May.16, 2010

Robert Felner, former University of Louisville dean of education, is expected to be sentenced on Monday, almost two years after federal and local law enforcement authorities raided his college as part of a wide-ranging fraud investigation that involved two universities and multiple states.

Felner pleaded guilty in January to nine federal charges, including income tax evasion, and agreed to serve 63 months in prison in connection with defrauding UofL and the University of Rhode Island of $2.3million.

As part of the plea agreement, Felner agreed to pay restitution of $510,000 to UofL, $1.64million to the University of Rhode Island and $88,750 to the Rock Island County Council on Addiction in Illinois. Additionally, he agreed to forfeit property to the federal government that he owns in Florida and Illinois, as well as bank accounts containing undisclosed amounts.

“Robert Felner brought this on himself. He hurt a lot of people and the University of Louisville. We hope he does time for his crimes as we move on,” university spokesman Mark Hebert said Friday.

U.S. District Judge Charles R. Simpson III has been reviewing the agreement since Felner's January hearing. He could change the sentencing agreement, including possibly imposing additional fines of as much as $2.25million.

The plea agreement was reached with the U.S. attorney's office after Felner was indicted in October 2008 in Louisville on charges of mail fraud, conspiracy to commit money laundering, income tax evasion and conspiracy to impede and impair the Internal Revenue Service. The charges carried a maximum penalty of 75 years in prison.

Felner and his co-defendant, Thomas Schroeder of Port Byron, Ill., were scheduled to go to trial Feb. 1.

An Aug. 9 trial has been set for Schroeder, who has been charged with mail fraud, conspiracy to commit money laundering and conspiracy to impede and impair the IRS. He has pleaded not guilty. If convicted, Schroeder could face a maximum of 45 years in prison.

Felner's plea agreement does not require that he testify against Schroeder.

The case began in spring 2008, when UofL reported suspected fraud to federal officials. The investigation involved multiple agencies, including the U.S. Secret Service, the U.S. Postal Inspection Service and the IRS.

The Felner investigation created a scandal at UofL, where officials initially credited Felner for turning around the College of Education and Human Development by improving teaching preparation and dramatically expanding its involvement in local public schools.

As the investigation proceeded, however, faculty members spoke out against Felner's leadership, saying he was vindictive, manipulative and threatening and drove away talented people.

The investigation also brought to light flaws in the school's grant oversight and business procedures. University officials said they have acknowledged those problems and have taken steps to fix them, including conducting several audits, enforcing conflict-of-interest filings and reworking research procedures to ensure safeguards are in place to prevent fraud.

According to federal prosecutors, Felner and Schroeder siphoned $2.3million from grants and contracts that should have gone to UofL and the University of Rhode Island, keeping the money for themselves.

University of Rhode Island officials said Friday they look forward to the conclusion of the case but doubt it will bring complete resolution. The school has yet to receive any restitution, and it is unclear how much it will receive or when that money would be made available, said Robert Weygand, the university's vice president for administration and finance.

“I don't think it will really be over for us on Monday because to us it is still a long road to recovery,” Weygand said. “The harm has been done in terms of reputation. He (Felner) has harmed the reputation of the University of Rhode Island and the University of Louisville, and that's unrecoverable.”

Federal investigators say that from 2001 to 2008, Felner solicited survey business from school districts across the United States. The money from those contracts was supposed to go to the National Center on Public Education and Social Policy, which Felner founded at the University of Rhode Island.

Instead, Felner and Schroeder allegedly diverted about $1million from the Atlanta school district, $326,000 from Buffalo, N.Y., and $375,000 from Santa Monica, Calif., to another center that Schroeder founded in Illinois — and, eventually, into three bank accounts he and Felner controlled.

The surveys were done by the Rhode Island center, but the money never got to the school, according to the indictment.

The indictment also accuses Felner and Schroeder of sending about $100,000 in grant money from UofL to the Rhode Island center to pay for printing costs of the surveys. The money allegedly taken from UofL involves $450,000 out of a $694,000 federal earmark grant and $126,000 from other funding sources at the university.

The federal grant for UofL was supposed to support local research on the federal No Child Left Behind Act, but the $450,000 ended up in a bank account in Louisville controlled by Felner and Schroeder, according to prosecutors. Felner ultimately used the account to pay personal expenses and make investments, they said.

As part of the plea deal, Felner admitted that from June 2004 through July 2008, he and Schroeder fraudulently caused the Rock Island County Council on Addiction, which was headed by Schroeder, to pay Felner for work he never did. Schroeder was replaced at the council last year. He continues, however, to serve as president of the Riverdale School District, which serves Port Byron, Hillsdale, Cordova and Rapids City, Ill., and has 1,178 students.

In the plea deal, Felner also admitted evading federal income taxes for 2002 through 2007 and failing to pay about $490,000 in taxes on unreported income in those years.