Vermont – A Leader In Embezzlement Cases

From Mike Donoghhue of the Burlingtom Free Press, 1/1/2015

For the third time in six years, Vermont has been named No. 1 in America …

As the riskiest state for major embezzlements.

And Vermont has some of the shorter prison sentences for those caught dipping into the till, according to the latest annual report by Marquet International.

A six-year snapshot shows Vermont is the most likely to lead the list for embezzlements among the 50 states and the District of Columbia.

“Anyway you cut it, there is an awful lot of embezzlement going on in Vermont,” Christopher T. Marquet, the company’s chief executive officer, told the Burlington Free Press this week.

The major cases in Vermont touched across a wide spectrum: a credit union, a private college, a tourist attraction, a nonprofit sports association, a village inn, a discount beverage store, an auto dealer and a law firm, operated by the son of a former U.S. Supreme Court justice.

Marquet has been studying embezzlement nationwide for six years and focuses on those of $100,000 or more for its annual reports. The annual report is 50 pages including charts and graphs.

There were 554 known cases meeting that threshold for the calendar 2013 study, which was completed about six months late due to unforeseen circumstances, Marquet said.

He said the 554 cases represents a 5 percent increase over the 528 cases in 2012 that had losses of $100,000 or more.

Last year Vermont was followed in the high-risk category by the District of Columbia, West Virginia, Montana, South Dakota, Virginia, Idaho, Oklahoma, Texas and Missouri.

But everything is relative.

The largest embezzlement reported during 2013 was a stunning $133.4 million fraud conspiracy in West Texas. Two men masterminded a conspiracy to defraud mom-and-pop stores by offering payroll, tax and insurance services, Marquet said.

Second and third place were $21 million and $20 million respectively. The top 10 cases nationwide ended at $8.44 million.

James Beckwith, former chief operating officer of Southern Vermont College, was found dead of a self-inflicted gunshot wound at his home on Feb. 21, 2013. He had been accused of embezzling $440,000 from the school.

Looking at Vermont

Vermont had seven known cases reaching $100,000 or more for the 2013 study. Marquet said one case actually was from in 2012, but never reported until 2013 and included in the new report.

An embezzlement is dissected only in one annual report, although legal proceedings cover multiple years, Marquet said. He said they can be uncovered when somebody is fired or during a criminal case or a civil lawsuit. The collection of cases and information is not perfect, and some cases may be missed, he said.

The biggest Vermont embezzlement in 2013 involved $633,700 stolen from the Border Credit Union in Derby Line by its former manager.

Debra J. Kinney, 59, of Derby embezzled from 33 customers between 2010 and 2012. She was indicted in June 2013 and eventually sentenced to three years in federal prison. Kinney, who operated the credit union out of her home, will be on federal supervised release for five years once freed from prison.

The Kinney case fit one pattern Marquet reported he detected nationwide where credit unions continued to be major victims.

Marquet reported 16 major embezzlement cases involved credit unions in 2013 — one less than a year earlier, but “an uptick from prior years. These financial institutions are regularly victimized by embezzlers year after year – apparently due to their relative weaker financial controls,” he wrote.

Marquet noted in many cases, the losses are catastrophic enough that regulators must shutter the institution. Regulators shut down the Border Credit Union, which had about 1,100 members, in late November 2012.

The Kinney case also affirmed findings that Vermont judges tend to give light sentences to convicted embezzlers. In states with at least three embezzlement sentencings during 2013, the lightest sentence average was 1.5 years in Maryland. Vermont’s penalty averaged 1.8 years, good enough for 8th lightest punishment among 50 states and D.C.

The toughest sentences were imposed by judges in Georgia, which averaged 13.8 years, and Idaho, which averaged 9 years.

The prosecution in the Kinney case said it wanted a 51-month prison sentence because she was willing to pilfer the life savings of account holders large and small.

The defense in seeking as little as an 18-month sentence pointed to lighter sentences that eight other women received in Vermont embezzlements.

“We notice that Vermont and D.C., both jurisdictions that made our highest risk locales for 2013, were also on the list for the shortest average sentences.

Correlation between risk and reward? Perhaps,” Marquet wrote.

Former Hardwick Electric Department office manager Joyce Bellavance, who pleaded guilty in August to stealing $1.6 million in customer funds, arrives at U.S. District Court in Burlington, Vt., on Tuesday, Jan. 17, 2012, for her sentencing. (Photo: GLENN RUSSELL, BURLINGTON FREE PRESS)

The largest municipal embezzlement in Vermont history, more than $1.6 million stolen from Hardwick Electric netted the thief only a 31/2 year sentence in 2012.

The sentence for former officer manager Joyce Bellevance was actually chopped about in half for good behavior and by her signing up for a drug treatment program in prison, although prosecutors had argued there was no evidence she needed it.

The second largest Vermont embezzlement uncovered in 2013 was for $550,000 and involved James Beckwith, the former chief financial officer at Southern Vermont College in Bennington, officials said.

Beckwith, 58, fatally shot himself at his South Londonderry home in February 2013 as the U.S. Attorney’s Office began civil forfeiture proceedings to recover money he had stolen, officials said. A federal criminal investigation also had started on Beckwith, a lawyer by training.

The liberal arts college later filed a $1.4 million lawsuit against Beckwith’s estate for the money it claims he diverted, and for various other expenses the college incurred, including a civil lawsuit for his questionable conduct as CFO. That lawsuit remains pending in Vermont Superior Court in Bennington and no hearings are scheduled, a court spokeswoman said.

