Monday, July 16, 2018

Puerto Rico mayor indicted for conversion of federal funds, fraud and money laundering

By on July 5, 2018

SAN JUAN – The mayor of Sabana Grande, Puerto Rico, Miguel Ortiz, has been indicted and arrested for his participation in a conspiracy to “steal federal funds involving fraudulently obtained contracts” from the island’s Education Department, U.S. Attorney Rosa Emilia Rodríguez Vélez, of the District of Puerto Rico, announced Thursday.

In a separate, unrelated indictment, Víctor Cruz, former director of finance, and Ángel Santos-García, former interim director of finance of the municipality of Toa Baja were charged with theft, conversion, and misappropriation of funds from the U.S. Departments of Housing and Urban Development (HUD) and Health and Human Services (HHS).

The indictment charging Ortiz-Velez, returned on July 2 by a federal grand jury in Puerto Rico, includes six counts: two counts for theft of government money and property, one count for conspiracy to commit wire and mail fraud, two substantive counts of mail fraud, and one count for money laundering. He is also facing forfeiture allegations and a potential money judgment of $2,904,920.00, the value of the two contracts fraudulently obtained from the island’s Education Department, the announcing release says.

According to the indictment, the defendant conspired with Irving Riquel Torres-Rodríguez (who previously pled guilty in two different cases), and others, to engage in deceptive conduct designed to fraudulently obtain federal funds from the U.S. and Puerto Rico’s Education departments. As part of the agreement, those federal funds would be distributed to: the Municipality of Sabana Grande; Administrative, Environmental and Sports Consultants Corp. (AESC); Torres-Rodríguez- who was the owner of AESC; and others.

Ortiz used his position as mayor, according to the Justice Department, to defraud the Puerto Rico Education Department (PR DOE) and to “fraudulently obtain federal funds” as follows:

  • based on material misrepresentations regarding the Municipality’s ability to perform the activities and the scope of the activities subject to the proposals. Ortiz-Vélez, as Mayor of Sabana Grande, subcontracted with AESC and Company F for the complete financing and administration of the projects without the knowledge or consent of the PR DOE. AESC then financed and administered the project for Company F, with an agreement that all profits would be split 40% for AESC and 60% for Company F.
  • The Sabana Grande contracts with the PR DOE did not reflect the actual expenses incurred by AESC and Company F in providing the services. As a result, Ortiz-Vélez obtained net proceeds for the municipality, as well as net proceeds for AESC and Company F. For the first project, Verano Educativo, the AESC obtained approximately $549,286.10 in net profits and the Municipality of Sabana Grande obtained net proceeds of approximately $363,686.40, despite the project’s actual cost of approximately $221,747.50.
  • For the second project, Desarrollo Contínuo, the Municipality of Sabana Grande, Company F, and AESC split approximately $1,330,612.45 in net profits from the PR DOE contract. The Municipality obtained net proceeds of approximately $391,988 and AESC obtained a net profit of $375,449.78. Company F obtained a net profit of $563,174.67, despite the project’s actual cost of approximately $439,587.55.
  • During the period of this scheme, from in or about 2013 to in or about 2016, defendant Miguel G. Ortiz-Vélez received approximately $22,900 in cash contributions from AESC and Torres-Rodríguez.

The second indictment charges former Toa Baja employees Cruz and Santos for, “at different times, making unauthorized deposits and transfers of federal funds into the general account and payroll account of the Municipality” to “pay the municipal payroll and to pay municipal contractors.”

On or about Oct. 28, the Justice release explains, Cruz deposited approximately $2,538,164.41 in HUD Section 108 Loan Guarantee Program funds into the municipality’s general fund. “These funds were utilized to make payroll payments to municipal employees and to pay various municipal contractors.”

On various dates from September 2014 through February 2016, Cruz made additional deposits and transfers of federal funds from HHS and HUD to the general and payroll accounts of the Municipality of Toa Baja for unauthorized purposes. The indictment identifies seven separate transactions totaling more than $1,750,000.

Interim Finance Director Santos, “in approximately August and September 2015,” made “various transfers of federal funds from HHS and HUD to the general and payroll accounts of the Municipality of Toa Baja for unauthorized purposes.” The indictment identifies three separate transactions totaling $650,000.

The cases are being prosecuted by Assistant U.S. Attorney Seth Erbe. If found guilty, the defendants are facing possible sentences of up to 10 years for theft of government funds, misappropriation of federal program funds, and money laundering and up to 20 years for mail fraud, and the wire and mail fraud conspiracy.

The U.S. Department of Education, Office of Inspector General, and the FBI are handling the Sabana Grande investigation. The FBI, the U.S. Department of Housing and Urban Development, Office of Inspector General, and the U.S. Department of Health and Human Services, Office of Inspector General, are handling the Toa Baja investigation, with the collaboration of the Puerto Rico Comptroller’s Office.

image_print
-->