HomeMy WebLinkAbout1397 McGrawIn Re: Thomas McGraw,
Respondent
File Docket: 05 -008
X -ref: Order No. 1397
Date Decided: 5/31/06
Date Mailed: 6/2/06
Before: Louis W. Fryman, Chair
John J. Bolger, Vice Chair
Donald M. McCurdy
Paul M. Henry
Raquel K. Bergen
Nicholas A. Colafella
Reverend Scott Pilarz
This is a final adjudication of the State Ethics Commission.
Procedurally, the Investigative Division of the State Ethics Commission conducted
an investigation regarding a possible violation of the Public Official and Employee Ethics
Act, Act 9 of 1989, P.L. 26, 65 P.S. § 401 et seq., as codified by Act 93 of 1998, Chapter
11, 65 Pa.C.S. § 1101 et seq., by the above -named Respondent. At the commencement of
its investigation, the Investigative Division served upon Respondent written notice of the
specific allegation(s). Upon completion of its investigation, the Investigative Division
issued and served upon Respondent a Findings Report identified as an "Investigative
Complaint." An Answer was not filed and a hearing was waived. The record is complete.
Effective December 15, 1998, Act 9 of 1989 was repealed and replaced by Chapter
11 of Act 93 of 1998, 65 Pa.C.S. § 1101 et seq., which essentially repeats Act 9 of 1989
and provides for the completion of pending matters under Act 93 of 1998.
This adjudication of the State Ethics Commission is issued under Act 93 of 1998
and will be made available as a public document thirty days after the mailing date noted
above. However, reconsideration may be requested. Any reconsideration request must be
received at this Commission within thirty days of the mailing date and must include a
detailed explanation of the reasons as to why reconsideration should be granted in
conformity with 51 Pa. Code § 21.29(b). A request for reconsideration will not affect the
finality of this adjudication but will defer its public release pending action on the request by
the Commission.
The files in this case will remain confidential in accordance with Chapter 11 of Act
93 of 1998. Any person who violates confidentiality of the Ethics Act is guilty of a
misdemeanor subject to a fine of not more than $1,000 or imprisonment for not more than
one year. Confidentiality does not preclude discussing this case with an attorney at law.
McGraw, 05 -008
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I. ALLEGATION:
That Thomas McGraw, a public official /public employee) in his capacity as
Development Specialist for the Governor's Action Team of the Department of the
Community and Economic Development (DCED) violated Sections 1103(a), 1103(c) and
1105(b)(5) of the Ethics Act (Act 93 of 1998) when he used the authority of his position for
a private pecuniary gain by making recommendations and participating in actions of the
GAT /DCED including but not limited to recommending Opportunity Grants be awarded to
companies to relocate /expand in the Commonwealth in return for payments from
companies based on his understanding that his official action and judgment would be
influenced thereby; when he participated in actions of the GAT /DCED, including but not
limited to recommending Opportunity Grants be awarded to companies to relocate /expand
in the Commonwealth at a time when he had a reasonable expectation that he would be
personally receiving funds from such companies; when he used the authority of his
position to solicit funds for personal use from companies that he was attempting to obtain
Commonwealth grant funds for; when he offered to perform consulting services to
companies receiving Commonwealth grants and then demanded payment for such
services even though said services were part of his duties as a Commonwealth employee;
when he failed to disclose the receipt of payments from TriTech Inc. /Michael Butler and
Dennis Smith /USTAAD in excess of $1,300 on his Statement of Financial Interests filed for
the 2002 calendar year; when he failed to disclose payments from echoolmall.com
[sic] /Andrew Flanagan in excess of $1,300 on his Statement of Financial Interests filed for
the 2001 calendar year; when he failed to disclose on SFI's filed for the 2001 and 2002
calendar years payments in excess of $1,300 solicited from MirTech Consulting /Jerry
Westerhold; when he failed to obtain approval or submit leave requests for annual leave
used when traveling for personal purposes in 2001 and 2002; when he used his public
position when traveling on official Commonwealth business paid for by the Commonwealth
to accumulate reward points through Hyatt Gold Passport and then redeemed a portion of
these points to pay for personal room expenses; and when he retained control and
ownership of reward points obtained through travel in his public position after his
termination from Commonwealth employment.
II. FINDINGS:
1. The Investigative Division of the State Ethics Commission received information
alleging that Thomas McGraw violated provisions of the State Ethics Act (Act 93 of
1998).
2. Upon review of the information the Investigative Division initiated an own - motion
preliminary inquiry on February 8, 2005.
3. The preliminary inquiry was completed within sixty days.
4. On April 8, 2005, a letter was forwarded to Thomas McGraw, by the Investigative
Division of the State Ethics Commission informing him that a complaint against him
was received by the Investigative Division and that a full investigation was being
commenced.
a. Said letter was forwarded by certified mail, no. 7004 0750 0002 8074 6530.
b. The domestic return receipt bore the signature of Thomas McGraw, with a
delivery date of April 9, 2005.
5. On August 11, 2005, the Investigative Division of the State Ethics Commission filed
an application for a ninety day extension of time to complete the Investigation.
6. The Commission issued an order on August 12, 2005, granting the ninety day
McGraw, 05 -008
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extension.
7 On November 17, 2005, the Investigative Division of the State Ethics Commission
filed an application for a second ninety day extension of time to complete the
Investigation.
8. The Commission issued an order on December 12, 2005, granting the ninety day
extension.
9. On February 15, 2006, an amended Notice of Investigation was forwarded to
Thomas McGraw, by the Investigative Division of the State Ethics Commission
informing him that the allegations contained in the April 8, 2005, Notice of
Investigation were being amended.
a. Said letter was forwarded by certified mail, no. 7004 2890 0004 1229 2561.
b. The domestic return receipt bore the signature of Karen Reinhart, with a
delivery date of February 16, 2006.
10. On March 20, 2006, an amended Notice of Investigation was forwarded to Thomas
McGraw, by the Investigative Division of the State Ethics Commission informing him
that the allegations contained in the April 8, 2005 and February 15, 2006, Notice of
Investigation were being amended.
a. Said letter was forwarded by certified mail, no. 7004 2890 0004 1229 2646.
b. The domestic return receipt bore the signature of Karen Reinhart, with a
delivery date of March 21, 2006.
11. On March 28, 2006, an amended Notice of Investigation was forwarded to Thomas
McGraw, by the Investigative Division of the State Ethics Commission informing him
that the allegations contained in the April 8, 2005, February 15, 2006, and March
20, 2006, Notice of Investigation were being amended.
a. Said letter was forwarded by certified mail, no. 7004 2890 0004 1229 2707.
b. The domestic return receipt confirmed a delivery date of March 29, 2006.
12. On March 30, 2006, an amended Notice of Investigation was forwarded to Thomas
McGraw, by the Investigative Division of the State Ethics Commission informing him
that the allegations contained in the April 8, 2005, February 15, 2006, March 20,
2006, and March 28, 2006 Notice of Investigation were being amended.
a. Said letter was served personally on a representative of Thomas McGraw's
counsel on March 31, 2006.
13. Periodic notice letters were forwarded to Thomas McGraw in accordance with the
provisions of the Ethics Law advising him of the general status of the investigation.
14. The Investigative Complaint was mailed to the Respondent on April 3, 2006.
15. Thomas McGraw was employed by the Commonwealth of Pennsylvania Department
of Community and Economic Development (DCED) from May 22, 2000 until August
11, 2004.
a. McGraw was employed by the Governor's action Team (GAT) as the
Manager of Technology Initiatives until June 14, 2003.
McGraw, 05 -008
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b. McGraw was transferred on June 14, 2003 to DCED's Policy and
Technology Office as an Economic Development Policy Analyst.
c. On January 8, 2004 McGraw was promoted to an Administrative Officer 5
retroactive to June 25, 2003.
1. McGraw's job title was Special Assistant for Venture Capital and
Private Equity Relations.
2. In this position McGraw was considered a primary point of contact for
venture capital companies raising money and businesses trying to
obtain venture financing.
16. Thomas McGraw's duties and responsibilities as Manager of Technology Initiatives
for the GAT included the following:
a. Identify companies located outside of Pennsylvania and encourage
relocation and /or expansion to the Commonwealth through the offers of
grants and low interest loans.
b. Identify companies within the Commonwealth and encourage preservation
and /or expansion through offers of financial assistance.
c. McGraw was responsible for meeting with companies to determine financial
needs.
1. McGraw would then develop a financial package based on the needs.
2. McGraw would meet with his supervisor, the GAT Director to
recommend project(s) to be funded.
3. McGraw's information would form the basis for an offer for assistance
which was forwarded to the Secretary of DCED.
d. The only offer of direct financial assistance recommended by McGraw was
the Opportunity Grant.
e. McGraw was required to complete a "due diligence" on each company he
recommended to receive financial assistance.
1. Due diligence included reviewing the company's financial status and
business plan to determine the viability of the plan.
2. McGraw's "due diligence" was the basis for any OGP grant awarded.
17. McGraw's job duties also entailed making referrals of companies to other state
agencies and to other companies who were involved in similar ventures.
a. McGraw was to assist companies seeking to do business with the
Commonwealth by making introductions and referrals to other state agencies
and officials.
b. McGraw was also to assist grantees obtain permits from DCNR or PennDOT.
18. The Job Enhancement Act enacted by the PA General Assembly, on June 29, 1996
established Opportunity Grant Programs within the Department of Community and
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Economic Development (DCED).
a. The OGP was enacted for the purpose of securing job- creating economic
development opportunities, including the expansion or preservation of
existing industry within the Commonwealth.
