Former Bank Prez Charged in $10 Million Ponzi Scheme

Richard A Freer is in Northampton County jail under $10 million bail 

At one time, he was President of Lafayette Bank. But Richard A. Freer, age 67, is now in jail. He's charged as the mastermind behind a $10 million Ponzi scheme that defrauded 81 local, and mostly older, Lehigh Valley residents of $10 million over the past four years. Northampton County District Attorney John Morganelli announced the charges on Friday morning after Freer was arrested at his Palmer Township home. Based on a Grand Jury Presentment, Freer has been charged with 90 counts of theft by deception and theft by failure to make the required disposition of funds; forgery (50 counts); deceptive or fraudulent business practices (42 counts); failure to register under the Pennsylvania Securities Act (1 count); and sales and purchases in violation of the Pennsylvania  Securities Act (1 count). "He deserves to die in prison," said Morganelli. "I hope he has a long life because it's going to be spent in jail."

ADA Bill Blake handles white collar crime

Ironically, Freer succeeded James P Greer as president of Lafayette Bank when Greer was convicted of tax evasion in 1987. According to the Presentment, Freer was forced to resign his position as President in 1991. Public records reveal that he was plagued by financial problems after he left Lafayette Bank, with numerous judgments filed against him. He sold his property, after which he and wife Beverly rented a home on Tatamy Road.

There is no evidence that Freer or his wife lived a lavish lifestyle, or had a drug or gambling dependency, according to Assistant DA Bill Blake, who is also handling this prosecution.

According to the Presentment, Freer bounced from job to jab after his departure from Lafayette Bank until 2002, when AVIVA Insurance hired him. From their Bethlehem offices, Freer began offering high yield investments to customers who agreed to invest their money with him privately. He promised to place their money in a real estate investment trust or with his employer. But he instead deposited the money into his personal checking and savings accounts.

In addition to his work with AVIVA, authorities claim that Freer carried on his Ponzi scheme through Financial Services Group, Richard A Freer and Associates and Limerick Properties, LLC. But he never registered these businesses with the Department of State, as required by law. Nor has he ever registered as a broker-dealer, agent or investment adviser. In fact, he failed the examination for mutual fund and variable annuity salesmen on four separate occasions.

Freer operated by referral, visiting people at their homes. Though he did sub-let office space at 65 E. Elizabeth Avenue in Bethlehem, he had no working phone or computer. His office consisted of a desk, television and filing cabinet.

Jane Morris Annuity Led to Investigation

Morganelli began this investigation based on concerns raised by Bethlehem Attorney Nicholas E. Englesson and William Koscinski, an Allentown Certified Public Accountant. Their client, Hanover Township resident Jane Morris, age 80, had signed over an annuity to Freer worth $48,000. She invested an additional $106,000 with Freer based on his assurances that she would double her income. But last November, Morris began receiving notifications from the IRS that she owed $15,000 in taxes for prematurely cashing out the annuity. Koscinski contacted Freer, and later received a telephone message that "all necessary information was sent to the IRS and you should not contact Mr. Freer or Mrs. Morris regarding this issue any further."

Koscinski then learned that Freer had provided nothing to the IRS and that the income tax issue remained unresolved. As he continued pressing the issue, Freer ultimately paid the $15,000 in income tax from his own account. But by this time, Morris had entrusted Freer with over $400,000.

Based on this information, Morganelli began a Grand Jury investigation.

Ted and Lois Walters

According to the Grand Jury Presentment, Easton residents Ted (age 64) and Lois (age 63) Walters invested over $600,000 with Freer, beginning in 2004. He deposited this money in his personal account. When they asked for monthly annuity payments, he provided them with $5,000 per month. They also invested $10,000 with Freer as a deposit on a vacation home in Delaware. He told them their mortgage was denied, but they subsequently learned from the owners of the vacation home that there had never even been an agreement of sale. The Walters asked Freer to transfer their money to another investment broker, but he provided nothing but excuses.

The Gencarelli Family

At least ten members of this family, located in Bethlehem and Easton, entrusted  $1,450,000 to Freer for trusts that would enable their children to attend college. Freer told them he ran a big business with 19 employees, an attorney and his accountant. He promised to set up annuities with AVIVA, but instead deposited their money into his personal account. He used the money for personal expenses and to make payments to other victims of his Ponzi scheme.

The Steads

Kenneth (age 83) and Shirley (age 77) invested over $630,000 with Freer, starting in 2006. He cashed out their life insurance policies and an IRA, which went into his own personal account. Their money is gone.

Freer Claims He Has Special Investors

Detective Gerald Walsh executed a search warrant at Freer's home on May 29. At that time, Freer told Walsh he finds "special investors" for his clients, with a guaranteed  5-11%  rate of return. He acknowledged that most of his clients are between 55-75 years old. He told Walsh that his files were at his Bethlehem office, but Walsh found 82 files in an upstairs bedroom. According to Walsh, they reveal a "significant fraud" against numerous people, totaling $10 million. There were no documents indicating Freer had invested the money with legitimate investment firms or "special investors."

Freer Continues Fraud After Accounts Frozen

During the course of the investigation, Freer's bank accounts were identified and frozen in July. Freer opened up a new checking account and took $189,000 from an elderly couple. He made out a cashier's check to himself for $20,000 and used other money to make payments to some of his victims.

Morganelli Outraged

Calling this "one of the most outrageous cases I've ever seen of theft," Morganelli condemned Freer's "despicable conduct". His office is looking for additional victims. "I gotta' believe there's more people out there," stated Assistant DA Bill Blake. "Hopefully, they'll reach out as time goes on."

"We're not done yet," added Morganelli.

Hearing in March For Scranton Men Accused in Streetlight Scam

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. According to The Scranton Times, an electrician is now suing for $5,000 in unpaid invoices. This is on top of $320,222 bill to another subcontractor.

A preliminary hearing on the Northampton County charges is scheduled March 16, before District Judge Barner in Bethlehem Township.

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.

Grand Jury: Bethlehem Township Defrauded of $832,460

Northampton County District Attorney has just revealed a Grand Jury presentment against Robert J. Kearns and Patrick J. Mclaine, who allegedly defrauded Bethlehem Township of $832,460 in a scheme under which the Township was misled into believing it was purchasing its own street lights.

From the Sranton area, Kearns and McLaine will be surrendering to District Judge Barner on charges of theft, misapplication of entrusted property and conspiracy.

I will have a detailed report later. Until then, you can read the Grand Jury Presentment.