So here is the brief supporting the lawsuit that the City of Trenton filed on February 19 against the former vendor Innovative Payroll Services (IPS), its principal John Scholtz and Scholtz’s two daughters, who also worked at IPS. The case was filed in Mercer County’s Superior Court, not US District Court as I had first thought. Since the greater share of the funds stolen from the City by IPS were intended as withholding tax deposits for the Internal Revenue Service, and since Scholtz had moved to and established more business ventures in the State of Florida, I would have figured that a federal civil suit would have made more sense, if the intent of the suit was to effect a quick recovery of whatever financial assets may be left after IPS embezzled those millions of dollars from Trenton’s (and New Jersey’s) taxpayers. After all, condos and cars purchased by Scholtz in a lavish spending spree over the last few years seem to be located in Florida. It’s a safe assumption that those purchases were made at least in part by funds intended to the tax divisions of the United States and New Jersey governments. I’d have figured, to get the money, go where it is. File in Federal Court, I would have thought.
Oh, well. I am sure that the City of Trenton, the Eric Jackson Administration, and all their lawyers, know what they are doing. Right? Right??
Maybe, maybe not. OK, probably not!
There’s a lot in the text of this lawsuit that confirms what news stories have been reporting over the last month, based on the reporting and research local newspaper writers have been able to uncover in spite of a massive and almost total news coverup from City Hall. There’s a lot in here that contradicts the only public statements made on the record to date by public officials. And the timeline suggested in this suit is not supported by documents in possession by the City. It’s a very interesting stew, this brief.
The heart of the City’s case is narrated in this excerpt, found on pages 5 and 6:
We see here summarized that 1) IPS failed to make Federal tax deposits to the IRS; 2) IPS failed to make tax deposits to the State of New Jersey; 3) the amount owed to the IRS totaled $3,367,198.82l and 4), the City knew about this since late December 2015. OK.
Contrast this with the following statements:
Eric Jackson, 2/18: “We believe it’s just the one agency” that was shorted on payments. No, the City knew it was the State AND the Feds.
Eric Jackson, 2/18: “We took immediate action to make sure that we knew what we knew and what we thought what was going wrong, so at that point, we went to law enforcement and we put it in their hands.” No, again. You say you found out in “late December.” Law enforcement, in the form of the Mercer County Prosecutors Office, was notified in late January or early February. What happened during those intervening weeks? We don’t know, but cannot call the City’s actions “immediate.”
Eric Jackson, 2/18: “[W]e’re going to keep our own council and our community informed of that which we can as this process unfolds.” Um, No, Again! Most of this process had unfolded by February 3, when IPS lawyer Mark Cedrone admitted in a letter addressed to City Attorney Marc McKithen, in part (Page 89 of the law suit):
Upon that admission, and IPS’s stated intention to make Trenton whole, the case blew wide open, and proceeded down a very different investigative and legal path, one likely far less confrontational and certainly less mysterious than most legal matters. The City of Trenton filed its lawsuit in Superior Court two weeks after receiving Cedrone’s letter, and the very day after Mayor Jackson promised to “keep our own council and community informed.”
We read today in the Trentonian that Federal Court orders to preserve the financial assets of both IPS and John Cedrone have been issued and signed by both parties. The case is well on its way to resolution. This is not likely to take nearly as long to conclude as the case I discussed in my first piece on this matter, that of the payroll service Axium International. Axium failed in 2008, and the criminal trial of its principal didn’t get under way until 2014.
However, if you have any hope that Mayor Jackson is honoring his promise to keep “our community informed,” you can probably forget it. To date, there has been not one press release nor any other item released to the public or posted to the City website referencing this case or this lawsuit. Heckuva job, guys.
Zachary Chester, 2/19: “Not knowing what the amount is, whether it’s a million (dollars), $800,000, that’s a million or $800,000 that we don’t have in our budget.” He knew what the amount was, since the lawsuit had been filed the same day he spoke to 6ABC’s Muchanic, and he knew it was a lot more than “a million or $800,000.”
One of the reasons we actually do “know what the amount is” is that, from late December or whenever it was up to until the first week of February, the City did a little investigative work in its own records and calculated the amount of the Federal taxes that had been stolen. The precise amount of State tax missing was – and still is – unknown, although we do know it is a significant portion of the $1,884,815.95 cash that Trenton paid IPS during the second half of 2015. In the City’s brief, a footnote in the February 3 letter from IPS attorney Cedrone talks about a “chart” he got from the City:
Ron Zilinski is Trenton’s Finance Director. If he composed a “chart” that Cedrone found accurate on February 3, as far as Federal taxes were concerned, and if that number (plus $4,000) was the one cited in the City’s lawsuit on February 19, then City Council President Mr. Chester damn well knew what kind of money was at issue when he spoke to 6ABC the same day the suit was filed.
I can’t suppose I know how Mr. Jackson and Mr. Chester justify lying to the press – and, by extension, to us – but this is another severe blow to the already-strained credibility of both officials. The City’s own documents contradict their spoken words in a way that will not be soon forgotten or forgiven.
One last point for today. Per the excerpt cited above, the City is claiming in its civil lawsuit that the City learned about the IPS diversion of funds in “late December 2015.” In my previous post dated March 4 I wrote about the frequent and multiple notices the City received from both the State as well as the IRS, throughout the last nine months of 2015. The dollar amounts were large enough, in the hundreds of thousands of dollars, and the detail on each bill extensive enough, attributing short payments to the first quarter of 2014 and the first quarter of 2015 for instance, to have given more than enough warning to the Administration that there were serious problems with payroll. I have thought ever since the news of these notices came out that it is absolutely incomprehensible that the City claims that they only became aware of the problem in December.
The implication of this fact leaves us with a nasty dilemma. Which is less outrageous for you to consider: that every single person in City Hall who would have had reason and opportunity to know the information contained in those notes from April through December of last year did not recognize them for what they meant? Or that people in City Hall knew exactly what these notices meant for the integrity of the City’s payroll system, and Chose To Do Nothing?
Not a pretty choice, is it? I don’t see any other alternatives here, do you?
The City has, in the sworn statements accompanying its lawsuit, chosen to go with Version #1: We got the notices, and forwarded each one along to IPS to resolve, trusting them to deal with and resolve each matter as it came up, never realizing that there were more serious problems underneath the surface. The only employees who knew about these notices were Mary Henry and Janet Schoenhaar, and they didn’t involve any other of their superiors or colleagues with any concerns. No one suspected theft of tax deposits until the last weeks of the calendar year, when it was too late to stop it. Nothing could have been done.
The Jackson Administration is making a concerted effort to move past this issue. The cone of silence has been imposed upon the matter, and now that it is an active case in the courts, they will not likely choose to give this any more light or attention than they absolutely have to.
So we are not likely to easily find out what happened. We probably won’t find out what failures of individuals or systems or policies led to this massive embezzlement that happened, not as the result of a single incident, but repeatedly over months and possibly years. We won’t know enough in order to feel comfortable that something like this – or worse – won’t happen again. Other than change its payroll vendor, the Administration is, based on all visible indications, doing nothing different now that it’s been doing for years.
As extremely unsatisfactory as this turn of events is for everyone in the city of Trenton, that’s the Jackson Administration’s story and they are sticking with it.