1. The OGP also sought the attraction of economic development
prospects to the Commonwealth.
b. Section 703 of the Act authorizes DCED to make grants under the OGP to
eligible recipients.
19. Eligible applicants for participation in the OGP include the following:
Municipalities
Industrial Development Authorities and Corporations
Municipal Authorities
Redevelopment Authorities
Private Developers
Private Companies (including any person, partnership, corporation, or other for -
profit business entity involved in the following:
Agricultural enterprise
Agricultural producer
Industrial enterprise
Manufacturing Enterprise
Research and Development Enterprise
Export Services
Other — includes any enterprise that offers a significant economic impact to
the Commonwealth as determined solely by DCED.
20. Eligible uses of grant funds include the following:
Job Training.
Construction or rehabilitation of infrastructure.
Acquisition of land, buildings, and rights -of -way.
Construction or rehabilitation of buildings.
Purchase or upgrading of machinery and equipment.
Working capital.
Site preparation, including demolition and clearance.
Environmental assessments.
Remediation of hazardous materials.
Architectural and Engineering fees up to 10% of the Opportunity Grant Program
award.
21. Ineligible uses of funds include, but are not limited to; refinancing or retirement of
existing debt and costs unrelated to a company's expansion or location at a site in
Pennsylvania.
22. Eligible companies are required to meet the following conditions:
a. The company must locate, expand, or maintain operations at a Pennsylvania
site.
b. The company must invest private capital at the site.
c. The company must create or preserve jobs at the site.
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23. Program requirements include private investment and employment requirements.
a. Private investment requirements includes any new investment made at a
Pennsylvania site by a private company or private developer in any of the
categories of eligible uses of funds. (See Finding 20)
b. Employment requirements include the following within three years of
receiving OGP funding:
1. Create or preserve a minimum of 100 full -time jobs or
2. Increase employment within Pennsylvania by 20% or
3. Provides a substantial number of new employment opportunities
within a high - growth industry or
4. Create or preserve fewer than 100 jobs when those projects are
located in counties or communities suffering from economic distress.
24. A company seeking funding from the OGP is required to submit to DCED a Letter of
Intent signed by the chief executive officer.
a. The Letter of Intent is required to contain the following:
1. The amount of Opportunity Grant Program funds that are being
requested and the intended use of the funds.
2. The legal name and address of the applicant for Opportunity Grant
Program funds if different from the company.
3. The name of the municipality, county, and zip code in which the
project site is located.
4. A description of the type of business (what the company does) and its
Standard Industrial Classification (S.I.C.) or North American Industrial
Classification System (NAICS) code.
5. A statement regarding the current employment levels at the project
site, statewide and worldwide and the number of net, new full -time
jobs to be created or preserved at the project site.
6. A project description, an estimated total dollar amount, and estimated
commencement and completion dates for the private investment to be
made at the site.
7. The estimated starting wage level and dollar value of the benefits that
will be paid to workers employed at the project site.
8. The company's Federal Employer Identification Number (FEIN).
9. The company's total dollar sales in Pennsylvania and total sales
outside the USA.
10. Percentage of the company's yearly budget spent on research and
development and the percentage spent on employee training.
11. How the company is organized, i.e. Sole proprietorship, S
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Corporation, C Corporation, Partnership.
12. If the company is minority or woman owned.
25. GAT /DCED determines eligibility for OGP financing by scoring requests according
to the following criteria:
a. The number of jobs created and /or preserved.
b. The quality of the jobs created or preserved jobs as reflected in the average
wage threshold.
c. The economic conditions of the region where the project is located.
d. The relationship of the industry segment to priorities of the Governor's Action
Team.
e. The impact of the project on the Commonwealth's competitiveness in the
global marketplace as reflected in export expansion, investment in workforce
skills and /or the potential for impact on other Commonwealth businesses
(suppliers /vendors for example).
f. The level of private sector investment leveraged; and the contribution of the
project to the reuse of industrial /manufacturing sites.
26. If GAT determines a funding request is valid, a recommendation is made to the
secretary of DCED to award the grant.
a. GAT's determination is based on the GAT specialist's recommendation.
b. A commitment letter is then sent to the company notifying the company of the
terms and conditions.
c. The company is required to sign and return the commitment letter to DCED
agreeing to comply with the terms and conditions.
d. The GAT representative is responsible for developing the information used
to evaluate the funding proposal.
27. Subsequent to the issuance of a commitment letter a grant agreement is executed
between the applicant and DCED. Provisions of the grant agreement include the
following:
a. Conditions of funding commitments — includes terms and conditions
contained in the commitment letter.
b. Certification of expenses — Applicant required to submit affidavits certifying
expenses incurred where in accordance with the scope of work approved by
DCED. Company is required to submit copies of cancelled checks verifying
the expenditure of the grant proceeds.
c. Non - discrimination — Applicant required to certify that they shall not
discriminate.
d. Disbursements — Disbursement requests must be submitted to the DCED's
Economic Development Assistance Office using a payment request form that
is accompanied by invoices or other approved documentation verifying costs
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incurred.
28. A company failing to adhere to the grant agreement provisions is liable for a penalty
up to the full amount of the grant, plus an additional 10% of the grant. Provisions
include:
a. Failure to operate at the project site for a minimum if five years.
b. Failing to crate or preserve the number of jobs specified in the commitment
letter.
c. Failing to inject the required amount of private investment.
29. In or about 2000 and 2001 the administration of the Governor placed a priority on
assisting technology development in the state.
a. This included providing grants and loans to companies expanding, relocating
starting in the state.
30. Thomas McGraw's role as Manager of Technology Initiatives was to act as the
primary person responsible for identifying technology companies to apply for OGP
funding.
a. McGraw would identify companies out of state and encourage their
relocation to Pennsylvania through the offer of OGP funding.
b. McGraw was to identify existing Pennsylvania companies seeking to expand
and offer grants of assistance to encourage expansion.
c. McGraw was the only GAT employee to have statewide assignments.
1. GAT had regional offices to accommodate companies in specific
regions.
2. McGraw was not limited to a particular region.
31. During the period from June 2000 through January 2003 Thomas McGraw
recommended OGP funding for at least 33 companies.
a. Companies recommended by McGraw received OGP grants totaling
$5,805,000.00.
32. DCED records confirm Thomas McGraw as the GAT representative responsible for
initiating OGP funding to at least the following companies:
a. STM II LTD d /b /a TriTech.
b. USTAAD Systems.
c. Eschoolmall.com.
d. MirTech Consulting.
33. OGP funding was provided to the above listed companies as follows:
OGP Amount
a. Eschoolmall.com $300,000
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b. USTAAD Systems $225,000
c. TriTech $200,000
d. MirTech Consulting $200,000
34. McGraw's main contacts at each of the above companies included the following:
Eschoolmall.com — Andrew Flanagan
USTAAD Systems — Dennis Smith
TriTech — Michael Butler
MirTech Consulting — Jerry Westerhold
35. Michael Butler and Dennis Smith individually or collectively control the following
entities:
TriTech — Butler, Smith
USTAAD — Smith
Third Millennium Systems — Smith
280 West Market Street Associates — Smith, Butler
36. From about May 2001 through December 2002 McGraw, in his capacity as Manager
of Technology Initiatives, solicited and received payments from Andy Flanagan,
Dennis Smith, Michael Butler, and Jerry Westerhold.
a. McGraw used his position to solicit payments from the companies seeking
grants promising that OGP funds would be provided in return for a
percentage of the grant funds being paid to him.
b. McGraw also solicited payments once grants were received under the guise
he would provide consulting or marketing services to grant recipient
companies by connecting them with investors.
c. Providing such services were [sic] part of McGraw's duties as an employee
of the Commonwealth of Pennsylvania.
37. Between July 2001 and December 2002 McGraw solicited and received $97,500
[sic] from the four previously mentioned companies receiving OGP funding.
a. McGraw's solicitations included receiving payments for helping to secure
grants and his offer to act as a consultant.
b. McGraw was relentless in his approach, contacting principals of each
company on numerous instances in order to receive payments.
(The following findings relate to Eschoolmall.com's receipt of OGP funds and
Thomas McGraw's solicitation of payments from Andrew Flanagan.)
38. Eschoolmall.com is an internet -based procurement software company located in
Horsham, Montgomery County, PA.
a. Eschoolmall.com provides software used by school districts to reduce
paperwork, save time, and cut costs when purchasing goods and services.
b. In 2000 the company had (58) employees.
39. Pennsylvania Department of State Corporation Bureau Records confirm
Eschoolmall.com was incorporated on August 27, 1999.
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a. The original incorporation was under the name Me -O -My Corp.
b. Articles of Amendment changing the company name to Eschoolmall.com
were filed on December 18, 2000.
40. Andrew Flanagan is the Chief Executive Officer (CEO) and a founder of
Eschoolmall.com.
a. Principals of the company are Flanagan and Daniel Corazzi.
41. In or about the summer of 2000 Flanagan telephonically contacted the GAT seeking
information regarding the OGP funding.
a. Flanagan made the contact after viewing a GAT ad in the USA Today.
b. Flanagan was seeking a grant to assist with the company's proposed
expansion.
42. Thomas McGraw was the GAT representative assigned to contact Flanagan.
a. McGraw met with Flanagan on or about September 6, 2000.
