Texas Man Sentenced for Stealing Nearly $1 Million from St. Joseph Employer
KANSAS CITY, MO—Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Weatherford, Texas man was sentenced in federal court today for a mail fraud scheme in which he embezzled nearly $1 million from Herzog Contracting Corporation in St. Joseph, Mo.
Daniel Reif, 49, of Weatherford, was sentenced by U.S. District Judge Beth Phillips to three years in federal prison without parole. The court also ordered Reif to pay $1,318,042 in restitution and forfeit to the government $105,000 seized from his TD Ameritrade account and a 2010 Tige boat and trailer. Reif made a $225,000 payment prior to today’s hearing as settlement of civil and criminal forfeiture.
On Jan. 22, 2015, Reif pleaded guilty to one count of mail fraud and one count of filing a false income tax return. Reif admitted that he engaged in a scheme to defraud Herzog from January 2006 through Aug. 26, 2011.
Herzog, which constructs railroads, highways, bridges, and airports, has a regional office in Irving, Texas. Reif began working for Herzog in the Irving office in August 2005. Reif was the manager of signals for Herzog and responsible for procuring materials and services from vendors in order to fulfill the needs of existing jobs; he was also responsible for oversight of the installation and performance of those services and materials. Reif was authorized to approve payments to vendors under his supervision and responsibility.
Reif founded his own company, Railway Signal Solutions, LLC (RSS), in February 2005. Reif began ordering project materials and services from supply vendors through RSS, then re-selling those products and services to Herzog at inflated prices. The RSS invoices made it appear as though the materials and services were being provided directly by RSS, an ostensibly independent supply vendor.
In the scheme, Reif established a fictitious character named “Gene Schmitt” who purportedly worked at RSS and communicated with Reif via e-mail. Over 100 e-mails between Reif and Reif, acting as Schmitt, were found by Herzog during the company’s internal investigation.
Reif, on behalf of RSS, paid the original, true vendors with a personal credit card or cashier’s check. Reif then, through RSS, invoiced Herzog for a higher price. The difference between the true price and Reif’s inflated price varied from 10 percent to over 100 percent. After RSS invoiced Herzog, Reif actually authorized payment of the inflated invoices himself.
Herzog reported that RSS invoiced $2,821,180.19, while the true cost of materials was $1,932,417, resulting in a difference of $888,762. Herzog paid Reif/RSS an additional $91,845 for products with no real customers identified, which establishes the total loss of $980,608. This loss figure is conservative, as it does not include $346,175 which Reif/RSS invoiced to Herzog but which could not be matched or estimated.
The plea agreement cites one instance of a $292,241 check from Herzog made payable to RSS that was mailed on March 10, 2010. The check was sent as payment for two invoices, one of which was sent by RSS to Herzog for a signal material package in the amount of $246,856. Reif, through his company RSS, had paid $152,686 for this same part, thus marking up the part by $94,170 and defrauding Herzog that same amount.
Reif also admitted that he filed a false federal income tax return for the year 2008. According to the plea agreement, Reif claimed $990,159 in business expenses, although $498,301 of his business expenses had already been reimbursed by Herzog, his employer. The return materially understated his taxable income, resulting in a tax loss to the government of $192,230.
According to court documents, Reif claimed substantially inflated and fraudulent expenses on federal income tax forms for travel and entertainment, depreciation, shipping and supplies. The total tax loss for tax years 2008 to 2011 is $337,434.
This case was prosecuted by Assistant U.S. Attorney Kathleen D. Mahoney. It was investigated by the FBI and IRS-Criminal Investigation.