Doubts About Schneiderman’s Deal

During his re-election campaign last year, Attorney General Eric Schneiderman frequently singled out the William Rapfogel case as the top public corruption prosecution of his first term. It was an odd claim since neither Rapfogel nor his three co-defendants in a $9 million insurance scam were public officials. No one, however, could dispute the significance of the case.

Schneiderman’s staff handled the kickback charges with a professional efficiency, piecing together damning evidence and forcing a guilty plea. But the terms of the plea agreement raise questions that Schneiderman does not want to talk about: He refused to discuss the matter with City & State and declined to allow the assistants who prosecuted the case to answer even written inquiries. Elizabeth DeBold, one of his press aides, did offer some answers in email exchanges. But when the answers provoked more questions, DeBold at first said she’d answer them and then declined to respond to any.

The plea agreement called for 3 1/3 to 10 years in prison and a $3 million restitution payment to the Metropolitan Council on Jewish Poverty, the nonprofit Rapfogel headed for decades. Indicted for grand larceny, money laundering, tax fraud and other charges, Rapfogel had been facing 8 ½ to 25 years on the larceny count alone. The agreement also provided that Rapfogel’s sentence would rise to 4 to 12 years if he failed to pay the full restitution by his July 16 sentencing date. That date was postponed by a week when he came up $600,000 short, but Rapfogel met the second deadline and avoided the longer sentence.

The prison sentence is not what is troubling about the deal. Paul Shectman, one of Rapfogel’s attorneys, called it “harsh” in a City & State interview. He also said that Schneiderman didn’t give Rapfogel “any special favor.” Another Rapfogel lawyer, Alan Vinegrad, said any suggestion that Schneiderman had gone easy on Rapfogel was “a joke.” Neither, however, would discuss the restitution arrangement, which was the only issue City & State raised with them about the plea.

Rapfogel, who is in Wallkill medium security prison until at least December 2016 (when he gets his first parole hearing), was not compelled to forfeit from his own pocket the equivalent of the $3 million he stole. He instead raised the bulk of the restitution from supporters who gave to a fund whose donors remain shrouded in secrecy. Shectman and Vinegrad refused to say anything about where these contributions came from, how they were collected or what percent of the total was anonymously donated.

Since Sheldon Silver was still Speaker of the Assembly when the restitution was solicited (he has since been indicted on corruption charges and stepped down) and Rapfogel’s wife Judy was, and still is, Silver’s chief of staff, good-government crusader Schneiderman surely must have understood that contributors to the fund might be seeking favor with two of the most powerful people in Albany. In fact, had Rapfogel been unable to raise much of the millions from supporters, he and his wife might have lost their valuable Grand Street co-op, their modest Monticello cottage or other assets, surely making the effort to collect these undisclosed donations a family imperative.

Schneiderman’s restitution remedy actually opened the door to the kind of insider horsetrading that the Attorney General has long condemned and that still dominates the state capital. The Rapfogel fund is so insulated from oversight that Schneiderman’s office claims it has no documents related to it and did not answer numerous questions about it—such as whether the prosecutor had the power to require disclosure of donors. (A top former state prosecutor says he did).

The office could have attempted to collect the full restitution by seizing Rapfogel's assets or forcing him to sell them. Instead, all it did was secure what DeBold said was a “significant portion” of the $3 million from Rapfogel’s “personal assets.” At another point, she said it was “substantial,” carefully chosen words that conceal more than clarify. She rejected our subsequent efforts to get her to estimate the percent attributable to these actions or to reveal what the assets were. Other sources said the forfeiture included 401ks and bank accounts. Schneiderman’s FOIL attorney says it has no records of these purported seizures, though it’s hard to imagine how a law enforcement agency would take property without a paper trail.

The plea deal specifically barred Schneiderman from seizing Rapfogel’s son’s house, even though it was purchased with $350,000 in ill-gotten gains. The two homes Willie and Judy own, one reportedly renovated with stolen funds, remain untouched. Neither DeBold nor Rapfogel’s attorneys would answer questions about the taxes Rapfogel owed on 21 years of theft, and the plea agreement contains no language about how his tax liabilities are being handled. Despite all these loopholes, the restitution spared Rapfogel two-thirds of a year of possible jail time that would have otherwise been added to his sentence.