43. Following the meeting of September 6, 2000 McGraw recommended that OGP
funding be provided to Eschoolmall.com.
a. The recommendation was made to Steven Kohler, McGraw's then supervisor
at DCED.
b. McGraw's "due diligence" for Eschoolmall.com resulted in a recommendation
being made to DCED Secretary Samuel McCullough to award the grant.
1. McGraw's assessment included offering a $300,000 grant.
44. On or about September 21, 2000 DCED Secretary Samuel McCullough forwarded a
letter to Flanagan which included an outline of assistance the Commonwealth was
prepared to offer the company with its expansion.
a. McCullough's letter proposed a $300,000 Opportunity Grant to assist
Eschoolmall's costs associated with the expansion.
b. McCullough's letter also noted that as a result of the proposed project
Eschoolmall would:
Create at least 200 new jobs within three years.
Eschoolmall would make a $13 million investment in the project.
c. Any questions regarding the application process or any financial assistance
programs were to be directed to the GAT.
1. Thomas McGraw was the GAT contact for Eschoolmall.com.
d. McCullough's letter further noted that in addition to the financing package,
the GAT is prepared to assist the company by coordinating the involvement
of all other state agencies involved in the project.
45. The information contained in McCullough's September 21, 2000 offer of assistance
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was exclusively developed and recommended by McGraw.
46. Flanagan agreed to the assistance package by signing the Acceptance of Offer on
October 1, 2000.
a. The Acceptance of Offer stated that any questions regarding the offer or
application process be directed to Thomas McGraw.
47. On or about October 30, 2000 Flanagan faxed a Letter of Intent to Barbara Musko
of DCED's Economic Development Assistance Office.
a. The letter requested $300,000 for the express purpose of expanding
Eschoolmall.com's Pennsylvania workforce.
48. Flanagan was notified of the $300,000 grant approval on or about November 7,
2000 subject to the following conditions:
The grant will be used for working capital to accommodate the Company's
expansion of its workforce. The company is located at 100 Lakeside Drive,
Suite 100, Horsham, Montgomery Count, PA (the "Project "). The grant may
not be used for any other activities without first obtaining the written consent
of the Department.
The Company shall provide the Department with copies of all Project - related
purchase orders and contracts for acquisitions and /or work to be paid for
with Opportunity Grant funds. The Company must provide a narrative
describing the method followed in selecting contractors or vendors for
activities paid for with Opportunity Grant funds. All contracts for activities
paid for with Opportunity Grant funds must contain the nondiscrimination
provision enclosed.
Opportunity Grant funds must be applied to cost incurred on or before June
30, 2003.
The Company must enter into the Opportunity Grant Program contract and
comply with all of the requirements of the program. The contract will include
Nondiscrimination, Contractor Integrity and similar clauses required of all
contracts with the Commonwealth.
a. Flanagan acknowledged receipt of the letter and acceptance of the
conditions on November 22, 2000.
49. The OGP grant to Eschoolmall.com was assigned contract no. 20- 168 -0046.
a. The contract was forwarded to Flanagan by DCED on or about November
14, 2000.
b. Flanagan signed the contract on November 22, 2000.
50. McGraw reported on a Travel Expense Voucher that on November 20, 2000 he met
with Flanagan.
a. McGraw's Travel Expense Voucher (TEV) listed a meeting and dinner
expenses incurred by McGraw in relation to the meeting.
b. McGraw described the purpose of the meeting as discussing the company's
business plans.
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51. Contract no. 20- 168 -0046 contained in Article V(h) Grantee Integrity Provisions as
noted:
(h)(4) The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, confer or agree to
confer any pecuniary benefit on anyone as consideration for the
decision, opinion, recommendation, vote, other exercise of discretion
or violation of a known legal duty by any officer or employee of the
Commonwealth.
The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, give, or agree or
promise to give to anyone any gratuity for the benefit of, or at the
direction or request of any officer or employee of the Commonwealth.
(6) Except with the consent of the Commonwealth, neither the Grantee
nor anyone in privity with him shall accept or agree to accept from, or
give or agree to give to, any person, any gratuity from any person in
connection with the performance of work under this Contract except
as provided therein.
Except with the consent of the Commonwealth, the Grantee shall not
have a financial interest in any other contractor, subcontractor or
supplier providing services, labor or material on this project.
52. On December 19, 2000 Eschoolmall.com submitted a Payment Request form
seeking a payment of $65,389 as reimbursement for recruitment consultants
services.
(5)
(7)
a. The request was approved by Barbara Musko on January 2, 2001.
1. Musko requested a "rush" on the check request.
b. Check no. 09810966 in the amount of $65,389.00 was issued to
Eschoolmall.com on January 17, 2001 and sent by UPS Next Day Air.
53. Eschoolmall.com submitted a second Payment Request form on January 4, 2001
seeking the balance of its Opportunity Grant in the amount of $234,611.
a. Musko approved the request on January 8, 2001.
b. Check no. 09213663 in the amount of $234,611 was issued to
Eschoolmall.com on January 22, 2001.
54. Throughout the application process beginning September 2000 and forward,
McGraw maintained contacts with Flanagan.
a. McGraw's TEVs confirm meetings with Andy Flanagan on February 27,
2001, April 25, 2001, and June 2, 2002.
b. McGraw telephonically contacted Flanagan on at least 181 occasions
between March 2001 and January 2002.
c. Flanagan and McGraw golfed, attended Philadelphia Flyer hockey games,
and dined together.
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d. The contacts continued after the grant funds had been received by
Eschoolmall.com.
55. During the contacts with Flanagan, McGraw stated he wanted to be Eschoolmall's
consultant.
a. Flanagan's company was trying to secure contracts with the Commonwealth
and believed McGraw could make introductions or referrals to appropriate
state officials.
1. McGraw had bragged to Flanagan of his numerous contacts in the
system.
b. McGraw told Flanagan he could make introductions to officials from other
agencies.
1. McGraw also told Flanagan that he could introduce Flanagan to
venture capitalists interested in investing in Flanagan's company.
2. The services that McGraw was offering and seeking personal
compensation for were part of the duties he was to be performing in
his public position.
c. McGraw advised Flanagan that he was interested in working in the venture
capital field as well as providing consulting services.
56. Beginning in the spring of 2001 McGraw began arranging meetings for Flanagan
with individual investors and other companies, including those who McGraw had
assisted in securing OGP funding.
a. Two of the companies McGraw referred Eschoolmall.com to were
TriTech and USTAAD.
b. The referrals were made during McGraw's working hours as a
Commonwealth employee.
57. McGraw repeatedly badgered Flanagan for payments from about January 2001 to
at least July 2001.
a. McGraw was persistent in his insistence on being paid for helping
Eschoolmall.com obtain the grant and the referrals McGraw made to venture
capitalists on Eschoolmall.com's behalf.
b. McGraw initially demanded a $25,000 payment from Flanagan.
1. Flanagan told McGraw that he did not have that amount of money and
did not acquiesce to McGraw's demand.
c. McGraw continued to insist on payments from Flanagan but lowered his
demands to smaller amounts than $25,000.
58. On or about June 30, 2001 Flanagan authorized a wire transfer of $4,000 from an
Eschoolmall.com account at First Union Bank to a trust account of the Kegan,
McDonald & France (KMF) law firm at Farmers First Bank, York, PA.
a. In 2001 Eschoolmall.com maintained a checking account at First Union
Bank, Horsham, PA.
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1. Flanagan had the authority to make or authorize expenditures from
this account.
b. The transfer was made on July 5, 2001.
c. KMF is a law firm located in York, Pennsylvania.
d. The wire transfer confirms that purpose of the payment was for the benefit of
Tom McGraw.
59. Michael Butler was associated with the KMF law firm in 2001 and arranged for the
firm to receive the wire transfer on behalf of McGraw.
a. Butler, at this time, was in the process of forming TriTech and serving as the
Chief Financial Officer of School Technology Management.
b. McGraw also assisted Butler in getting an OGP grant for TriTech. (see infra)
c. Both Butler and McGraw are York natives who had known each other for
several years.
60. No partner or associate in the KMF law firm other than Michael Butler discussed
with McGraw the wire transfer of funds from Flanagan to the KMF trust account.
a. Trust account documents identify Michael Butler as the attorney responsible
for the transfer.
61. The $4,000 wire transferred by Flanagan to the KMF trust account was utilized by
McGraw to rent a beach house in Avalon, New Jersey for the week of July 28, 2001.
a. The property was used jointly by McGraw and Michael Butler.
62. Avalon Realty Company records confirm that on June 6, 2001 a down payment of
$500.00 was received from Michael Butler for a property located at 63 East 13
Street, Avalon, New Jersey.
a. McGraw and Butler had met on June 4, 2001, two days prior to Butler
making the down payment.
63. On July 7, 2001 a $3,235.00 payment was credited toward the balance of the cost
of the Avalon rental property.
a. Rental records confirm that $3,235.00 payment was wire transferred from the
KMF trust account.
1. Michael Butler is the KMF attorney who authorized the wire transfer.
b. McGraw telephoned Flanagan on 7/3/01 at 10:25 a.m. and again at 10:36,
two days prior to transfer.
c. McGraw again telephoned Flanagan on 7/5/01, the day of the transfer.
64. Avalon Real Estate Agency records confirm Thomas McGraw as the tenant for the
property at 63 East 13 Street, Avalon, New Jersey for the week beginning July 28,
2001.
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65. McGraw's work records for the GAT confirm that McGraw did not claim any leave
(annual, personal, or sick) for the week beginning July 30, 2001.
