Former Virginia Secretary of Finance Sentenced for Embezzling $4 Million from Tobacco Indemnification Fund
|U.S. Attorney’s Office November 23, 2010|
RICHMOND, VA—John W. Forbes, II, age 54, of Richmond, Virginia, was sentenced to 120 months’ imprisonment today in U.S. District Court for orchestrating a wire fraud scheme that resulted in the embezzlement of $4,000,000 from the Virginia Tobacco Indemnification and Community Revitalization Commission. The defendant was also ordered to pay $4,000,000 in restitution to the Revitalization Commission. Neil H. MacBride, United States Attorney for the Eastern District of Virginia, made the announcement after the defendant was sentenced by United States District Judge Henry E. Hudson.
“John Forbes stole millions from the tobacco settlement fund while serving as Virginia’s top financial official,” said U.S. Attorney MacBride. “Instead of using settlement funds to help bring economic recovery to Virginia communities which had depended on tobacco, he stole millions of dollars which he spent on a lavish new home and personal investments. Today, Mr. Forbes was held responsible for betraying the public’s trust and will spend the next 10 years in prison.”
According to court records and testimony at the sentencing hearing, the fraud started when Forbes was serving as the Secretary of Finance of the Commonwealth of Virginia in 2001 and 2002. During his tenure as Secretary of Finance, he sat on the Board of the Revitalization Commission, which was created by the Virginia General Assembly in 1999 to promote economic growth and development in tobacco-dependant communities, using proceeds of the national tobacco settlement to accomplish its aim. At meetings in June 7 and 8, 2001, Forbes sought a $5,000,000 grant from the Revitalization Commission for a foundation he operated, the Literary Foundation of Virginia (“Literary Foundation”). In his presentation to the Revitalization Commission, Forbes explained that the Literary Foundation had the ability to leverage the proposed $5,000,000 grant into $15,000,000, which would be used to provide educational benefits for citizens in Southside and Southwest Virginia. Based on the defendant’s proposal, the Revitalization Commission awarded the Literary Foundation the $5,000,000 grant. The funds were wired to the Literary Foundation in two $2,500,000 installments: the first on July 23, 2001; the second on February 13, 2002.
In perpetrating the fraud, Forbes selected and put a sham Board of Directors in place at the Literary Foundation. He selected his then-wife to serve as the Literary Foundation’s Executive Director, at an annual salary of $130,000 per year. After Forbes’ tenure as Secretary of Finance concluded, he assumed the Executive Director position for the Literary Foundation. His annual salary was $130,000. During the Literary Foundation’s entire existence, Forbes orchestrated the fraudulent scheme and siphoned off the overwhelming majority of the revitalization funds for his own enrichment. To facilitate his fraud, Forbes created other sham entities, including the Community Development Council (“CDC”) and International Business Associates (“IBA”). Between February 4, 2003 and June 6, 2006, Forbes caused the wiring of $2,220,000 from the Literary Foundation to the CDC. These funds were ostensibly payment for public outreach services. CDC did not exist prior to its affiliation with the Literary Foundation, and at no time did CDC ever perform any work for any client. Although CDC purportedly used an address at 274 Madison Avenue in New York City, that was a virtual address. In fact, according to its formation documents, CDC operated from the same address as the Literary Foundation.
Almost immediately after Forbes completed each transfer of funds from the Literary Foundation to CDC, he would withdraw the funds from CDC and deposit them into the bank account of IBA. Forbes founded IBA on December 31, 2002. It was located in the same office building as CDC and the Literary Foundation. IBA conducted no ongoing business, and its bank account served generally as Forbes’s private bank account. IBA had no source of income other than the fund transfers from CDC. Of the $2,220,000 CDC received from the Literary Foundation, $2,192,000 was ultimately transferred to IBA.
As part of his guilty plea, Forbes agreed that of the $5,000,000 the Commission granted to the Literary Foundation, only $942,000 was used to promote adult literacy, typically through grants and scholarships to students in Southside and Southwest Virginia. In addition, IBA spent approximately $40,000 on expenses related to public outreach for the Literary Foundation. The remaining funds, totaling approximately $4,000,000, were used for Forbes’s personal benefit, including salaries for Forbes and his ex-wife.
The investigation was conducted by the Federal Bureau of Investigation and Virginia State Police. Assistant United States Attorney Michael Gill prosecuted the case on behalf of the United States.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.usdoj.gov/usao/vae. Related court documents and information may be found on the website of the District Court for the Eastern District of Virginia at http://www.vaed.uscourts.gov or on https://pcl.uscourts.gov.