These favorable terms were granted to Rapfogel despite his “failure to cooperate with our investigation,” as DeBold described it. Pressed repeatedly, she could not come up with a parallel arrangement for any other un-cooperative Schneiderman defendant. The only case she did cite was a joint state/federal tax prosecution of a prominent tailor, where cooperation was never an issue. If Rapfogel was singing to investigators, his music would have quickly hit the top of the charts, because he is so intertwined with the city and state political class.

Gary Fishman, the chief prosecutor on the case, told Judge Stephen at the sentencing that Rapfogel “attempted to mislead investigators from the start” and “continues to minimize to others the full extent of his complicity.” That’s not usually a recipe for any form of mercy, if only on the financial terms of a plea.        

The prime reason DeBold offers for the restitution deal is that Schneiderman wanted to help an “important charity,” the Met Council on Jewish Poverty, which he calls the victim of Rapfogel’s crimes. DeBold says that Rapfogel and his co-defendants have given the council $7 million so far in similar arrangements, with $2 million more still expected from the sale of the insurance company that conspired with Rapfogel to fleece the group. Schneiderman has gone out of his way to praise the council, telling Jewish Week that he was “absolutely sure that anyone giving them a donation should feel confident that it’s going for the purpose for which it was intended,” a virtually unprecedented endorsement from a prosecutor.  

Schneiderman also told Jewish Week that he was working closely with the council’s board and “this was not a case of the board being asleep at the switch.” Actually, The New York Times reported that the probe was triggered by an anonymous letter, ostensibly from an insurance broker, and that the detailed allegations were “similar” to those in a letter “sent two years earlier.” DeBold repeatedly declined to address our question of whether the board had received earlier warnings about the scam and “failed to act.”

The agreement the Met Council on Jewish Poverty signed with Schneiderman at the end of 2013 promising to reform its practices certainly sounds like the Attorney General thought the board was dozing. “The fact that Rapfogel and others were able to carry out such a large insurance fraud over an extended period of time,” wrote Schneiderman, “raises serious questions about Met Council’s governance, internal controls and outside auditors.” The document also found that it was “apparent” that the council had “failed to adopt a number of critical processes and controls that would have mitigated or avoided the loss of its charitable funds.”

The council was required under the rigorous monitoring agreement to adopt a code of ethics, limit political activities, clean up its freewheeling credit card policies and cease paying school tuition for employees, an implicit indictment of the past.

DeBold says it “was not a matter of discretion” and that the restitution had to go to the Met Council as the victim of the fraud, though its high-powered board had come up short in ways the Schneiderman agreement acknowledges. Four members of this supposed “victim” board even wrote letters to Schneiderman on behalf of Rapfogel. DeBold dodged City & State's questions about the apparent need to change the board if it was to receive the looted $9 million. Instead the council’s existing board got a bonanza—Rapfogel kept many of his assets, and his son kept his house.

Asked to explain why Schneiderman removed the board of the Puerto Rican Day Parade, a major nonprofit where he also found misconduct, while rewarding the Met Council, DeBold said the parade board was “barely functioning and provided no oversight of the organization’s financial activities.” This is a hyped version of the 2014 Schneiderman statement when the parade actions were announced, which merely said the board had “failed to implement basic controls or exercise adequate supervision,” virtually echoing the language of the agreement Schneiderman had already signed with the Met Council.

No one associated with the parade was prosecuted, indicating that the lack of oversight by the parade board didn’t result in anything comparable to what it did at the Met Council. The parade’s top organizer, who allegedly misappropriated $1 million, agreed to pay the group $100,000. But that payment would go to an entirely new board, unlike at the Met Council, where the same board that failed to detect or deter criminal executive conduct is receiving millions in restitution. Even a partial overhaul of the Met Council board members would have sent a message and leveled the playing field.

While questions about the Rapfogel plea deal, especially when the prison term is included in the discussion, are complex and debatable, the transfer of the restitution proceeds to the council board is hard to justify. It is true that the board brought the case to Schneiderman, as DeBold rightly points out. But it’s also true that it dallied for years, a troubling history that DeBold declined to address. Packed with top financial talent, the board stood on the sidelines, applauding instead of drilling down on the $110 million-a-year enterprise it was charged with overseeing in the interests of the poor.       

For more on this story, read Wayne Barrett's article "Love Letters for Willie Rapfogel" here.

EDITORS NOTE: Wayne Barrett’s wife is a special adviser to the governor on nonprofits and worked on reform issues following the Met Council for Jewish Poverty case. She had nothing to do with the plea agreement, restitution fund, support letters or other issues at the core of these stories and wasn’t a source on any aspect of the reporting.