66. McGraw was provided a Commonwealth cellular telephone while employed by the
GAT.
a. McGraw's Commonwealth cellular telephone records for the time period July
28, 2001 to August 2, 2001 confirm daily calls originating from the Cape
May - Avalon, New Jersey area as follows:
Day of Week Date No. of calls Time Frame
Saturday 7/28/01 9 3:27 p.m. to 8:03 p.m.
Sunday 7/29/01 11 9:10 a.m. to 9:36 p.m.
Monday 7/30/01 45 8:42 a.m. to 8:32 p.m.
Tuesday 7/31/01 68 9:27 a.m. to 8:27 p.m.
Wednesday 8/1/01 60 8:36 a.m. to 7:15 p.m.
Thursday 8/2/01 64 9:27 a.m. to 5:43 p.m.
Friday 8/3/01 0 0
b. McGraw's cellular telephone records also confirmed that telephone calls
were placed from York and Harrisburg on August 3, 2001.
67. McGraw was compensated by the Commonwealth for Monday, July 30, 2001
through Thursday, August 2, 2001 while vacationing with Michael Butler in Avalon,
New Jersey.
a. No leave was utilized by McGraw for this time period.
b. McGraw did not seek the permission of his supervisor to take vacation
without utilizing leave.
c. Stephen Morgan, GAT Director from June 2001 to March 2002, did not
authorize McGraw to work from Avalon, New Jersey.
1. No manager from GAT was aware of McGraw being in New Jersey.
68. During July and August 2001 McGraw's compensation was $3,058.50 bi- weekly
based on 75 hours.
a. The hourly rate was determined as $40.78 ($3,058.50 _ 75 hours).
b. McGraw was compensated a total of 30 hours for the time period of 7/30/01
through 8/2/01 for hours not worked.
c. Total compensation for hours not worked was $1,223.40 based on 30 hours
@ $40.78/hr.
69. During the spring and summer time period of 2001 while McGraw received the
assistance of Michael Butler to conceal the $4,000 payment from Eschoolmall.com.
McGraw as the GAT representative, recommended Butler's company TriTech
receive $200,000 OGP funding.
(The following findings relate to STM II Ltd d /b /a TriTech receipt of OGP funding
and McGraw's solicitation of and receipt of payment from Michael Butler.)
McGraw, 05 -008
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70. STM 11, Ltd, is a limited liability company formed by Michael Butler.
a. STM 11, Ltd filed a Certificate of Organization, Domestic Limited Liability
Company with Pennsylvania Corporation Bureau on May 31, 2001.
b. Michael Butler is the President and Chief Executive Officer of STM 11 Ltd.
71. STM 11, Ltd was established in connection with School Technology Management
(STM).
a. STM was a Maryland Corporation formed by John Amatruda.
b. STM 11 Ltd. was formed to operate in Pennsylvania to enhance and develop
software.
c. Since approximately the fall of 2002 STM has been controlled by Dennis
Smith.
72. STM's primary business consisted of selling, maintaining, and supporting twenty
software solutions to schools, including building access, cafeteria access,
attendance, course scheduling, grade reporting, textbook management, student
data, and school management and student data hosing.
a. STM's main customers included New York Public Schools, and the Baltimore
City Public Schools.
73. STM 11 Ltd. does business in Pennsylvania as TriTech.
74. Ownership in TriTech is held as follows:
USTAAD Systems - 47.5%
STM - 45.5%
Michael Butler - 7.0%
USTAAD is company controlled by Dennis Smith.
75. On or about February 25, 2001 McGraw met with Butler.
a. McGraw's records indicate the meeting was to seek assistance in filing his
income taxes.
1. Butler was affiliated at that time with Butler, Naylor, Samuelson, and
Allemen accounting firm.
76. Between February and June 2001 Butler and McGraw discussed assistance that
the GAT could provide to TriTech.
a. At that time TriTech had not yet been created.
77. On June 4, 2001 five days after filing documents with the Pennsylvania Department
of State for TriTech, Butler met with McGraw.
a. McGraw's TEV "s reflect expenses claimed by McGraw on 6/4/01 for traveling
to Clarksburg, Maryland to meet with STM.
78. Three days later, on or about June 7, 2001, DCED Secretary Samuel McCullough
McGraw, 05 -008
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forwarded to Michael Butler, President, School Technology Management (STM) an
outline of assistance the Commonwealth would offer to STM if STM relocated to
Pennsylvania. McCullough's letter, in part, noted the following:
My understanding is that your firm wishes to locate your corporate
headquarters in York, Pennsylvania. Moreover, I understand that the
proposed project would result in the creation of at least 100 new jobs within
three years. Additionally, I understand that School Technology Management
will make a $1.5 million investment in this project. Based upon this
information, I am pleased to propose the following forms of assistance by the
Commonwealth through its economic development programs:
Opportunity Grant Program
The Opportunity Grant program has the flexibility necessary to allow
Pennsylvania to customize its assistance to the specific needs of your
project. Because of the significant economic impact of your project, I am
proposing a $200,000 Opportunity Grant be made available to School
Technology Management for costs associated with your project.
Please be aware that the assistance proposed herein is based upon
information that has been provided to us by your company regarding job
creation projections, cost estimates and project timing. All of the assistance
outlined above is contingent upon School Technology Management
submitting complete applications, meeting all program guidelines and the
availability of funds. If you have any questions regarding he application
process for any of our financial assistance programs, please contact the
Governor's Action Team. The proposal is in effect for a period of 60 days
from this date, unless extended in writing by the Department.
79. McCullough's letter was based on information provided by Thomas McGraw as the
Governor's Action Team (GAT) representative who solicited STM d /b /a TriTech to
request an Opportunity Grant.
a. McGraw had recommended to then GAT Director Stephen Morgan that
TriTech receive OGP funding.
b. McGraw's positive recommendation was necessary in order for TriTech to be
awarded the grant.
80. McGraw and Butler met again on July 19, 2001, eight days prior to their vacation in
Avalon New Jersey.
a. At that time Butler was assisting McGraw in concealing the $4,000 payment
from Andy Flanagan by utilizing the KMF trust account to launder the
payment for the beach house.
81. On or about August 2, 2001 Butler as President and CEO of STM II Ltd. registered
TriTech as a fictitious name with the PA Department of State.
82. On or about September 7, 2001 Butler in his capacity as CEO and President of
TriTech forwarded a cover letter and Letter of Intent in application for an
Opportunity Grant.
83. Butler's September 7, 2001 cover letter essentially paraphrases the June 7, 2001
Letter of Intent from McCullough and provided as follows:
McGraw, 05 -008
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TriTech, a newly formed Pennsylvania company, was established in
connection with the reorganization and relocation of School Technology
Management's operations to Pennsylvania. Prior to the recent
reorganization, School Technology Management, Inc. developed, sold,
supported and maintained software solutions for schools out of offices in
Clarksville, Maryland. As a result of the reorganization, all software
development, support and maintenance services for School Technology
Management, as well administrative and executive functions, will be
performed by TriTech in Pennsylvania. School Technology Management will
continue to maintain offices in Clarksville, Maryland, but this office will be
dedicated to sales and marketing only.
We anticipate that this reorganization and relocation will result in the
creation of at least 100 new jobs and the investment of over $1.5 million in
the next three years.
The Commonwealth's Opportunity Grant will be utilized to help fund a variety
of purposes, namely the renovation of offices, the acquisition of furnishings
and equipment, and the payment of payroll and software development
expenses.
84. TriTech's Letter of Intent also included the following information:
a. TriTech is currently operating out of temporary offices at 284 West Market
Street, York, PA but plans to locate at 280 West Market St., York, PA within
3 to 6 months following renovations.
b. TriTech has only one employee (Butler) but expected to hire at least 100
employees over the next three years.
c. TriTech will use the grant to assist in funding capital needs including
leasehold improvements, equipment and furniture, research and
development, payroll, and computer technology.
d. TriTech anticipates investments of more than $1.5 million in connection with
the relocation and transfer of STM operations to TriTech in Pennsylvania.
85. McGraw's travel records document a meeting with Butler on September 19, 2001,
five days before Butler receives a notification of the grant award.
86. On September 24, 2001, McCullough forwarded a letter to Butler advising that STM
11 Ltd., d /b /a TriTech was awarded OGP funding in the amount of $200,000. The
letter contained the following:
The following conditions shall apply to the grant offer:
The grant will be used for working capital at the Company's facility
located at 280 West Market Street, in the City of York, York County,
Pennsylvania (the "Project "). The grant may not be used for any
other activities without first obtaining the written consent of the
Department.
The Company shall provide the Department with copies of all Project -
related purchase orders and contracts for acquisitions and /or work to
be paid for with Opportunity Grant funds. The Company must provide
a narrative describing the method followed in selecting contractors or
vendors for activities paid for with Opportunity Grant funds. All
McGraw, 05 -008
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contracts for activities paid for with Opportunity Grant funds must
contain the nondiscrimination provision enclosed.
Opportunity Grant funds must be applied to costs incurred on or
before June 30, 2004.
The Company must enter into the Opportunity Grant Program contract
and comply with all of the requirements of the program. The contract
will include Nondiscrimination, Contractor Integrity and similar
clauses required of all contracts with the Commonwealth.
This grant offer is extended based upon the following representations
made by the Company in the Opportunity Grant Program Letter of
Intent:
1. The Company has 0 employees and will create within three
years, 100 full -time jobs at the Project site, beginning June 7,
2001.
