Former Stillwater Mayor Ken Harycki will make his first appearance in federal court this week on felony fraud charges.
Harycki’s first appearance, arraignment and plea hearing is set for 9 a.m. Thursday, Jan. 15 in U.S. District Court in Minneapolis. Harycki faces charges of fraudulent accounting that allegedly helped conceal more than $10 million in tax liabilities for a Twin Cities area health care business.
Harycki, 51, the owner of Customized Payroll Solutions in Stillwater, was charged last month by the U.S. Attorney’s Office with conspiracy to defraud the federal government of millions of dollars by preparing and filing tax forms he knew to be fraudulent.
Thurlee Belfrey and his brother, Roylee, were each indicted on Medicaid fraud charges on last month. The two men own and manage multiple health care businesses, including Royal Health Care, Model Health Care and Integrated Health Services, Inc.
According to federal sentencing guidelines, if Harycki is convicted he could face up to five years in federal prison, and up to a $250,000 fine.
According to court documents:
Harycki began doing accounting work for the Belfreys and their companies in 2007, and he came under an IRS investigation in October 2012. Harycki allegedly hid the fraud by using numerous bank accounts, making numerous money transfers per day between the bank accounts and creating business bank accounts in other people’s names.
Harycki also allegedly created shell companies for the Belfreys and filed false tax returns on their behalf.
“These defendants are charged with conspiring to obtain significant amounts of money from the United States by fraud,” U.S. Attorney Andrew Luger said in a news release. “When individuals steal from government agencies like Medicaid, they are effectively taking money from us all to line their own pockets. It is critically important that law enforcement actively investigate and prosecute healthcare fraud.”
Harycki regularly prepared Model’s IRS quarterly Form 941, which reports an employer’s payroll and FICA tax liabilities to the IRS, according to the U.S. Attorney’s Office. Harycki knew that the Belfreys were deducting and collecting payroll taxes from their employees, but not paying those funds to the government. Harycki made no attempt to correct the forms, and instead fabricated entries onto the forms to match other records and assist the Belfreys to avoid detection by the government.
On Feb. 18, 2010, Harycki allegedly created the entity MKH Holdings, Inc., to assume control over bank accounts used to fund Model and other businesses operated by the Belfreys. MKH Holdings was used to cause funds not accurately reported on income tax returns to be paid to the Belfreys and others. During the course of the conspiracy, Harycki also incorporated other businesses, obtained employer identification numbers, paid for personal expenses, and opened and used numerous bank accounts for the benefit of the Belfreys in order to avoid payment of taxes.
“The Special Agents of IRS Criminal Investigation are committed to protecting the integrity of our system of taxation by investigating tax and accounting professionals who conspire with others to violate the tax laws,” IRS Special Agent in Charge Shea Jones said. “All tax professionals, including CPA Kenneth Harycki, have a duty to their clients to prepare accurate and complete tax returns that comply with the law.”
In November, Harycki resigned as mayor to “better focus on personal issues.”
Harycki was first elected mayor in 2006, and was re-elected in 2010. He chose not to seek re-election this fall.
Harycki came under fire after federal agents raided business last March.
Agents with IRS Criminal Investigations, in conjunction with the FBI and U.S. Department of Health and Human Services conducted the raid at Harycki’s Stillwater business, Customized Payroll Solutions, as part of an “enforcement action,” Special Agent with the IRS criminal investigations unit Vicki Petricka has said.
“The issue that is being investigated involves a former client of Customized Payroll Solutions,” Harycki said in a prepared statement after the raid last March. “I am deeply disappointed by this situation and we are fully cooperating with authorities.”
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