Federal grand jury indicts PA Cyber Charter School founder Nicholas Trombetta and his accountant

Source: Pittsburgh Post-GazetteAug.迷你倉庫 23--Nicholas Trombetta, a onetime wrestling coach who founded the wildly successful PA Cyber Charter School, has been indicted by a federal grand jury on a variety of fraud and tax charges.A 41-page indictment made public this morning outlined the federal government's allegations against Mr. Trombetta and his accountant, Neal Prence."This investigation is active and continues," U.S. Attorney David Hickton said during a press conference this morning at the FBI field office on Pittsburgh's South Side.Federal investigators tallied the amount they said Mr. Trombetta stole at $990,000."PA Cyber had annual revenues that grew exponentially," Mr. Hickton said.Mr. Trombetta is charged with three counts of fraud involving two entities, Wingspan and BOSS; fraud involving computer purchases by PA Cyber from 2009 through 2011; tax conspiracy; and filing false tax returns every year between 2007 and 2011.Mr. Prence, an accountant based in Koppel, is charged with only the tax-related counts.The grand jury reached its decision Wednesday and Mr. Trombetta and Mr. Prence surrendered Thursday to the FBI. They appeared before a federal magistrate and were released pending their arraignment next week.J. Alan Johnson, the attorney representing Mr. Trombetta, said his client will plead not guilty.The attorney would not elaborate on what Mr. Trombetta's defense will be, saying they will make that argument in court."As convinced as they are that they have a case, we're as convinced they do not," he said.Mr. Prence's attorney, Stan Levenson, said he is out of town and had not yet read the indictment."We've been expecting this," he said. "This is no surprise."He has always denied he did anything illegal, and I'm anxious to see the government's case and read the indictment."According to the allegations in the indictment, Mr. Trombetta created a series of connected for-profit and nonprofit entities to siphon taxpayer money out of PA Cyber and to avoid federal income tax liabilities."We allege this was a conscious, intentional scheme to steal money that was to be used to educate our children," Mr. Hickton said.Mr. Johnson disagreed."That may be the government's theory," Mr. Johnson said. "It's certainly not ours. I think their theory has some problems."Among the purchases Mr. Trombetta made were two houses, a condominium in Florida and a $300,000 twin-engine plane, Mr. Hickton said.The U.S. Attorney was careful to not make today's indictment any kind of policy statement on the value of cyber education or its funding formulas -- a discussion for another day, forum and public official."Obviously it costs more in a brick-and-mortar context to educate than online," Mr. Hickton said. "This is not an indictment of cyber education. Cyber education is here to stay."From a headquarters in tiny Midland in Beaver County, Mr. Trombetta spent years developing a large, sprawling and wealthy network of businesses affiliated with cyber education.He created PA Cyber first in 2000. From 2006 to 2012, its revenue grew from about $38 million to more than $115 million.The fraud alleged by the grand jury stemmed from Mr. Trombetta's control over the maze of interlocking businesses he created and controlled to supplement PA Cyber's offerings.In 2005, for instance, Mr. Trombetta founded the National Network of Digital Schools Management Foundation, a nonprofit in Beaver, to provide educational management services and curriculum for cyber education.A "substantial majority" of income came from PA Cyber, the grand jury said. Revenue from 2006 through 2011 rose from $22 million to more than $50 million.NNDS in turn had a contract with Avanti Management Group, a for-profit company founded by Mr. Trombetta in 2008. Most income came from NNDS. Revenue surged from $900,000 in 2008 to more than $9.2 million in 2011, nearly all from NNDS.The grand jury alleged that Avanti had four "straw" owners -- identified only by their initials -- who each began with a 25 percent ownership stake, which would shrink to 5 percent each, leaving Mr. Trombetta with majority control of the company.In return, the grand jury said, the four straw owners would each make $500,000."You may liken Avanti to Trombetta's savings account or retirement account," Mr. Hickton said.Mr. Trombetta's success spread to Ohio, through the Buckeye Online School for Success (BOSS), which he founded, and New Mexico, where he worked with Wingspan LLC on cyber education for school districts with many Native American students.Mr. Trombetta also formed One2One Enterprises in 2006 with his sister, Elaine Trombetta Neill, to provide research and development consulting.But, the grand jury alleged, Ms. Neill had no experience in either realm."In actuality," according to the indictment, "One2One served as a vehicle to allow defendant Nicholas Trombetta to use his position of influence over PA Cyber, NNDS, AMG, BOSS, Wingspan and