2. The Company will invest at least ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000) in private
match at the Project site within three years, beginning June 7,
2001.
3. The Company will operate at the Project site for a minimum of
five years.
87. The September 24, 2001 letter is signed by Dennis Smith as Chairman of the Board
of TriTech and is attested to by Michael Butler.
a. The letter was signed on 9 -28 -01 as an acknowledgment to agree and
accept the terms and conditions as outlined in letter.
88. The contract entered into by DCED and TriTech to contract no. 21- 168 -0022 was
signed on September 28, 2001 by Butler as TriTech President and Smith as
Chairman.
a. Butler returned the signed contract to DCED on or about October 1, 2001.
b. The contract was signed Emily White, DCED Deputy Secretary on October
9, 2001.
c. Contract # 21- 168 -0022 contained the following relating to the grant:
Effective date: June 7, 2001
Ending date: June 30, 2004
Grant amount: $200,000
89. Article V Section (h) Grant Integrity Provisions of contract #21- 168 -0022 contained
the following in subsections 4 through 7 regarding gifts, gratuities, and payments:
(4) The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, confer or agree to
confer any pecuniary benefit on anyone as consideration for the
decision, opinion, recommendation, vote, other exercise of discretion
or violation of a known legal duty by any officer or employee of the
Commonwealth.
McGraw, 05 -008
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The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, give, or agree or
promise to give to anyone any gratuity for the benefit of, or at the
direction or request of, any officer or employee of the Commonwealth.
(6) Except with the consent of the Commonwealth, neither the Grantee
nor anyone in privity with him shall accept or agree to accept from, or
give or agree to give to, any person, any gratuity from any person in
connection with the performance of work under this Contract except
as provided therein.
Except with the consent of the Commonwealth, the Grantee shall not
have a financial interest in any other contractor, subcontractor or
supplier providing services, labor or material on this project.
(5)
(7)
90. DCED file notes confirm Tom McGraw as being the GAT contact person for the
TriTech grant and Michael Butler as the TriTech contact.
91. Grant log documents for TriTech reflect that DCED's Center for Business Financing
received the grant package for review on September 24, 2001.
a. The application was approved by center director Scott Dunkelberger and
DCED Deputy Secretary Emily White on September 24, 2001.
92. DCED's Single Application for Assistance for TriTech contained the following
project narrative summary:
STM II, Ltd. t /d /b /a TriTech is requesting a $200,000 OGP grant to relocate
its offices from Maryland to the City of York, York County. TriTech is a
developer of software for school including course scheduling, grading,
textbook management and security. Grant funds will be used for working
capital. The company plans to invest $1.5 million in the project and create
100 new full -time jobs within three years. This is a Governor's Action Team
project.
93. Information utilized by DCED in reviewing TriTech's application for assistance was
developed by Thomas McGraw in his capacity as an employee of the Governor's
Action Team.
94. On September 13, 2001 Danielle Narkin, Economic Development Analyst, DCED
contacted Butler via fax transmission with a number of questions concerning the
grant.
a. Narkin was the analyst assigned oversight responsibilities for the TriTech
grant.
b. Narkin's questions related to number of employees, employee
compensation, private investments, and sales.
95. Butler responded by fax on September 13, 2001 that the company had only one
paid employee at the York office and only one employee worldwide (Butler).
a. Total dollar sales were $0.
b. Private investments were projected to be $1.5 million over the next three
years.
McGraw, 05 -008
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96. At the time McGraw recommended that TriTech receive a $200,000 OGP grant,
TriTech had no employees and no contracts.
97. On or about October 24, 2001 Butler submitted a Program Payment Request to
DCED.
a. The request sought payments totaling $30,000 for a contractor renovating
space at 280 West Market Street, York.
b. The payment request was denied.
c. A second request submitted by Butler on November 7, 2001 was also
rejected.
d. Denial reasons included Butler's request to have his salary reimbursed.
98. On or about November 1, 2001 Butler submitted a request to expand the scope of
work to include "costs and expenses directly attributable to the leasehold
improvements being constructed on TriTech's principal offices, 280 West Market
Street, York, PA."
a. On that same date McGraw met with Dennis Smith, TriTech board Chairman.
b. Scott Dunkelberger, Director, Center for Business Financing, DCED
approved the request on November 1, 2001 to include machinery, equipment
and furniture and fixtures.
c. Dunkelberger sent a second letter on December 12, 2001 approving the
scope of work change request.
99. DECD [sic] Analyst Danielle Narkin was advised to document "red flags" in relation
to the TriTech payment request. Narkin authorized a memo dated December 7,
2001 included the following:
Initial payment request form requested reimbursement for rental
payments paid to Sparky and Clark's Roasting Company. Mike
Butler, President and CEO of TriTech, is a co -owner of Sparky and
Clark's Roasting Company.
The first request was also to reimburse salary to Mike Butler,
Currently the only employee of TriTech that is not a consultant. That
payment request has been discarded.
The scope of work was amended to include leasehold improvements
at the company's permanent site which is owned by 280 West Market
Street Associates LLC. 280 West Market Street Associates LLC is
the real estate holding arm of TriTech formed by TriTech executives.
TriTech has a lease agreement in place with 280.
100. Narkin provided a copy of the memo to her immediate supervisor, Barbara Musko.
a. Musko discussed the memo with Scott Dunkelberger.
b. Dunkelberger advised Barbara Musko, Narkin's supervisor on December 12,
2001 that OGP funds could be used for Leasehold Improvements.
McGraw, 05 -008
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101. By letter dated November 29, 2001 Butler submitted his third payment request form.
a. The request sought reimbursements totaling $60,354.00.
1. The description for reimbursements included lease payments to
Sparky & Clarks and Leasehold Improvements to 280 W. Market
Street Associates, entities controlled, in part, by Butler.
b. DCED approved the request on December 27, 2001.
102. Commonwealth check no. 09627275 in the amount of $60,354 was issued to
TriTech on January 16, 2002 and deposited to a TriTech account on January 18,
2002.
103. The additional Payment Request forms were submitted by Butler between March 5,
2002 and June 5, 2003.
Date Amount Requested
March 5, 2002 $76,725
November 1, 2002 $44,908
June 5, 2003 $18,013
104. Total payments issued to TriTech by DCED are as follows:
Date Amount Check # Date Deposited
April 5, 2002 $76,725 03260228 April 9, 2002
March 11, 2003 $44,908 047889136 March 16, 2003
July 11, 2003 $18,013 05004331 July 14, 2003
All three checks were deposited to a TriTech account at Farmers First Bank.
105. McGraw had numerous contacts with Narkin during the period of TriTech's OGP
grant (November 2001 through November 2002).
a. McGraw referred to Butler as his "old friend" and "good buddy ".
b. McGraw continually requested that payments be made to TriTech without
delay and that Narkin treat Butler "right ".
c. McGraw offered to assist the expediting of payments including contacting the
State Treasury and the Department of Revenue.
106. On November 16, 2001 Narkin discussed with McGraw the rejection of TriTech's
payment request.
a. McGraw offered his assistance in getting the payment request approved.
b. McGraw wanted Narkin to assure there would be no delays in payment being
issued to TriTech.
107. McGraw's contracts with Narkin, including requests for expediting payment to
TriTech were not usual for a GAT representative.
a. No other GAT employees have intervened on behalf of grant recipients to
the extent of McGraw's intervention on behalf of TriTech.
108. In or about March 2002 Thomas McGraw and his wife began the process of
McGraw, 05 -008
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purchasing a lot and building a house.
a. McGraw discussed the house purchase with Michael Butler and Dennis
Smith.
1. McGraw met with Butler and /or Smith on February 7, 2002, February
28, 2002, and March 2, 2002.
b. Michael Butler assisted with the process by arranging for an attorney from
KMF to represent the McGraws.
c. Butler and Smith were shown blueprints of the house by McGraw.
109. On March 12, 2002 Butler faxed a memo from Sparky and Clark's Coffee Shop to
Andy Kagen of KMF which advised as follows:
"Tom and Tracy McGraw are buying a lot from Kinsley (price $60,000) and
will be building a residence (approximately $225,000). Would you handle
this?
They'd like to close on the lot within the next two weeks. It will then take
about a month to approve the building plans, etc., and construction will take
another 4 -5 months."
110. The KMF firm, specifically Andy Kagen, represented the McGraws in the purchase
of a lot and the subsequent closing for the house purchase.
a. The lot settlement occurred on March 28, 2002.
b. The final settlement was on October 25, 2002.
111. The costs for the McGraw house included the following:
a. Lot 122 Spring Meadows $60,000
Manchester Twp.
York Co.
b. House $270,864
$330, 864
112. Michael Butler contacted the KMF by e -mail requesting to attend the lot settlement.
a. March 19, 2002: Butler e- mailed Andy Kagen requesting to attend the March
28, 2002 settlement.
1. Butler's e-mail address was mbutler@ustaad.com.
2. USTAAD is Dennis Smith's company.
113. Prior to October 2002 Butler agreed to make a $20,000 payment to McGraw for
McGraw helping TriTech obtain the OGP grant.
a. Butler agreed to pay McGraw $20,000 for help in getting the $200,000 OGP
grant.
b. McGraw wanted 10% of the grant.
McGraw, 05 -008
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114. Butler and McGraw agreed that Butler would wire transfer $20,000 from a TriTech
account to the KMF trust account.
a. The transfer would be similar to the transfer made to Eschoolmall.com in
June 2001. (See Finding 58)
a. The transfer would be made near the time McGraw was going to settlement
for the house.
