Etna business owner sentenced in Hurricane Ivan scam

A federal judge today sentenced an Etna business owner to four years' probation for his role in a flood insurance scam.

Michael Smarto of Marshall avoided prison time by cooperating with federal prosecutors. Indeed, he told authorities about his crime even before he was under investigation.

Defense attorney Martin Dietz told U.S. District Judge David S. Cercone that his client was "consumed with guilt over his actions." After receiving a grand jury subpoena in 2006 to testify in an insurance fraud investigation of Raymond Pugliese, Smarto asked Dietz to arrange a meeting with prosecutors so he could admit to his part in the crime.

"At the time of his disclosures, Mr. Smarto was not a target of a federal investigation but he was aware that his disclosure would likely result in his criminal prosecution," Dietz wrote in court papers. "While there is no way to predict the future, had Mr. Smarto not come forward, it is possible that the conduct of this case would never have been uncovered."

Smarto worked at the chief financial officer of Tippins Projects Inc. in Etna. He also owns a number of businesses in town.

After Tippins sustained extensive flooding in September 2004 from the remnants of Hurricane Ivan, prosecutors said Smarto and Pugliese, whose Mastek Industries Inc. was hired to clean and refurbish damaged tools and machinery, submitted inflated bills to The Hartford Insurance Co.

The insurance company paid more than $2 million, part of which was based on inflated invoices. Smarto received $320,000 in kickbacks.

He pleaded guilty in May 2007 to one count of conspiracy to commit mail fraud and money laundering and has paid $320,099 in restitution, court records show.

A federal jury in September convicted Pugliese of Gilpin, Armstrong County, on six counts of conspiracy, mail fraud and money laundering. Smarto testified during the trial and has agreed to testify at Pugliese's sentencing hearing, which has not be scheduled.