Web of Fraud

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When the Internet was first created, it was intended to be a tool for scientists to share information. Now, the World Wide Web connects every one who can get online, provides a mechanism for commerce that delivers goods and services all over the world, and it helps to educate those who otherwise may not have access to knowledge.

While the Internet provides many benefits to its users, it also can be used as a tool for criminals who are intent on bilking government benefits programs. An article published in Education Week tells about a tax evasion fraud scheme run by the founder of the online Pennsylvania Charter School, who used the online institution to steal more than $8 million from federal, state and local governments.

The article states that the man, who was credited with pioneering online education within the state, made an average of $127,000 to $144,000 per year while running his illegal scam. He didn’t pay himself a huge salary, but laundered federal, state and local taxpayer dollars through additional for-profit and non-profit companies related to the online charter school to avoid paying income taxes. (The money that was supposed to be spent on the educational institution’s teachers and students was actually funneled into a company that purportedly managed his personal retirement savings account.)

He used the funds he received from his elaborate scam to live a lavish lifestyle that included a Florida condo and a $300,000 corporate plane. He also provided money to pay for houses for his mother and girlfriend. (And let’s not forget the $1 million he spent on groceries and other items with taxpayer dollars.)

The 61-year-old pleaded guilty to federal tax fraud and is facing 11 counts of mail fraud, theft or bribery, conspiracy and tax offenses when sentenced at the end of the year. He could receive a sentence of five years in prison for his illegal activities.

Interestingly enough, in order to receive a shorter sentence, the man lauded as the founder of the online school claimed that he was not the mastermind of the scheme when it came time to enter his plea. (He tried to involve the other three owners who supposedly had an equal stake in the business; however, the story states that the fraudster actually owned 80 percent of the online business. Good try.)

The number of enrollees with the online institution, which is considered to be the largest and most successful cyber school in the state of Pennsylvania, has decreased by 2,000 since the former CEO was indicted. Instead of focusing on providing an exceptional learning environment for enrollees, this fraudster was focused on self-interest and his actions have impacted the online charter school’s reputation. (This fraudster, who used the World Wide Web to hide his scheme was finally caught in his own web of fraud and has been expelled.)

Source: Today’s ”Fraud of the Day” is based on an article, ”Online Public School Founder Admits to $8M in Tax Fraud,” published by Education Week on August 25, 2016.

PITTSBURGH (AP) — The founder and former CEO of an online public school that educates thousands of Pennsylvania students pleaded guilty Wednesday to federal tax fraud, acknowledging he siphoned more than $8 million from The Pennsylvania Cyber Charter School through for-profit and nonprofit companies he controlled.

In entering his plea, Nicholas Trombetta, 61, who headed the school, acknowledged using the money to buy, among other things, a Bonita Springs, Florida, condominium for $933,000, pay $180,000 for houses for his mother and girlfriend in Ohio, and spend $990,000 more on groceries and other items.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.