115. McGraw was scheduled to go to settlement on the house purchase on October 25,
2002.
116. TriTech maintains a corporate checking account at People's Bank.
a. The account has been opened since January 18, 2002.
b. Michael Butler as President and CEO is one of two authorized signatures.
1. Dennis Smith, Chairman of the Board also has signature authority.
117. On October 2, 2002 Butler authorized a wire transfer of $20,000 from TriTech's
account at People's Bank to the KMF trust account at Farmer's First Bank.
a. The $20,000 was credited to Thomas McGraw's client account.
b. This is the same account into which the $4,000 from Eschoolmall.com was
wired for McGraw.
118. The $20,000 remained credited to Thomas McGraw's client account at KMF until
November 8, 2002.
119. Prior to the McGraw settlement of October 25, 2002 Butler e- mailed Andy Kagen to
advise of the wire transfers to be made on McGraw's behalf.
a. September 18, 2002, 10:54 a.m.:
In an unrelated matter, we represent Tom and Tracy McGraw in a real estate
matter. Tom is owed some moneys from TriTech and from USTAAD
Systems. He would like these two companies to wire the money to KMF's
trust account. The money would then be used to fund part of the McGraws'
closing costs. Would you send me wire instructions for transmitting the
money to our trust account? When the wire is ready to go, I will contact you
with the details so the firm can properly account for the money.
b. September 30, 2002, 11:10 a.m.:
I spoke with Tom McGraw on Friday. He tells me that their new home will
shortly be completed and they will be looking to close around the third week
in October. Perhaps you could give him a call and talk about this. His
number is 648 -9040.
Also, Tom did some work for my company (TriTech) and Dennis Smith's
company (USTAAD Systems). He had asked us not to pay him while he was
going through some marital problems. He now wants TriTech and USTAAD
Systems to make the payments to KMF's trust account, and the monies will
help fund settlement. The two payments total $52,500. These monies will
be wired into your trust account for his benefit tomorrow.
McGraw, 05 -008
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Tom indicates that his mortgage company needs a letter from KMF, stating
that Tom has this money in our trust account. I'll let you know when the
wires occur. Could you have Cookie /someone else write the letter, and then
call Tom to make arrangements for him to get the letter? Again, the letter
need only state that there is $52,500 in the firm's trust account for his
benefit.
120. During settlement of October 25, 2002 McGraw obtained a mortgage in the amount
of $55,163.50 from Guaranty Bank.
a. On November 8, 2002 McGraw settled the Guaranty Bank loan.
b. A payment of $55,163.50 was made to Guaranty Bank from KMF trust
account.
Of the $55,163.50, $20,000 came from TriTech /Mike Butler.
1. $32,500 was paid by Dennis Smith, Chairman of TriTech's Board of
Directors.
c.
121. Michael Butler testified in a sworn statement that he paid McGraw $20,000 in order
to receive the grant.
a. Butler testified that he paid McGraw 10% of the $200,000 grant.
122. During his Sworn Statement Butler testified in part as follows:
Q. And just describe for me this grant money that you've just
mentioned as —
Butler: Right, when I was an attorney at Kagen, McDonald & France,
I became acquainted with a fellow named Tom McGraw who
works with the Governor's Action Team in Pennsylvania.
Essentially what they do is their — they look to attract and
maintain employers to Pennsylvania and they offer grant
money and low income loans and things like that and working
with Tom, we were able to obtain a grant for $200,000 if
TriTech would open up an office in Pennsylvania and I think
we paid like $20,000 for it. And that money came in chunks,
maybe in four or five disbursements.
Q. Were papers prepared to obtain this grant?
Butler: Yes, sir.
Q. And do you have copies of those papers?
Butler: Oh, yeah.
Q. And this Mr. McGraw, was he with the Kagen law firm?
Butler: No, no, he worked with the Governor's Action Team.
Q. So he's a government employee?
Butler: I don't know if he's employed by them. He's the guy that had
the connection to get the money, yeah.
Q. Who prepared the papers to obtain the grant?
Butler: He got me the papers, he didn't prepare them, I did,
prepared them, yeah.
Q. Just going down the item list, there is one kind of near the
McGraw, 05 -008
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bottom of the expense for legal at $20,000?
Butler: Right.
Q. Can you describe that line item for me?
Butler:Yeah, that was the payment we made for the opportunity grant.
Q. And that was made out to — that was all to Mr. McGraw?
Butler: I'm trying to think how that went. The law firm kind of
coordinated it, so the payment went to the firm and I think they
in turn paid Mr. McGraw, yeah, it was 10 percent of the
opportunity grant.
Q. And when you say the firm, that's your old law firm?
Butler: Right.
123. TriTech did not comply with the requirements as outlined in its contract with DCED.
a. TriTech did not hire 100 employees.
1. The only employees of TriTech are those transferred from STM.
b. TriTech did not secure investments from any source other than related
companies STM and USTAAD.
124. DCED eventually required documentation for TriTech and ultimately sought to have
the grant money returned.
a. On March 22, 2005 Kevin Rowland, Director of Performance Monitoring
DCED, addressed a letter to Butler which requested that a form be
completed and returned within (30) days so that DCED could monitor the
results of the project.
1. Butler ignored the request and did not answer within the (30) day time
frame.
2. A similar request was sent by Rowland on May 11, 2005 which Butler
ignored.
b. On June 28, 2005 Rowland sent a third letter to Butler marked final request
which stated, in part,
Our office has been trying to contact your company since March, 2005. As
of this date, we have not heard from your company. We can only assume
that your company has not met the requirement of the Opportunity Grant
Program and therefore, you are directed to send a check for $200,000 made
payable to the Commonwealth of Pennsylvania at the address listed above.
If we do not receive a response from you within 30 days, we will refer this
issue to the Department's Office of Chief Counsel to commence collection
proceedings.
125. Charles Rees Brown, attorney for DCED's Office of Chief Counsel, directed a letter
to Butler dated September 27, 2005 demanding repayment of the sum of $20,000
for failure to comply with the terms and conditions of the grant agreement.
a. The $20,000 amount was in error and should have stated $200,000.
126. Butler, through his attorney Wayne Pecht, issued a check to DCED in an amount of
$20,000.
McGraw, 05 -008
Page 27
a. The check was dated October 4, 2005 and drawn on the TriTech account.
b. The check was received by DCED on October 6, 2005.
127. Brown e- mailed Pecht on October 6, 2005 advising of the error and confirming that
the $200,000 was due within (7) days.
a. Pecht e- mailed Brown on November 8, 2005 requesting that DCED accept
the $20,000 payment as full satisfaction of TriTech's obligations.
b. Brown accepted Pecht's request and the matter was closed on or about
November 9, 2005.
128. Thomas McGraw in his Commonwealth position as Manager for Technology
Initiatives recommended the $200,000 grant for TriTech.
a. TriTech would not have received the grant without McGraw's
recommendations.
1. McGraw provided TriTech with information to include in its request
that would be reviewed favorably including recommending the number
of employees to be hired during the grant period.
b. McGraw received a $20,000 payment from Butler for his actions.
(The following findings relate to USTAAD's receipt of OGP funding and McGraw's
subsequent receipt of payments from Dennis Smith.)
129. During the same time period in 2001 when recommending TriTech for OGP funding
McGraw also assisted Butler's business partner, Dennis Smith obtain OGP funding
for USTAAD Systems Inc. (USTAAD).
a. Butler and Smith are partners in 280 West Market Street Associates, an
entity created to lease space to USTAAD and TriTech.
b. Both Smith and Butler have ownership in Sparky & Clarks, a York coffee
house.
c. Butler and Smith are both affiliated with School Technology Management
(STM).
1. Smith is an owner.
2. Butler is the Chief Financial Officer.
d. Butler is President of TriTech and Smith is Chairman of the Board.
1. Smith's company USTAAD owns 47.5% of TriTech.
130. McGraw had been familiar with Dennis Smith prior to 2001.
a. Both Smith and McGraw are residents of York.
131. McGraw was aware that TriTech and USTAAD were affiliated companies.
a. During discussions in 2001 with Butler, McGraw became aware of Smith's
McGraw, 05 -008
Page 28
company, USTAAD.
b. McGraw met with Smith to discuss OGP funding.
c. McGraw's travel logs confirm meetings with Smith on at least the following
dates prior to USTAAD's receipt of a grant:
August 9, 2001, noon to 5:00 p.m.
August 24, 2001, noon to 4:00 p.m.
August 31, 2001, 7:00 a.m. to 11:00 a.m.
132. USTAAD Systems is a software development and consulting company.
a. USTAAD Systems, Inc. provides technology consulting and enterprise
solutions to enable customers to analyze, assess, and evaluate business
processes.
b. Dennis Smith assumed control of USTAAD on or about July 1, 1998.
1. Smith, as President of USTAAD, filed Articles of Amendment —
Domestic Business Corporation for USTAAD with the PA Department
of State, Corporation Bureau on July 1, 1998.
133. USTAAD is a part of an unincorporated entity identified as School Technology
Management Group
134. School Technology Management Group is an integrated group of consulting and
technology companies consisting of the following:
School Technology Management, Inc. (STM)
USTAAD Systems, Inc.
STM 11 d /b /a TriTech
135. Dennis Smith is the Chief Executive Officer (CEO) and Chairman of the board of
directors for the STM Group.
a. Smith also serves as President and CEO of USTAAD Systems.
