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Tuesday, February 07, 2012

Two Scranton Area Men Accused of Bilking Bethlehem Township For $832,460 in Streetlight Scam

DA John Morganelli
In a 23-page presentment, a Northampton County Grand Jury has charged two Scranton-area men, Robert J. Kearns and Patrick J. "PJ" McLaine, with defrauding Bethlehem Township of $832,460 in a street light purchase scam. At a February 6 news conference, District Attorney John Morganelli announced that both Defendants have been charged with felony theft, misapplication of entrusted property and felony conspiracy.

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.


Anonymous said...

Concord Public Finance - Weren't they mixed up with area swaptions also?

Bernie O'Hare said...

Yes. But they make large campaign donations, so they got that going for them.

Bernie O'Hare said...

They were not involved in BASD, if that is what you mean. They were involved in others, like one in Lancaster that ended badly.

Anonymous said...

If Steve Barron had been watching n9one of this would have happened.

Anonymous said...

Who does stuff like this? Nearly $1 million dollars of taxpayer funds now lost?

Issac Touro said...

can't touch Concord - they own every dem pol in the valley

Paul Kersey said...

You can't blame Concord for the swaptions. If the elected officials who voted for them didn't understand how they worked then that is on them for not doing more work. My guess is the officials were more concerned with how much money they'd get up front and not much else.

Anonymous said...

Is this costing the Twp more in legal fee's to Broughal & Devito or is it part of their existing agreement?

Bernie O'Hare said...

I have no idea whether this costs the Twp more in legal fees, but my guess is that it does, and that it is money well spent.

Anonymous said...

Ha Ha Peter Wernsdorfer, a big time liberal Democratic party insider, used to serve King Edwin as a Department Head in Allentown City Hall. A real left winger.

Anonymous said...

Score another victory for Government, who can't seem to not make a mess of anything at any level.

Can they?

Somebody picked out these two men accused of this $ 830,000 some-odd scam ...

Anonymous said...

Bernie -

You mention Wernsderfer doing the stonewalling, yet his reply is that MEM still owes him money.

To me, that's irrelevant. He still played a role in the scam, and is merely trying to deflect attention from that point.

Do you know if more will be charged in the scam, or is Wernsderfer getting off easy?

Anonymous said...

Sounds just like the good work Mitt Roomney did with Bane Capital. A fleecing we will go.

Anonymous said...

Time for some Hen"bane" Gomez?

Uncle Fester says;

be kooool stay in skooool

Anonymous said...

Allentown, Bethlehem, Whitehall, Scranton, Wilkes-Barre, Hazelton and Tamaqua!!!, hmm..reads like a whos who of Democratic Party regional offices. I wonder if there's more to this story than Bethlehem Township getting bilked. Maybe these guys ran this scam repeatedly with the cooperation of corrupt local Democratic party officials who also benefitted. This guy Wernsdorfer is well connected within the party. Maybe they screwed up by trying to work over a well run municipality with competent staff?

Bernie O'Hare said...

I know nothing about Wernsdorfer's involvement beyond what is written here. I doubt the DA will share his thinking about this case with me. The theory that Wernsdorfer is criminally culpable does need something that seems to be missing at this point - facts. This is a big case and is going to extend beyond BT. Let's see how it plays.