Watts, who got six years for taking part in the 1988 slaying of a Gambino soldier suspected of becoming an informer, was acquitted in 1997 of the torture murder of a hapless Queens man allegedly killed on Gotti's orders.  With two underlings, he goes to trial in a few weeks as the mastermind of an alleged loansharking racket run from a West Virginia federal prison.

As Gang Land reported last year, a Staten Island jeweler turned on Watts and tape recorded numerous conversations with an underling that allegedly implicate Watts in making a $20,000 loan at exorbitant interest rates. Watts is not happy about the upcoming trial, but he is in very good spirits, according to Gang Land sources who have seen him in the last few weeks.

Watts, who has about 15 months remaining in his murder conspiracy sentence, hasn't lost his senses. He's ecstatic about the outcome of a recent trial involving his ex-wife, his former mother-in-law and a lawyer they used to get a $210,000 bank loan.

After a federal jury in Brooklyn found them all guilty of lying on a 1994 home improvement loan application to the Greenpoint Savings Bank, the trial judge overruled the jury and acquitted them. Watts was not a defendant in the case, but the feds had hoped to use the convictions as a springboard for a massive telephone credit card fraud case against him. 

Assistant U.S. Attorney Joanne Weissbart had convinced a jury that Laurene Watts, her mother Lenore Ilaria, and lawyer Vincent Magnone had made false statements to the bank when the women got a home improvement loan for their two story, 5000 square foot home with a finished basement, wine cellar, fireplace, wet bar and many other amenities.

By tracking the proceeds of the loan -- $195,004 -- Weissbart proved that $190,000 of it was funneled to two principals of a telephone debit card business, CONETCO, that the feds believe was really owned by Watts (right.) Watts earned $150,000 in salary from the company in 1995, and during the same period his sister transferred $220,000 to the two principals, Joseph Rosillo and Al Khatib and lawyer Magnone was issued company stock certificates. (For several years, state and federal prosecutors have been trying without success to make a telephone card fraud case against Watts.)

Prosecutor Weissbart also established that the house underwent about $200,000 worth of renovations and improvements before the loan was made. It was a single story ranch style house with 1264 square feet of living space and an unfinished basement when they bought it.

On the loan application, the women had checked a box indicating that the loan proceeds were for "improvements" that were "to be made." Pointing to the "money trail" and the check mark in the "to be made" box, the prosecutor argued to the jury that the women and their attorney had lied on the bank loan and were guilty as charged.

In a 22-page ruling, Brooklyn Federal Judge Allyne Ross noted, however, that the women had also checked a "made" box on the loan application. Since they had noted that the purpose of the loan was both "made" and "to be made," their statement to the bank was "fundamentally ambiguous" and the case "should not have been presented to the jury," said Ross. And, if the statement were not "fundamentally ambiguous," wrote Ross, the government failed "to establish beyond a reasonable doubt the falsity of the statement."

Ross's ruling, technically a directed verdict of acquittal, can be appealed but legal experts on both sides of the law doubted that the government would.

"The real question," said one of five defense lawyers on the case, "is how we lost the case in the first place. There was no crime. Improvements were made, they never defaulted on the loan, yet the jury found them guilty."

Igor Kotov, 30, Alexander Kroytor, 23, Andrey Yakubov, 23, and Luchese associate Lorenzo Musso, 25, also pleaded guilty to racketeering.

According to sentencing guidelines, Gufield and Kutsenko face about 20 years when they come up for sentencing by Brooklyn Federal Judge Nina Gershon. The others, including Musso, face about 10 to 15 years.