136. During the summer of 2001 McGraw recommended USTAAD for an OGP grant.
a. McGraw's recommendation was necessary in order for USTAAD to obtain
the grant funding.
b. McGraw encouraged Smith to seek the grant.
1. McGraw provided Smith with data, specifically the number of
employees, to be included on the grant request.
2. The numbers provided by McGraw were given so that the application
would be favorably reviewed.
137. Based on the business plan submitted by McGraw and his recommendation to GAT
Director Kohler, DCED issued an offer of assistance to USTAAD on or about August
23, 2001.
a. The offer of assistance was based on a draft prepared by McGraw
recommending an OGP grant.
McGraw, 05 -008
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b. The offer was signed by Samuel McCullough.
c. The offer of assistance proposed a $225,000 Opportunity Grant for costs
associated with the expansion of USTAAD's headquarters.
138. The Acceptance of Offer forwarded to Smith by DCED provided that USTAAD verify
the accuracy of the project information concerning job and private investment and
agreed to commence the project by August 15, 2001.
a. Thomas McGraw is listed as the DCED /Governor's Action Team contact
person and project manager.
139. On or about October 9, 2001, Dennis Smith, in his capacity as President of
USTAAD, submitted a Letter of Intent to the PA Department of Community and
Economic Development formally seeking the Opportunity Grant.
a. The request sought a grant of $225,000 for an expansion project with costs
totaling at least $3 million dollars over a three year period.
b. Funding was proposed from the following sources:
Company owner contributions
Reinvestment of net projects
Loans
Opportunity Grant
c. The letter sought the grant to assist with payroll, real estate acquisition,
and /or renovation or construction, relocation, research and development of
new products /services, network and other technology and equipment and
furniture.
140. On October 18, 2001 the Economic Development Assistance Office (EDAO) of
DCED faxed to Dennis Smith a listing of business specific questions to be
answered concerning USTAAD.
a. A second request was faxed by EDAO to Smith on November 3, 2001.
141. On November 6, 2001 Smith faxed the form with the following information:
1. Current # of Full -time Employees: Pennsylvania 22 Worldwide 23
2. Minority Owned: Yes No X .
3. Sole Proprietorship S Corporation Partnership C Corporation X
4. Total Sales $3,183,341
(Total gross sales last year)
5. Total Export Sales $ 0
Total gross export sales last year (outside US))
6. R &D Investment (% of budget) 1.5%
(% of revenue targeted for research & development last year)
7. Employee Training Investment (% of budget) 1
(% of revenue targeted for employee training last year)
142. McGraw and Smith met from 10:00 a.m. to 3:00 p.m. on November 1, 2001 prior to
the grant approval .
143. The Opportunity Grant for USTAAD was approved by DCED between November 16,
2001 and November 20, 2001.
McGraw, 05 -008
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a. Barbara Musko, Director, Programs Division approved the USTAAD's
application on November 16, 2001.
b. Emily White, Deputy Secretary approved the application on November 20,
2001.
144. DCED Secretary Samuel McCullough issued a OGP approval letter to Smith at
USTAAD on November 21, 2001 subject to the following conditions:
1. The grant will be used for working capital including salaries,
equipment, and job training at the company's facility located at 399
East Park Drive, Harrisburg, Dauphin County (the "Project "). The
grant may not be used for any other activities without first obtaining
the written consent of the Department.
2. The Company shall provide the Department with copies of all Project -
related purchase orders and contracts for acquisitions and /or work to
be paid for with Opportunity Grant funds. The Company must provide
a narrative describing the method followed in selecting contractors or
vendors for activities paid for with Opportunity Grant funds. All
contracts for activities paid for with Opportunity Grant funds must
contain the nondiscrimination provision enclosed.
3. Opportunity Grant funds must be applied to costs incurred on or
before June 30, 2004.
4. The Company must enter into the Opportunity Grant Program contract
and comply with all of the requirements of the program. The contract
will include Nondiscrimination, Contractor Integrity and similar
clauses required of all contracts with the Commonwealth.
145. Secretary McCullough's November 21, 2001 letter to USTAAD noted that the grant
offer was extended based upon the following representations made by USTAAD in
OGP Letter of Intent including:
1. The Company has 15 existing employees in Pennsylvania and will
create within three years, 80 full -time jobs at the Project site
beginning August 23, 2001.
2. The Company will invest at least TWO MILLION SEVEN HUNDRED
SEVENTY FIVE DOLLARS ($2,775,000) in private match at the
Project site within three years beginning August 23, 2001.
3. The Company will operate at the Project site for a minimum of five
years.
146. McCullough's letter also noted as follows if USTAAD failed to adhere to the
conditions:
If the Company fails to create the number of jobs specified above, fails to
invest the amount of private match specified above, or fails to operate at the
Project site for at least five years, the Company shall be liable for a penalty
equal to the full amount of the grant awarded to them or to an Applicant on
their behalf, unless the penalty is waived by my office because failure is due
to circumstances outside the control of the Company.
McGraw, 05 -008
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147. On or about November 28, 2001 Musko forwarded to Smith at USTAAD the
Opportunity Grant Program (OGP) Commitment Letter and contract in the amount of
$225, 000.
a. Contract no. 21- 168 -0032 was assigned to the project.
148. The terms and conditions outlined in McCullough's 11/21/01 letter were accepted
by Dennis Smith on December 10, 2001.
149. The OGP contract signed on December 10, 2001 by Dennis Smith and December
13, 2001 by Emily White, Deputy Secretary DCED contained in Article V(h) Grantee
Integrity Provisions relating to offering or giving something of value to a
Commonwealth employee or official:
(h)(4) The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, confer or agree to
confer any pecuniary benefit on anyone as consideration for the
decision, opinion, recommendation, vote, other exercise of discretion
or violation of a known legal duty by any officer or employee of the
Commonwealth.
The Grantee shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, give, or agree or
promise to give to anyone any gratuity for the benefit of, or at the
direction or request of any officer or employee of the Commonwealth.
(6) Except with the consent of the Commonwealth, neither the Grantee
nor anyone in privity with him shall accept or agree to accept from, or
give or agree to give to, any person, any gratuity from any person in
connection with the performance of work under this Contract except
as provided therein.
Except with the consent of the Commonwealth, the Grantee shall not
have a financial interest in any other contractor, subcontractor or
supplier providing services, labor or material on this project.
(5)
(7)
150. DCED /OGP worksheet records identify Thomas McGraw as the GAT contact person
for USTAAD's grant.
a. Notes also confirm that information was provided to DCED Center for
Business Financing Department by Dennis Smith and Thomas McGraw that
the use of the OGP would be for working capital (salaries, equipment,
training associated with expansion and office facilities).
1. The start date for job creation was to be the date of the offer letter
(8/23/01) three years out (8/23/04).
b. McGraw provided the information to Melissa Williams, DCED analyst
assigned to review USTAAD's grant request.
151. On or about January 4, 2002 Dennis Smith submitted an OGP Payment Request
form to DCED seeing to receive grant funds in the amount of $225,000.
a. Voucher #1 identified salary /wages in the amount of $225,000 as the costs
incurred.
b. The request form is signed by Dennis Smith.
McGraw, 05 -008
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c. Payroll summaries prepared by USTAAD's account firm covering the period
between 10/14/01 to 12/22/01 were provided.
d. The form asserts the salary payments are within the grant period.
152. USTAAD's Payment Request form was approved on or about January 7, 2002 by
Barbara Musko of DCED's Economic Development Assistance Office.
153. USTAAD's payment of the grant funds was delayed when questions regarding the
payroll were raised by analyst Melissa Williams and Barbara Musko.
a. On or about January 8, 2002 Smith was requested to provide more specific
payroll information i.e. employee names, social security numbers, employee
number, dates, etc.
b. On or about January 17, 2002 Phyllis Turns, bookkeeper for USTAAD
forwarded to Melissa Williams detailed payroll information for the period from
October 14, 2001 to December 22, 2001.
1. The records provided confirmed payroll totaling $279,493.
154. On January 17, 2002, Musko authorized the release of $225,000 to USTAAD.
a. Commonwealth check no. 09638804 was issued to USTAAD on January 22,
2002.
b. The check was sent by next day delivery through UPS.
c. The check was deposited in USTAAD business account at All First Bank on
February 5, 2002.
d. McGraw and Smith met on February 7, 2002, two days after the check was
deposited.
155. Sometime in late 2001 or early 2002 Smith became aware that Butler was going to
pay McGraw.
a. Butler informed Smith he was going to pay McGraw $20,000.
156. After receiving approval of the grant for USTAAD, Smith was approached by
McGraw who was seeking payment from him.
a. McGraw asked Smith that if he helped Smith (USTAAD) get this grant, would
Smith be willing to compensate him?
1. McGraw also stated that he would be willing to serve as a consultant
to USTAAD.
b. McGraw specifically asked for the sum of $32,500 as compensation for
getting the grant and for consulting.
1 McGraw did make a few introductions to other companies but nothing
ever materialized for USTAAD.
2. The introductions that McGraw made were done as part of his duties
as a Commonwealth employee.
McGraw, 05 -008
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157. Smith agreed to pay McGraw's demand for the $32,500 as compensation for
McGraw getting the grant.
158. McGraw wanted the $32,500 payment to be in the form of cash.
a. McGraw gave Smith instructions to wire transfer $32,500 to a trust account
at KMF.
1. McGraw told Smith to get specific instructions from Butler.
b. McGraw told Smith he wanted to conceal the money.
