New Castleton Man Sentenced on Mail Fraud Charges

Andrew T. Baxter, Acting United States Attorney for the Northern District of New York; John F. Pikus, Special-Agent-in-Charge of the Albany Division of the Federal Bureau of Investigation; and Joseph Fisch, Inspector General of New York State announced today that J. FELIX STREVELL, 47, of New Castleton, New York was sentenced today by United States District Judge Gary L. Sharpe, in Albany, N.Y., to five years of probation with a six-month period of home confinement for committing mail fraud in connection with a scheme to defraud the citizens of New York State of his honest services. STREVELL was also ordered to pay restitution of $111,500, which was the full amount of the money he obtained, and a $100 special assessment.

The sentence follows STREVELL's April 30, 2007 guilty plea. The charges arose out of STREVELL's conduct while serving as Chair, Chief Executive Officer, and Executive Director of the Institute for Entrepreneurship ("Institute") and as President and Chief Executive Officer of the related not-for-profit entity, The Institute for Enterpreneurship, Inc. ("Institute-501(c)(3)"). According to the indictment, STREVELL devised a scheme to defraud New York State and its citizens of money and property and their right to his honest services by, among other things, fraudulently controlling and diverting federal and state grant monies through the Institute-501(c)(3) and using the Institute-501(c)(3) to enrich himself and his family members. As part of his guilty plea, STREVELL admitted the following:

The Institute for Entrepreneurship ("the Institute") was developed by the State University of New York (SUNY) to support small business and entrepreneurial efforts in New York State. Initially, the Institute was affiliated with Empire State College and located within the college's facilities in Saratoga Springs, New York. In January 1999, however, several months after receiving its first independent funding, the Institute relocated to Albany, New York.

On March 2, 1999, Empire State College created a not-for-profit corporation under Section 501(c) of the Internal Revenue Code, called "The Institute For Entrepreneurship, Inc." ("Institute 501(c)(3)") to solicit funds and to provide other benefits to the Empire State College Foundation, Inc.

Shortly after the Institute 501(c)(3) was formed, however, a July 1999 Administrative Services Agreement between the college and the Institute stipulated that the college would provide administrative support for the Institute, including payroll, budgeting, accounting, revenue management, purchasing and accounts payable services, but would not provide support or oversight for the Institute 501(c)(3). The agreement further noted that the Institute 501(c)(3) had been established by the Institute for its "sole use, " and agreed that responsibility for managing the Institute would be transferred to an Executive Director, who would report to the Institute's five member Board of Directors. Both STREVELL and his brother were members of the Institute's Board of Directors.

On August 18, 1999, STREVELL, who was then employed as the Deputy Secretary of State for Business and Licensing at the New York Department of State, amended the Certificate of Incorporation for the Institute 501(c)(3) to make the corporation independent of the Empire State College Foundation. This amendment also provided the Institute 501(c)(3) with the power to solicit and receive grants, bequests, and contributions to further its corporate purpose.

In December 1999, the Board of Directors hired STREVELL to serve as the paid Executive Director of the Institute. The Defendant also thereby became the Executive Director of the Institute 501(c)(3), which was now positioned to assume the roles, functions and assets of the Institute without being subject to the regulation and review that would have pertained to the Institute.

Between August 1998 through June 30, 2001, the Institute received approximately $8 million in funding and spent approximately $5.3 million. Funding for the Institute came from three sources: 1) federal Small Business Administration and other grants ($4.7 million), 2) grants from New York State, including a line item ($2.2 million) and additional funds appropriated through Empire State College for five staff positions ($675,000), and 3) donations and contributions from state agencies, corporations, and individuals ($424,000).

The Institute 501(c)(3) received funding from: 1) financial "sponsorships" of the Institute's programs and events, which came from state agencies, corporations, and private individuals; 2) a transfer of $200,000 from the Small Business Development Corporation's (SBDC) budget and 3) "program income," which was earned by the Institute on its cost reimbursement contracts with state agencies.

Both the Institute and the Institute 501(c)(3) used the same bank account - which was, in fact, the only bank account for either entity. As a result, the funds for both entities were commingled, and funding irregularities occurred. Moreover, most of the funds credited to the Institute 501(c)(3) derived from the Institute itself. The "sponsorship" funds came primarily from three events celebrating entrepreneurship. However, while the costs for these events were largely billed to the Institute, the Institute 501(c)(3) retained approximately $163,000 of the sponsorship funds for itself. The SBDC's $200,000 transfer to the Institute 501(c)(3) was, similarly, based upon the premise that the SBDC had "sponsored" two events for the Institute. In June 2003, the Institute "billed" the SBDC $100,000 for "co-sponsorship of the Solomon Youth Program," and $100,000 for the so-called "E-Tour" to promote entrepreneurship by having young adults travel around the country conducting interviews of young entrepreneurs for an eventual MTV television show (that never happened). The "program income" came from the Institute's contracts with state agencies to provide entrepreneurial training to participants in state agency programs.

