|DA John Morganelli|
Kearns and McLaine are both expected to voluntarily surrender before Bethlehem Township District Judge Joseph Barner, Morganelli added.
Each defendant faces a maximum fine of $40,000 and a maximum sentence of sixteen years incarceration.
Ironically, Bethlehem Township was allegedly defrauded as a result of a 2007 agreement under which it was hoping to save money. At that time, Concord Public Finance, the Township's then financial adviser, introduced a project under which the Township would buy its street lights from PPL, after which it could shop around for the lowest electricity rates. Municipal Energy Management, Inc., (MEM) in which Kearns and McLaine are the principals, would facilitate the purchase, and would be paid only $50,000 on a million dollar project.
At the time, MEM specialized in helping municipalities privatize their lighting systems. It had numerous municipal agreements throughout the state, including Allentown, Bethlehem, Whitehall, Scranton, Wilkes-Barre, Hazelton and Tamaqua. "As you brighten your streets you will lighten your budget," the company's web page boasts.
Through Concord, the Township borrowed $1.2 million for the project, and paid Municipal Energy Management, Inc. $832,460 so that the company could start purchasing the street light systems from PPL as a "fast track purchase." Privatization was supposed to be completed in 18 months. Instead, the Township found that it was increasingly in the dark. For more than two years after payment, MEM did nothing.
Things came to a head in 2009. Township officials like Finance Director Andrew Freda were being stonewalled by Kearns and Peter Wernsdorfer, a consultant associated with MEM. He'd be told, "We'll take care of it" or "We're getting the bucket truck out."
Wernsdorfer, who has not been charged, was Allentown's Public Works Director, but resigned in October 2007. A member of the Executive Board of Lehigh County's Democratic Committee, Wornsdorfer now states, "They [MEM] owe me more than $50,000. I filed my own complaint in Lehigh County last month."
Around this time, the Township hired the Bethlehem law firm of Broughal and DeVito as their new Solicitors. The firm learned from PPL that the Township borrowed over one million dollars for a project that would only cost $271,180.
They sued in 2010. Through the discovery process, Township lawyers learned that the $832,460 paid to MEM was deposited in a corporate bank account on July 5, 2007, and commingled with money from other sources, yielding a $1.8 million balance.
Not long after that, Kearns and McLaine began withdrawing large sums. One check for $366,600 went to Kearns. Two checks, totaling $608.945, went to McLain. All three checks were signed by both Kearns and McLain. When asked to explain the purpose for these checks during civil depositions, neither could recall.
By November, the corporate bank account was down to $34,718. Bethlehem Township's money was gone. But the corporation tax return for that year reported $1.8 million in income to its two officers, Kearns and McLaine. On Kearns' individual return that year, he reported wages of $920,000. McLaine reported $1.5 million in wages.
McLaine is by now familiar with the criminal system. According to a report in Citizens Voice, he testified under immunity in June in the public corruption case against former Lackawanna County Commissioner Robert C. Cordaro. McLain admitted to paying $10,000 every month to retain county contracts. According to DA John Morganelli, police officials in Cumberland County have also expressed interest in the MEM investigation. Wilkes-Barre, Hazleton and Tamaqua have cut their ties to MEM as well.
Bethlehem Township Solicitor Leo DeVito, in a prepared statement, thanked DA Morganelli and the Grand Jury for "their hard work in this matter. In addition to the criminal indictment, Bethlehem Township has ongoing litigation against both MEM and Robert Kearns and Patrick McLaine. This litigation was commenced in 2010. In addition, in a separate civil action, Concord Financial Services has also been sued by Bethlehem Township. Since all of these matters are currently pending and involve ongoing litigation, both civilly and now criminally, we offer no further comment on these matters at this time."
But that was no consolation to Barry Roth, a member of the Township's Planning Commission. "We should have been stopping this two years ago, before we got this far in debt."
DeVito declined to comment on why there was no performance bond in the 2007 agreement under the Township's previous Solicitor, Thomas Elliott.
Morganelli was unsure how much money Concord Public Finance was paid as a result of the 2007 agreement. "We believe there was some kind of contact, but there wasn't a big conspiracy," he noted. Reading-based Concord is still financial adviser in Easton and Bethlehem. In 2004, Concord recommended a controversial swaption to Northampton County. In exchange for a quick $1.9 million in 2004, the County is at current interest rates stuck with a $25.9 bill in October.
Morganelli stated his investigation remains open.