The words “managing partner” and “corruption” used in the same sentence is never a good thing, as we found out in the KPMG/PCAOB information leak scandal. But while there was no scheme to steal confidential information from an audit regulator going on in Puerto Rico, there were allegations of money laundering, theft, and wire fraud contained in an indictment on July 10 that revealed a wide-reaching corruption scandal in which BDO Puerto Rico’s managing partner was involved.
The federal authorities in Puerto Rico unveiled a sprawling corruption investigation into high levels of the island’s government on Wednesday, announcing arrests and criminal charges against six people, including two former agency directors.
The Justice Department accused Julia Keleher, the former education secretary, and Ángela Ávila Marrero, the former executive director of the Puerto Rico Health Insurance Administration, of unlawfully steering about $15.5 million in federal contracts to politically connected consultants.
The others arrested were Glenda E. Ponce-Mendoza and Mayra Ponce-Mendoza, two sisters who worked as education contractors; Fernando Scherrer Caillet, an executive at the B.D.O. accounting firm; and Alberto Velázquez Piñol, a consultant. The two businessmen face charges of money laundering, among the most serious accusations laid out in the 32-count indictment.
Scherrer stepped down yesterday as managing partner of BDO Puerto Rico, which was the right thing to do because running an accounting firm like BDO from a jail cell (probably) would be very difficult.
BDO released the following statement to the media in Puerto Rico yesterday confirming Scherrer’s resignation:
“As a result of the accusations issued today by the federal authorities, Mr. Fernando Scherrer has submitted his resignation to the position he held at BDO Puerto Rico, which will allow Mr. Scherrer to focus on his defense, while this will allow BDO to concentrate its efforts to provide services to their customers.
“We take the allegations made by the federal authorities very seriously and reiterate our willingness to continue cooperating.”
Scherrer was charged with wire fraud, conspiracy/theft, and money laundering conspiracy. He pleaded not guilty in a Puerto Rico federal court, according to El Nuevo Dia. Velázquez Piñol, who was a consultant for a company that oversaw the Health Insurance Administration of Puerto Rico (ASES) and who acted as a subcontractor for BDO, was charged with wire fraud, conspiracy/theft, money laundering, and money laundering conspiracy. He turned himself in to authorities in Connecticut.
Rosa Emilia Rodríguez Vélez, the U.S. attorney for Puerto Rico, said the men used their political influence to improperly obtain contracts, and then used that money for illegal lobbying, according to the New York Times.
I haven’t had time to read the entire 44-page indictment, but all signs point to Velázquez Piñol being at the center of this scandal. Here’s what I’ve been able to piece together so far.
First, the New York Times reported that about $13 million of fraudulent contracts were funneled through the education department and another $2.5 million through ASES.
The contracts totaling $2.5 million were steered to BDO by Ávila Marrero, who provided internal information to the firm. BDO then subcontracted the work and paid unauthorized commissions, which inflated the cost of the contracts, the Justice Department revealed, according to Bloomberg.
Velázquez Piñol, owner of Azur LLC, was the connection between BDO, the Department of Education, and ASES. The indictment claims Velázquez Piñol used his connections with Keleher and Ávila Marrero to give BDO more contracts within each agency.
The website Latino Rebels reported:
Through his company, Azur, Velázquez Piñol received around $219,059 in commissions from the BDO contracts with DOE and over $700,000 from the BDO contracts with ASES, meaning BDO used federal funds to pay for Velázquez’ Piñol’s commissions.
After working nearly 10 years at PwC in Puerto Rico, Scherrer, a CPA, co-founded the accounting firm Scherrer Hernandez & Co. which would eventually become BDO Puerto Rico.
Since 2012, BDO Puerto Rico has amassed more than $63 million worth of contracts in multiple government departments, according to Latino Rebels.
The site provides an interesting timeline of recent events that led up to Wednesday’s arrests. First, two members of Puerto Rico Governor Ricardo Rosselló’s inner circle had been summoned recently to testify in front of a grand jury at a San Juan federal court.
Then on June 24, the day before Ávila Marrero resigned as executive director of ASES, Rosselló asked Puerto Rico’s Treasury Secretary Raúl Maldonado to resign after he told a local radio station that there was an “institutional mafia” in the agency he oversaw and that people tried to bribe him several times.
Maldonado’s son, Raúl Maldonado Nieves, then name-dropped BDO on June 25 when he accused Rosselló of corruption for allegedly altering reports from Unidos por Puerto Rico, a private nonprofit organization that was established to help with the aftermath of Hurricane María.
Maldonado Nieves said in a Facebook post that Rosselló allegedly asked BDO’s president to alter documents from Unidos por Puerto Rico.
A few days prior, an unnamed source told El Nuevo Día that the FBI is also looking into irregularities in the contracts BDO held with the Department of Education while Julia Keleher was in charge. Since 2016, BDO held contracts with Education that surpassed $16 million.
That same week, the government terminated all contracts with BDO, most of which expired on June 30. Afterward, reports came in that BDO had fired almost 40 employees after losing the government contracts.
“At no time have we been informed of any irregularities in our performance under government-related contracts. We have placed ourselves at the disposal of the authorities to clarify any doubt and cooperate with any information that is required of us,” said Gabriel Hernández, managing partner of BDO Puerto Rico through a statement.
Man, this is going to be one hell of a trial. I’ll update this article with anything else interesting once I finish combing through the indictment.