Vermont’s third largest involved Manon Cote, 47, of Newport for embezzling nearly $400,000 from DeLaBruere’s Auto Sales in Newport where she was the office manager between 2006 and 2012.

She was indicted in March 2013 and later admitted her guilt. Cote received a 15-month federal prison sentence.

The long-term trends

The past embezzlements reports were developed by Marquet, who created a loss ratio formula that he has termed the “Embezzlement Propensity Factor. It looked at the dollars lost in a specific state compared to the nation loss and factored in the state and national Gross Domestic Product.

“The development of the EPF was based upon our original theory that the amount of fraud in a given discreet geographic area (in this case each U.S. State) is proportional to the amount of economic activity in that same jurisdiction,” he wrote.

Marquet told the Free Press that some critics — including Vermont State Auditor Doug Hoffer — had questioned in recent years the methodology of the study, including the lack of factoring in population.

Marquet said a second formula including state population was developed and this year the company used both formulas and took the average to develop the list.

He said with the new formula Vermont, which was second in 2012, would have moved up to first place.

Hoffer, reached by phone Thursday, said he had not seen the newly released Marquet report. Hoffer was pleased that based in part on the constructive criticism he offered that Marquet has adjusted the formula. Hoffer said he would withhold final judgment until he has reviewed the report and new formula.

Hoffer, who begins his second term as state auditor this month, had issued a memo to state leaders last spring questioning the Marquet formula.

Michelle Rutledge of Berlin was convicted of embezzling $128,730 from the Cold Hollow Cider Mill in Waterbury and the Harwood Youth Hockey Association. (Photo: Courtesy photo)

He questioned a state with one large loss getting a high score, while a state with lots of small embezzlements gets a low score.

“Which state had the greater propensity for embezzlement?” he asked in his memo.

Hoffer cited the Hardwick Electic case because the $1.6 million loss represented more than half the losses in Vermont that year.

The Marquet report also reviewed the embezzlement cases collected over the past six years and found some trends. They include:

  • The thieves often begin embezzlement schemes in their early 40s.

  • Major embezzlement schemes nearly span a 4.7-year period, on average

  • The most common means is through forgery or unauthorized issuance of company checks, about 35 percent. Theft of cash is next at about 21 percent.

  • Gambling is a clear motivating factor.

  • More than 5 percent of major embezzlers have a prior criminal history.

  • The financial services industry had almost 30 percent of the losses

  • Government entities, along with non-profits, including religious organizations also were frequently hit.

  • Women are more likely the person stealing (61 percent to 39 percent), but men are more likely to steal more ($1.8 million vs. $800,000.)

  • About two-thirds are done by bookkeepers or finance personnel.

  • The five most frequently named states in the most frequent lists are Vermont, Florida, Missouri, Montana and Virginia.

Deeper in Vermont

Marquet, who is based in Boston, said he has spent considerable time in Vermont but is unclear why the state is out in front on such a dubious record.

He said a friend who lives in Vermont and works at Dartmouth College suggested the “trusting nature” in the Green Mountain State.

“This may be the case, but unfortunately it is a subjective quality and unquantifiable for our purposes,” he wrote in the report.

Marquet was an invited speaker at the annual fall conference for the Vermont Government Finance Officers Association in South Burlington in October 2014. He said he asked how many thought Vermont had an embezzlement problem.

“Not a lot of hands were raised at the outset. I then proceeded to present a litany of cases in recent years, both in which Vermont government entities were victimized (the VTGFOA constituency) as well as numerous local businesses and non-profits,” he wrote.

He also showed data from other states, including neighboring New Hampshire, North Dakota, Delaware, Wyoming and Hawaii which has less problems.

“I believe I was successful in shifting some of the thinking in the room that day – but therein lies part of the problem. If one does not realize there is an issue, it is hard to address it,” he wrote.

“We understand that the Vermont State Government has taken steps in response to all of these cases to require greater financial controls and transparency in finance for states, municipalities and state/municipal entities.”

Vermont Gov. Peter Shumlin spearheaded an effort in 2013 for new legislation that allows for government employees to forfeit their pensions to pay off any embezzlements or thefts while on the job.

In recent years the Burlington Free Press has written at length the “Embezzlement Epidemic” in Vermont. Dozens of embezzlements involving many hundreds of thousands of taxpayer dollars were allowed to occur in Vermont because government entities did not have proper systems in place for checking their own finances.

Marquet said even with lots of public attention through newspaper stories, the problem persists.

Marquet said it is important for safeguards to take hold and that business owners, government officials and other stakeholders become better educated about the problem.

By taking those steps “we will see a decline in the risk factor for embezzlement associated with Vermont in the years ahead.”

 

Alleged Perpetrator Victim Organization Amount
Denise Ballard Liberty Street Discount Beverage – Fair Haven $151,000
James Beckwith Southern Vermont College –

Bennington

$550,000
Manon Cote DeLaBruere’s Auto Sales Inc. – Newport $400,000
Debra J. Kinney Border Lodge Credit Union –

Derby Line

$633,000
Michelle

Rutledge

Cold Hollow Cider Mill and Harwood Hockey Association –

Waterbury

$128,000
Pamela Smith Shire Riverview Motel –

Woodstock

$229,000
Kimberly Wilde Potter Stewart Jr. Law Firm –

Brattleboro

$200,000

 



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