Convicted strip club owner helped Ferraro create Milwaukee's Silk Exotic

Michael Rose, the owner of a dozen strip clubs who pleaded guilty to more than 100 counts of money laundering, racketeering and attempted drug delivery, says he acted as a consultant to Milwaukee strip club owner Jon Ferraro in helping him create Silk Exotic clubs here more than a decade ago.

Rose and Ferraro went on to team up on a new strip club in Las Vegas two years ago, an operation that was opened using $200,000 in cash provided by an undercover FBI agent posing as a businessman trying to launder cash, according to federal court documents.

That charge was included in a sprawling 132-count federal money-laundering and drug case filed in San Francisco against Rose and 10 other people. The investigation was targeting Russian mob members operating in the U.S. and was nicknamed “Russian Laundry."

Documents in the case became public more than a year ago, identifying Rose and the others, but there was no mention of Ferraro's role in the scheme.

A Milwaukee Journal Sentinel investigation reported earlier this month that Ferraro was indicted along with Rose and the others by a federal grand jury in San Francisco in February 2015, but Ferraro's name was not listed in court documents in California.

The Journal Sentinel learned of Ferraro's indictment after obtaining an FBI cellphone tracking warrant filed in federal court in Milwaukee. The FBI filed the warrant so they could track Ferraro through his cellphone and arrest him on the same day as the other defendants in the case, in March 2015.

Rose said he knew that Ferraro also was indicted — he said someone he knew saw an unredacted copy of the indictment and his name was there — but Rose said he didn't know why Ferraro's name never became public.

The name of one defendant had been removed from the case docket and is referred to only as “under seal.” It is unusual for the identity of someone who has been indicted to be shielded for so long. The Journal Sentinel could not verify the defendant listed as “under seal” is Ferraro or determine why his name does not appear on the docket in the California case.

Legal experts say the fact Ferraro’s name has not been publicly disclosed could indicate a couple of things: In some cases, the defendant may be a fugitive, but that does not appear to be case with Ferraro. Or he could be cooperating with federal law enforcement.

Ferraro has long battled the City of Milwaukee to open a strip club downtown and recently received a nearly $1 million legal settlement from city taxpayers in that dispute after he won in federal court. Ferraro, who has another pending federal lawsuit against the city, has vowed to reapply for a club downtown but has not filed an application.

Michael Hart, a Milwaukee defense attorney who represents Ferraro, declined to comment for this article Tuesday. Jeff Scott Olson, Ferraro's attorney on his fight with the city, did not return a call for comment.

Rose and other defendants initially fought the federal criminal charges, contending that FBI agents engaged in "outrageous" conduct by luring them into committing a crime. A judge chided the government for its tactics but rejected the argument by Rose's attorney and others, saying they were willing participants in the scheme.

Rose, 45, of Myrtle Beach, S.C., pleaded guilty to 108 counts of money laundering, racketeering and conspiracy to sell cocaine. He was sentenced to 40 months in prison. He begins his sentence in September.

Rose said he met Ferraro, 40, through a mutual friend more than 10 years ago. Already experienced in the strip club business, Rose agreed to act as a consultant to Ferraro, who was planning to open the first Silk on W. Silver Spring Drive, on the city's northwest side.

Rose, who was running nearly a dozen Gold Club strip clubs at the time and would later have his own federal lawsuit related to zoning and his clubs, said he attended the opening of the first Silk and helped Ferraro on Silk locations that later opened in Juneau in Dodge County and Middleton outside of Madison.

Court documents indicate Rose later became involved in the scheme to launder money through his Gold Club businesses. Rose told a Journal Sentinel reporter on Monday he could not talk about certain aspects of the case against him without talking to his attorney. He did not return calls for comment Tuesday. His attorney also did not return calls for comment.

According to court documents:

Rose got into the scheme after he was introduced, through a business partner, to an undercover FBI agent posing as a businessman who wanted to funnel illegal cash in businesses. Rose said he could help, adding that "much of his clubs' business was conducted in cash so that putting the ... cash into his clubs' bank accounts would not arouse suspicion."

In total the agent would funnel $2.3 million in supposed drug cash through Rose’s clubs.

In September 2013, Rose proposed laundering money in a new club, "investing $200,000 into a new club that Rose was developing in Las Vegas."

After the agent told Rose his client couldn't openly invest in Rose's new club, Rose assured him that the "client's investment would be secret and that he would pay the client 12% of any profits as false expenses for services that we not actually performed."

Ferraro's name does not appear in those court documents but the cellphone warrant filed in Milwaukee says Ferraro began talking to the undercover FBI agent in September 2013, the same month Rose was proposing to launder money through the new club in Vegas.

Ferraro exchanged three dozen text messages and phone calls over the next 18 months with the FBI agent, according to the warrant.

Rose told the Journal Sentinel this week that he and Ferraro were planning the club anyway and could have opened it without the money from the undercover FBI agent. Rose said he had no personal connections to Russian mob elements.

"The club was already in the works. All the planning was done and it was going to open either way," Rose said.

Ferraro and Rose were named in a tavern and liquor license application for a Gold Club in Las Vegas, which was approved in 2014 by officials in Nevada's Clark County. Ferraro chronicled plans to open the Las Vegas club on his Instagram and Twitter accounts. Rose also posted numerous photos of the new club on his Twitter account.

Rose said he and Ferraro had agreed to open a club geared toward locals and tourists and not try to compete with the bigger, high-end clubs in Vegas.

But as the opening neared, Ferraro wanted to change the business plan and to try to compete with the bigger clubs, Rose said. Rose declined to give details, but he said they involved pricing and it was a significant dispute.

"It was like you set up a business to sell pizza and then you change and want to sell tacos," Rose said.

The club closed in summer 2014, about six months after it opened, "due to a lack of capital," Rose said. When the business closed, Rose said Ferraro owed him money and the relationship between them soured.

If Ferraro is convicted of a crime, that could affect his ability to apply for a new liquor license or keep the licenses he has at his clubs.

Following the publication of the investigation, elected city officials said they were stunned by news of Ferraro's indictment. Several members of the Common Council said they wanted to see how the case plays out. But Ald. Tony Zielinski, chairman of the city's Licenses Committee, said if the facts bear out as included in the court documents, that is going to be "a very negative factor in an application for a public entertainment license."