized crime associate," an allegation Pelullo vigorously denies. Meanwhile, a federal grand jury in Philadelphia is looking into his activities there. A U.S. attorney confirmed the existence of that four-year-long probe, but did not provide details.
It may be many months before what happened at Transcon Lines becomes clear, either.
Pelullo said the failure of Transcon Lines was unavoidable. The company was near dead--"on the gas pipe," as he put it--when his associates purchased it for the token price of $12 cash last April 1.
The acquisition was the first step in a series of ill-fated deals intended to build a trucking powerhouse, Pelullo said. While arranging to buy Transcon Lines, Pelullo and his associates also entered negotiations to purchase PIE Nationwide, a rival trucking firm based in Jacksonville, Fla.
Pelullo said his associates wanted to combine the operations of Transcon and PIE to form one strong trucking firm. But the plan ran into problems. Pelullo said Transcon Lines' lender wouldn't work with his group. And, he said, "there was some trouble with the unions."
The trouble was that the unions--sensing Transcon Lines was on the brink--wanted the company to keep up its pension contributions. The Teamsters' Central States Pension Fund, in fact, said it was owed $4.1 million in overdue contributions. A federal court in Chicago ordered Transcon Lines to pay the Teamsters' fund $40,000 a day.
Facing a cash crunch, Pelullo said, he had to act fast to preserve Transcon Lines' business. The trucker's routes and trucks were sold or assigned to related companies, which turned the assets over to PIE Nationwide.
Lacking routes and trucks--the essential components of a trucking company--Transcon Lines was out of business.
Pelullo, in an interview, said he was directly involved in negotiations as a consultant, but not as an investor. He is not an officer of any company, he said. However, his associates hold key positions at Transcon Lines and other firms involved in the transactions, and Pelullo's father, Peter Pelullo, is a shareholder in the companies that acquired Transcon Lines and PIE.
Take Growth Financial Corp., the company that acquired Transcon Lines. Its chairman is Edmund A. Abramson, a Miami investor and former Oldsmobile dealer who once tried to buy financier Victor Posner's Royal Crown Cola. He met Pelullo in 1989, when Pelullo tried to enlist Abramson's support for a takeover of Posner's DWG Corp. Abramson turned him down; Pelullo's takeover attempt fizzled. After that, court records show, Abramson stepped forward to help bail out Pelullo's failing Royale Group Ltd.
The company that bought PIE is named Olympia Holdings Corp. and its president is Manuel Ferro Jr. He is senior vice president-finance for Royale Group.