March 15 (Bloomberg) -- New York state Senate former Democratic majority leader Pedro Espada Jr. and his son stole more than $500,000 from nonprofit health-care clinics they run, a prosecutor said at the start of their trial.
The pair “stole more than half a million dollars from a public charity,” Assistant U.S. Attorney Carolyn Pokorny told jurors yesterday in federal court in Brooklyn, New York. “They stole that money so they could spend it on themselves and their families and they lied so that they could cover it up.”
Espada, 58, and Pedro Gautier Espada, 38, abused their positions at Soundview Healthcare Center in the Bronx section of New York City, which gets more than $1 million a year in federal funding, according to prosecutors in the office of U.S. Attorney Loretta Lynch. Pedro Espada started Soundview in 1978.
The Espadas were charged in December 2010 when the elder Espada was still in the Senate. He had been defeated that September in the Democratic primary for his Bronx seat. The Espadas engaged in several illegal schemes from January 2005 to February 2010, prosecutors said.
“We will show you at trial that none of Espada’s expenditures were theft,” Susan R. Necheles, a lawyer for Pedro Espada, told the jury.
U.S. District Judge Frederic Block is presiding over the trial.
Russell M. Gioiella, Gautier Espada’s lawyer, said the government accused his client of theft after “maybe five or six checks” he wrote in 2005 were incorrectly categorized three years later.
“All he’s doing is managing a few janitors and writing a few checks,” Gioiella said. “The accountants, for whatever reason, and you’ll hear from them, did not put them in the right categories.”
Much of the Espadas’ alleged illegal activity centered on two for-profit janitorial-services companies Pedro Espada founded: Community Expansion Development Corp., or CEDC, in 1980, and Soundview Management Enterprises, in 2007. Both provided services to the clinics. In January 2005, Espada transferred ownership of CEDC to Soundview Healthcare, the government said.
Even after Soundview Healthcare owned CEDC, the Espadas operated it as if it was still theirs, using it to pay personal expenses, including for political campaigns, prosecutors allege. That scheme totaled $175,000, they said.
The two men are also charged with a bid-rigging scheme to get Soundview Management the contract to clean the clinics.
In October 2006, Pedro Espada presented a $49,000 CEDC check as down payment for a $125,000 Bentley at a Long Island dealership, according to the indictment. He never got the car because his financing application was rejected.
“Espada had to settle for a Mercedes because Bentley turned him down,” Pokorny said yesterday. Necheles said it was a used Mercedes.
Pedro Espada charged more than $100,000 for personal meals on Soundview Healthcare’s corporate American Express card, including more than $20,000 at Toyo Sushi in Mamaroneck, New York, prosecutors said.
“During a five-year spending spree, Espada spent $60,000 on sushi and lobster,” Pokorny said.
Espada also failed to identify more than $115,000 in charges on Soundview Healthcare’s credit card as his own, prosecutors said.
Necheles said Espada never stole because he had no intent to steal.
“If Espada thought something was part of his compensation and he was entitled to the money, it’s not theft,” she said. She said most of the charges came under an allowance he had for daily expenses.
Espada used CEDC money to pay for a caterer, videographer, petting zoo and pony at a June 2006 birthday party for a family member at his Mamaroneck home, Pokorny said. Necheles said yesterday the party was for Espada’s 1-year-old granddaughter.
The Espadas rented Soundview Healthcare conference rooms and other facilities to medical professionals and religious groups, keeping about $200,000 for themselves, according to the indictment.
“The rent belonged to Soundview,” Pokorny said. “But the Espadas stole it.”
Necheles said it was always the case that the subletting companies made their checks out to CEDC.
The Espadas stole so much that Soundview Healthcare struggled to pay its rent and payroll, Pokorny said.
“They did it because they were greedy, they did it because they were powerful and they did it because they thought they were going to get away with it,” the prosecutor said.
Pedro Espada was paid $500,000 a year at Soundview Healthcare, Pokorny said.
“It’s not a crime in America to be paid a lot of money,” Necheles said. “It’s not even a crime to be paid a lot of money by a charity.”
Necheles said Espada was Soundview Healthcare’s biggest creditor and “for years and years” was underpaid.
“Espada gave up $150,000 worth of his time so Soundview could clean up its ledger sheets,” she said.
Cleaning and Maintenance
Gautier Espada is in charge of cleaning and maintenance at Soundview Healthcare and also holds positions at the janitorial companies, according to the government. His base salary and fringe benefits were $111,667 in 2009, according to the indictment. The younger Espada made almost as much from the janitorial companies, the government said.
The Espadas are being tried on embezzlement and conspiracy charges. One count for conspiracy to defraud the federal government involves corporate income taxes owed by CEDC and personal income taxes owed by the Espadas. Each substantive count carries a maximum sentence of 10 years’ imprisonment. The conspiracy counts bring as many as five years each.
On March 6, Block dismissed counts for tax fraud and making false statements to the federal government, ruling they must be tried in federal court in Manhattan. One tax count will be tried later in Brooklyn.
In April 2010, Andrew Cuomo, when he was New York’s attorney general, sued Pedro Espada and 19 others in state court in Manhattan. Cuomo accused them of looting Soundview Healthcare, taking more than $14 million during five years.
Cuomo Sued Espada
Cuomo, who is now governor, sued Espada again a week later over labor violations, saying Soundview paid Espada Management, which the senator founded and gave to his son, to supply janitors for its clinics, creating “a sham job-training program.” Espada cheated clinic workers by designating them as “trainees” to avoid minimum-wage laws, according to that lawsuit.
The state cases are on hold until the criminal matter is resolved.
At the time, Espada called the civil charges “political payback” for his temporary defection to the Republicans in June 2009, which resulted in a monthlong Senate deadlock.
Then-Governor David Paterson, a Democrat, appointed Richard Ravitch as lieutenant governor, giving him the tie-breaking vote in the Senate. That brought Espada back to the Democratic caucus, which then made him majority leader.
The case is U.S. v. Espada, 10-cr-985, U.S. District Court, Eastern District of New York (Brooklyn).
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