other entities in the private sector to covertly channe儲存 money to himself, to Elaine Trombetta Neill, to other family members and to other persons."Mr. Hickton likened One2One as Mr. Trombetta's "own personal MAC machine," which was used for his day-to-day expenses.Earlier this month Ms. Trombetta Neill, of Aliquippa, was charged with filing a false tax return in 2010 that "included income that was properly attributable to a relative," according to the criminal information filed in U.S. District Court.With Mr. Trombetta controlling so many interlocking entities, the grand jury alleged that he hatched a scheme to defraud PA Cyber and NNDS.To do so, according to the indictment, Mr. Trombetta:--Used PA Cyber and NNDS employees to work for BOSS and Wingspan and then "secretly" direct payments to himself and his sister by depositing money in the bank account of One2One, which had done no work.--Created false invoices from One2One to BOSS and Wingspan. "The invoices were falseand fraudulent in that One2One had no employees, no expertise to offer, provided no services or support to BOSS and in truth and in fact did nothing for BOSS but send invoices outlining charges for services that One2One had not in fact provided," according to the indictment. "Each invoice sent by One2One to BOSS throughout the period 2006 through 2008 resulted in a check being issued on behalf of BOSS and sent back through the mail to One2One in Aliquippa, PA, in an amount corresponding to the charges itemized on the invoice, almost always $6500."--Kept information about his arrangements with Wingspan and BOSS frmo the board of directors of PA Cyber and NNDS.The grand jury also alleged that Mr. Trombetta in 2010 got $350,000 from an unidentified company that was awarded a contract to sell thousands of laptop computers to PA Cyber in 2009 and 2010.The money represented a $50-per-computer kickback for Mr. Trombetta, according to authorities.A statement released this morning by Michael J. Conti, chief executive officer of PA Cyber, said the indictment of Mr. Trombetta also served as a vindication for the school and its management foundation."Even though the Department of Justice said from the outset that PA Cyber itself was not a target of the investigation, we conducted an internal evaluation and restructuring of our senior administrators to assure our school was performing in a manner that maintains its strong reputation among state education officials, the general public, and our students," Mr. Conti said.PA Cyber severed its ties to Mr. Trombetta, according to Mr. Conti's statement."The school itself and no one currently employed by the school is implicated and at no time did the alleged criminal activity affect the high-quality, day-today instruction PA Cyber students received then or are now provided," Mr. Conti said.Mr. Trombetta resigned from the school in June 2012.The school has had its own woes.Four top administrators were fired in September 2012. The solicitor of the charter school, Robert Masters, said last year that the firings had "absolutely nothing" to do with the investigation of the school's finances and those of the National Network of Digital Schools.He repeated that statement in an interview this morning."Federal officials have always said PA Cyber was never a target of the investigation," Mr. Masters said.He added that federal investigators finished interviewing school employees several months ago.NNDS CEO Mark Elder noted in a statement today that no current employees or directors were accused of any crimes."In fact, the indictment identified NNDS as a victim of the alleged fraud," Mr. Elder said. "We are pleased that we can finally close this chapter, focus on our mission without encumbrances, and redouble our commitment to the clients and students who rely our services."About a year ago, the FBI, the IRS and the Department of Education conducted a series of searches, taking documents from PA Cyber's headquarters in Midland, as well as from offices used by National Network of Digital Schools and Avanti Management Group in Calcutta, Ohio.The nonprofit NNDS, which was founded by Mr. Trombetta in 2005, manages PA Cyber and provides its curriculum.Local and state money that would otherwise go to traditional public schools follow students to PA Cyber when they enroll there. The local and state payments have exceeded $100 million annually in recent years.Struggling school districts have protested that the diversion isn't fair, because teaching students by computer doesn't cost nearly as much as educating them in schools.Among other things, investigators have looked at PA Cyber's computer purchases, attorneys have told the Pittsburgh Post-Gazette.PA Cyber paid Virginia-based NCS Technologies Inc. roughly $4 million a year for laptop computers. Investigators are reviewing the relationship between NCS and other PA Cyber vendors.Copyright: ___ (c)2013 the Pittsburgh Post-Gazette Visit the Pittsburgh Post-Gazette at .post-gazette.com Distributed by MCT Information Services新蒲崗迷你倉