The Institute 501(c)(3) was, therefore, administratively separate from the Institute, independent of outside oversight, and funded with the Institute's money. STREVELL then used his position as Executive Director of both entities to fraudulently obtain funds and benefits for himself and his family from the Institute. The Defendant thereby defrauded the Institute and the taxpayers of substantial sums, as well as of their right to his honest services as a public official or state employee.

STREVELL defrauded the Institute and the people of New York State by: using his Institute CEO corporate credit card to pay his personal expenses; obtaining a $95,000 salary increase for himself by fraudulent means and then attempting to conceal that he had received it; requiring that his father (a Florida resident and businessman) be included on a trip to China that was intended to foster relations between China and small businesses in New York; and arranging for the Institute to purchase a Recreational Vehicle that he had been trying to sell for $64,000, without disclosing his ownership of the vehicle.

From November 1999 through July 26, 2001, the Defendant had a corporate credit card, which he used regularly for personal expenses. STREVELL's credit card bills were paid from the Institute checking account, after he had annotated the monthly statements to indicate which expenses were personal and which were business. However, while STREVELL charged $51,807.39 on his credit card, he only identified $8,598 in personal expenses. In fact, there was at least another $7,500 in personal expenses that STREVELL did not claim and that were paid by the Institute. These included: $1,656 in matting for a horse barn, almost $2,400 for a family trip to Disney World in Florida, 11 purchases for miscellaneous items for home and property maintenance from Home Depot that totaled about $1,000, another $1,000 in four purchases of personal men's clothing from Jos. A. Banks, and two more trips to Florida: one for $1,208.41 and another for $1,798.20.

Under the terms of his employment, STREVELL received a $124,000 salary, an automobile allowance, and a $10,000 housing allowance (which he caused to be raised to $24,000 a few months later). STREVELL also enjoyed an annual discretionary account of $5,000 per year "to pay for the CEO's Institute related business expenses." In January 2001, STREVELL orchestrated a salary increase for himself and lobbied the Board of Directors to approve it. Evidence indicates that the Board of Directors, which was divided on the issue, only "approved" the raise based on the Defendant's brother's vote. Immediately after securing the raise for himself, STREVELL instructed the Institute CFO to pay the whole amount in a lump sum $95,000 payment, and falsely told her that the New York State Ethics Commission had approved the raise and the Board had approved the lump sum payment.

At the same time, STREVELL was also working to secure an IRS exemption for the Institute that would excuse it from having to file an "Income Disclosure Statement" – Form 990, which would have required the disclosure of his salary and the increase. On November 6, 2000, the Institute's accounting firm, KPMG, outlined the formal changes in the relationship between Empire State College and the Institute that would be required for the Institute to qualify for the exemption. While the necessary changes would have strengthened the College's ties to (and oversight of) the Institute, the Defendant softened the description of the changes in his account to the College. As a result, the College did not believe that the relationship between the College and the 501(c)(3) had been affected. On March 24, 2001 by certified mail, the Institute 501(c)(3) filed its application for exemption, which was approved on May 3, 2001. Before the application was submitted, however, the Defendant caused it to be changed by having the word "all" deleted from the statement that the College reviewed the Institute's budgets/financial plans.

During 2000, the SBDC sponsored two trips to China to foster opportunities there for small businesses in New York State. In February 2000, STREVELL contacted the SBDC organizer and informed him that he wanted his father, a Florida resident with a Florida business, to go on the trip. Despite the concerns of some SBDC employees, the SBDC paid for the Defendant's father's airfare - including his airfare from Florida to Albany - and trip. The Institute 501(c)(3) reimbursed the SBDC for expenses, but not the airfare. In October 2000, the SBDC planned a second China trip and STREVELL again insisted that his father be included. Since the SBDC now refused to pay for STREVELL's father, the Institute 501(c)(3) "agreed" in an October 13, 2000 Letter of Intent to pay 75% of the costs of the trip because "the majority of [the father's] travel will be for Institute business." In fact, the Defendant's father never conducted any business in China except for his Florida company, Sinojo Ltd. As a result of these trips, the SBDC and the Institute were defrauded of approximately $9,000.

While serving as the Director of the Institute, STREVELL sold his RV to the Institute, without disclosing his interest in the transaction to the Board of Directors. The sale was completed after the Institute's CFO, on the Defendant's instructions, prepared an April 26, 2000 Memorandum to him, stating that she had searched for an RV to be used for an Institute project (the "E Tour"), and that she recommended that the Institute purchase the one that just happened to be Defendant's. (The fact that the recommended RV was owned by defendant was not revealed in the memorandum.) On May 5, 2000, STREVELL sold his RV to Northway Travel Trailers in Malta, New York for $64,000. On the same day, Northway sold the RV to the Institute 501(c)(3) for the same price.

The investigation was conducted by the Albany office of the Federal Bureau of Investigation and the New York State Office of Inspector General with assistance from the Research Foundation of the State University of New York and the New York State Office of the State Comptroller. The case was prosecuted by Assistant United States Attorneys Elizabeth C. Coombe, Sara M. Lord, and William C. Pericak of the United States Attorney's Office for the Northern District of New York.