that Palazzo, 51, was arrested by a team of FBI Agents and Indianola police officers on a sealed federal indictment that had been obtained by the U.S. Attorney’s office in Des Moines.

Reached by Gang Land, Bonnett declined to expand on his published remarks, stating he was told not to by federal authorities. For their part, the local FBI and U.S. Attorney’s office refused to confirm or deny what Bonnett, who alerted the feds about the scam by the federally-protected witness in the first place, has stated publicly. 

Sources say Palazzo’s arrest for fraud – he moved to Iowa about four years ago and built a home (right) in Indianola in late 2005 – came two months after several area residents told police that the sweet-talking karate expert had fleeced them of their life savings. 

“He told some people they were investing in his karate studio, he told others they were investing in land deals,” said one knowledgeable source. When investors began to suspect and question him, the source added, he intimidated them by saying he was “the Midwest hook for the mob.” 

Before the bubble burst, Palazzo was known as a popular local figure who taught discipline, self-esteem and self-defense to youngsters and adults at his martial arts studio. He claimed he began nine years of martial arts studies at age five

in Korea and that he had been an instructor in Italy for 30 years. 

In addition to martial arts, Palazzo told the Record-Herald last year, he also taught his students about life: “They will be able to look someone straight in the face and speak truthfully to them,” he said. “If you can do that you are going to succeed in life.” 

Back in the mid 1990s, his hair was darker, and as Michael Tessari, he wore it in a pony tail. But he used the same cover to con Pennsylvania and North Carolina residents into bogus investment schemes that landed him in federal prison – and under a court order to make $9.6 million in restitution, according to court records. 

It was while doing his time at a penitentiary in White Deer, Pennsylvania, that Karate Mike Tessari earned his Witness Protection Program stripes – not for cracking any major mob murder or drug smuggling case – but for his undercover work in helping Bureau of Prison officials solve the infamous sperm smuggling caper. 

In that case, Colombo mob associate Kevin Granato and his wife Regina pleaded guilty in 2003 to the dastardly federal crime of smuggling Granato’s sperm out of the joint to impregnate his wife – causing the blessed birth on August 29, 1999 of a bouncy baby girl named Gianna, who is a third-grader in Staten Island these days. 

A dozen guards, inmates and others were also prosecuted for corrupt activities. But the case that got the ball rolling, the

investigation that consumed then-warden Susan Gerlinski, (left) for years, was the one that ended with the convictions of Granato, 48, and his wife Regina, now 45. Granato, who has been incarcerated since 1988, got 16 months added to a term that now ends in 2013; Regina received probation and paid a $5000 fine. 

“God forgive me, but I’m glad he’s back in jail,” said Mrs. Granato. “He ratted on a new-born baby who never did anything wrong in her whole life.” 

Tessari-Palazzo’s stepson, Jamie, who was an instructor at Palazzo’s Martial Arts LLC, declined to comment when reached by Gang Land.  

Meanwhile, Tessari-Palazzo is most likely still in custody, even though his name appears in no federal prison database. No one from any agency would discuss that, or whether the feds recouped any of the funds he allegedly stole from his Iowa victims.  

To find out whether Tessari gave back any of the $9.6 million that he was ordered to return to his Pennsylvania and North Carolina victims, Gang Land reached out to Martin Carlson, acting U.S. Attorney for the Middle District of Pennsylvania. Carlson, who is listed as the assigned prosecutor in Tessari’s case on the official court docket sheet, did not respond to repeated requests for that information.

The chambers of Federal Judge Sylvia Rambo, who ordered the restitution, referred Gang Land to the Court Clerk's office. Yesterday, Nancy Edmonds of the Financial Department reported that those details were not public information.

As John (Junior) Gotti prepared for his third racketeering trial two years ago, his father’s self-proclaimed “adopted son” slammed the mob prince for besmirching the legacy of the late Mafia Boss by considering taking the witness stand in his own defense. 

In phone calls and emails to Gang Land, Lewis Kasman (right) blasted the Junior Don for turning his prior trials into a “circus” and ripped us for not mentioning that Kasman had “reprimanded” Gotti’s lawyer, Charles Carnesi, for even thinking about that option. 

Turns out that Kasman was working for the feds at the time and was spewing out self-serving drivel seemingly designed to convince Gambino family leaders that he was still a man of honor, a gangster wannabe they could trust. 

It’s unclear whether his rant had any impact on his mission. But it certainly didn’t hurt.

According to court papers filed by the feds in anticipation of a hearing today on a motion to oust lawyer Joseph Corozzo from a 62-defendant Gambino family case, Kasman has been

wearing a wire for the FBI and tape-recording high-level family mobsters since the fall of 2005.

Among those caught discussing mob business, wrote federal prosecutors Joey Lipton and Roger Burlingame, is the family's current acting boss, John (Jackie Nose) D’Amico, who was a confidante of the late John Gotti during his heyday.

Last year, Kasman recorded conversations that link Corozzo, who represents his father, family consigliere Joseph (JoJo) Corozzo, to an extortion scheme, and to funneling crime family proceeds to relatives of imprisoned family boss Peter Gotti, according to the prosecutors.

Meanwhile, as underboss Domenico (Italian Dom) Cefalu and others worry about damning words Kasman’s wire may have picked up, Junior Gotti, the object of Kasman’s disaffection, has shunned his “adopted brother” since 2005 and isn’t worried in the least.

“I have no concern that John (left) has had any conversations with him, or is on a wire,” lawyer Carnesi told Daily News reporter John Marzulli.

Colombo soldier Frank (Chickie) Leto, whose trial was delayed for 10 days when he exhibited bizarre, suicidal behavior after being awakened from a deep sleep during a lull in the case, was found guilty of racketeering and extortion last week.

Leto, 76, and associate Louis Fenza, 56, were convicted of extorting $25,000 from an owner of the Huntington Townhouse in 1999. They face about six years in prison.

Central Islip Federal Judge Arthur Spatt rejected prosecutors’ efforts to remand the defendants. Leto remains hospitalized at the VA Hospital in Northport and Fenza is confined to his home as the men await sentencing in June.