Former Cuyahoga Heights School District Manager Sentenced to 11 Years in Prison for the Theft of $3.4 Million

A former employee of the Cuyahoga Heights School District was sentenced to more than 11 years in prison for the theft of more than $3.4 million from the district, said Steven M. Dettelbach, United States Attorney for the Northern District of Ohio.

Joseph M. Palazzo, age 31, of Independence, Ohio, previously pleaded guilty to conspiracy to commit mail fraud, conspiracy to commit money laundering, and wire fraud.

U.S. District Judge Benita Pearson sentenced Palazzo to 136 months in prison and ordered him to pay $3.4 million in restitution.

“This defendant stole millions of dollars that were to be used to educate the children of the Cuyahoga Heights School District,” Dettelbach said. “Our office will continue to go after those who would abuse the public trust.”

“This investigation uncovered a multi-million-dollar embezzlement scheme laced with a web of financial lies that left a local school district in financial peril,” said Denise Rocawich, Acting Special Agent in Charge, IRS-Criminal Investigation, Cincinnati Field Office.

“Joseph Palazzo violated the trust that the citizens and students of Cuyahoga Heights had placed in him by funding his personal account with millions of their tax dollars,” said Stephen D. Anthony, Special Agent in Charge of the FBI’s Cleveland Office. “The investigators are to be commended for uncovering this enormous fraud.”

Palazzo was employed by the Cuyahoga Heights School District as its Information Technology Director until February 2011. Palazzo was responsible for managing the district’s IT Department, which included purchasing hardware and software and making other IT expenditures to benefit the district and its students, according to court documents.

Palazzo devised a scheme to divert millions of dollars of district funds to his personal use and the personal use of others. This scheme involved Palazzo submitting to the district for payment false invoices that purported to be for IT-related goods and services purchased from legitimate companies by the district’s IT Department to benefit the district. Palazzo represented that the invoices he submitted were legitimate, and he approved the false invoices himself or forged the signature of another in the approval section, according to court documents.

However, these invoices were for services never performed, fictitious software and hardware, and software and hardware never received or already purchased by the district from another source. The companies named on the invoices did not supply such goods to or perform such services for the district and were nothing more than “shells,” according to court documents.

Palazzo’s actions caused the district to issue checks to these shell vendor corporations, which were established and owned by others working with Palazzo. The shell vendor corporation owners, in turn, kept approximately half the stolen money themselves and funneled the remainder of the money back to Palazzo for his personal use, according to court documents.

As a result of the conduct of Palazzo and his co-conspirators, the district was defrauded and sustained a total loss of at least $3,333,448, according to court documents.

Palazzo also engaged in a second scheme to defraud the district. It involved Palazzo purchasing various personal electronic items, such as iPads, cameras, and televisions, from legitimate district vendors. Palazzo then altered the invoices from such purchases to falsely reflect that classroom items, such as digital microscopes, projectors, and laptops, had been purchased for the district and submitted those invoices to the district for payment. Upon receipt of these personal electronic items, Palazzo sold them to third-parties at a discounted price and kept the money from such sales for his own personal use, according to the information.

As a result of the Palazzo’s conduct in the second scheme, the district was defrauded and sustained an additional loss of at least $76,214, according to the information.

This case was investigated by special agents of the Internal Revenue Service-Criminal Investigation and the Federal Bureau of Investigation, both located in Cleveland, with the assistance of the State of Ohio Auditor’s Office, the Cuyahoga County Sheriff’s Office, and the United States Postal Inspection Service.

The case is being prosecuted by Assistant United States Attorney Rebecca Lutzko, Special Assistant United States Attorney Perry Mastrocola, and Assistant United States Attorney James L. Morford.