1. McGraw told Smith that there could not be any "fingerprints" on the
money.
159. Smith directed his bookkeeper Phyllis Turns to obtain instructions from Butler and
to wire transfer the sum of $32,500 to McGraw.
160. USTAAD Systems maintains a checking account at Sovereign Bank.
a. Smith has signature authority, along with Phyllis Turns, to issue payments
from the account.
161. Turns issued payments from the USTAAD account only upon receipt of an invoice
from a vendor.
a. No invoice was ever submitted by McGraw to USTAAD or Dennis Smith.
b. This was an unusual occurrence for Smith to authorize a transfer without an
invoice.
162. On September 30, 2002 Phyllis Turns wire transferred $32,500 from the USTAAD
account to the KMF trust account.
a. USTAAD Systems transaction list indicates the payment was for marketing.
163. The KMF Client Trust Account confirms a $32,500 wire transfer #10010000814 from
USTAAD Systems on October 1, 2002 to KMF Trust Account at Farmers Bank.
a. The account confirms the transfer was for the benefit of Thomas McGraw in
relation to purchase of Lot 122, Spring Meadows.
164. The $32,500 wire transfer remained credited to Thomas McGraw's client account
until November 8, 2002.
a. The KMF account into which this money was transferred is the same client
account into which the $4,000 from Eschoolmall.com and $20,000 from
TriTech was transferred.
165. Settlement for the McGraw house purchase (findings 108, 110, 111, 115) was
scheduled for October 25, 2002.
a. During settlement McGraw obtained a second mortgage from Guaranty Bank
in the amount of $55,163.50.
b. On November 8, 2002 McGraw settled the Guaranty Bank loan.
McGraw, 05 -008
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c. A payment of $55,163.50 was made to Guaranty Bank from KMF trust
account to satisfy the mortgage.
166. Of the $55,163.50 payment made to Guaranty Bank from the KMF trust account,
$53,115 came from Dennis Smith /USTAAD, Michael Butler /TriTech and Andy
Flanagan /Eschoolmall.com, all companies McGraw solicited payments from in
return for his help in obtaining OGP grants.
a. Guaranty Bank Payoff
Dennis Smith - $32,500.00
Michael Butler - $20,000.00
*Andy Flanagan - $ 615.00
* *Tom McGraw - $ 2,048.50
$55,163.50
*This was the balance remaining from Flanagan's $4,000 payment on 7/5/01 after
payment was made to Avalon Real Estate.
* *This deposit by McGraw was in the form of a loan check from a personal Capital
One credit card.
167. USTAAD Systems never complied with provisions of the OGP grant.
a. USTAAD currently has only two employees, Smith and Turns.
1. USTAAD never hired (80) employees.
b. USTAAD did not remain at the project for a minimum of five years.
168. On or about December 16, 2003, Dennis Smith sought relief from repayment of the
$225,000 grant.
a. Smith contacted DCED to obtain relief.
b. DCED was seeking repayment of the entire $225,000 grant.
c. An agreement was reached in October 2005 requiring the repayment of
$112,500, 1/2 of the original grant amount.
d. As of March 15, 2006 a payment of $56,250 was made.
1. One other payment of $56,250 is due by November 1, 2006.
169. After questions were raised by Commonwealth officials about whether McGraw had
solicited funds from grant recipients that he had assisted, McGraw asked Smith to
lie regarding the nature of the $32,500 payment that he had made.
a. McGraw wanted Smith to tell the officials that he (Smith) had obtained a
$32,500 interest in the house that he (McGraw) had purchased.
b. Smith refused to tell the authorities this story.
(The following findings relate to Thomas McGraw's actions in the OGP process
concerning MirTech and his receipt of payments from TriTech.)
170. MirTech Consulting is a consulting firm specializing in information technology
McGraw, 05 -008
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solutions.
a. MirTech provides computer systems design services and custom computer
programming services.
b. MirTech is located at York, PA.
171. MirTech was incorporated on October 10, 2000.
a. Pennsylvania Corporation Bureau records confirm the filing of a Certificate of
Organization — Domestic limited liability Company filing on October 10, 2000.
b. The organizer for the company is listed as Michael Butler.
172. Jerry Westerhold is the President of MirTech.
a. Westerhold has held this position since October 2000.
173. Jerry Westerhold was introduced to Thomas McGraw by Dennis Smith sometime in
2001.
a. Westerhold frequently golfed with Dennis Smith.
b. Smith introduced Westerhold to McGraw at a golf outing.
c. Westerhold's company has been paid for services by both TriTech and
USTAAD.
d. Smith told Westerhold that McGraw could help him get a grant.
174. In or around the summer of 2001 McGraw encouraged MirTech to seek a grant
through the OGP.
a. The meetings included informal settings on the golf course.
b. McGraw told Westerhold that he worked for the Governor's office.
1. Westerhold believed, based on his conversation with McGraw, that
McGraw's duties included helping private companies do business with
the Commonwealth.
c. Westerhold's business had limited business dealings with the
Commonwealth and was hoping to increase sales and was interested in
McGraw's assistance to help get state contracts.
d. Westerhold never met McGraw in a formal or office setting.
1. McGraw never fully explained his position with the Governor's Action
Team or his relationship with DCED.
175. McGraw further advised Westerhold of his desire to act as a consultant to MirTech.
a. McGraw stated he could connect MirTech with other companies who do
complementary business.
1. McGraw emphasized that he wanted to be compensated for this
function.
McGraw, 05 -008
Page 36
b. McGraw said as consultant he would introduce Westerhold to state officials
who make decisions regarding contracts.
176. Based on McGraw's representations Westerhold applied for the OGP grant.
a. McGraw directed Westerhold through the application process particularly
regarding who to talk to and what to include in the application.
1. This includes the number of employees MirTech anticipated hiring.
177. On November 7, 2001 DCED Secretary Sam McCullough forwarded an outline of
assistance to Westerhold that the Commonwealth was prepared to offer MirTech.
a. The letter noted MirTech's request for funding to expand its headquarters
resulting in the creation of 110 new jobs within three years.
b. McCullough noted that MirTech was planning on investing $2.2 million in the
investment project.
c. McCullough proposed a $200,000 OGP grant be made available.
178. McCullough's offer of assistance was based upon information provided by Thomas
McGraw which included the number of new employees, the amount of private
investment and the amount of the grant.
a. McGraw recommended to his supervisor, Stephen Morgan, that MirTech be
funded.
b. McGraw recommendation was necessary in order for the grant to be
approved.
179. McGraw's representations that MirTech proposed to create 110 new jobs within
three years was consistent with representations /recommendations he made
regarding Eschoolmall.com, TriTech and USTAAD.
a. McGraw, through his Commonwealth position, was aware that the creation of
such a number of jobs would assure the receipt of funding.
b. McGraw told the grant applicants the number of new jobs to include in the
application.
180. On December 3, 2001 Westerhold submitted a Letter of Intent to DCED requesting
the $200,000 grant.
a. Westerhold anticipated the creation of 110 jobs for programmers and
analysts by December 31, 2004 and the investment of 2.2 million dollars.
b. On that same date at 9:54 a.m. McGraw telephoned Westerhold.
1. McGraw had subsequent telephone conversations with Westerhold
on December 26, 2001 and December 27, 2001.
181. On January 4, 2002 at 5:27 p.m. McGraw telephoned Westerhold and engaged in a
seventeen (17) minute conversation.
a. The conversation occurred ten (10) days prior to the grant approval.
McGraw, 05 -008
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182. On January 14, 2002 Westerhold was advised by letter from McCullough that the
request for OGP funding was approved in an amount of $200,000 subject to the
following conditions:
a. The grant was to be used for working capital at company's facility at 6864
Susquehanna Trail. The grant could not be used for any other purpose
without getting the consent of DCED.
b. The company was required to provide to DCED copies of all project related
purchase orders and contracts.
c. Grant funds must be utilized on or before 6/30/04.
d. Westerhold acknowledged the condition of January 23, 2002.
183. The January 14, 2002 letter noted that the grant was being provided based on the
representations made by the company including, creating 110 full -time jobs
beginning 11/7/01, investing at least $2,000,000, and remaining at the site for a
minimum of five years.
a. These were representations created by Thomas McGraw.
184. The MirTech grant was assigned contract no. 21- 168 -0040.
a. The grant was signed by both Westerhold and DCED Deputy Secretary
Emily White on January 23, 2002.
b. The grant contained in Article V(h)(4), (5), (6), and (7) Grantee Integrity
Provisions (see finding 51).
185. All grant information sheets confirm Thomas McGraw as the GAT representative
and confirm that the grant was a GAT project.
186. MirTech received the grant in two payments.
a. MirTech's initial payment request form was received by DCED on February
8, 2002.
1. This request sought reimbursement for MirTech payroll in the amount
of $156,423.79 and subcontractor payroll of $25,350.
2. Payment in the amount of $181,773 was issued by check no.
08142051 on March 1, 2002.
3. The amount was deposited in a MirTech account at People's Bank.
b. Payment request no. 2 was received by DCED on March 11, 2002 seeking
reimbursement for MirTech payroll in the amount of $18,227 (the balance of
the grant).
1. Payment in the amount of $18,227 was issued by check no.
10480318 on March 29, 2002.
2. The amount was deposited in the MirTech account at People's Bank.
187. On March 15, 2002 four days after Westerhold submitted payment request no. 2,
McGraw, 05 -008
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McGraw met with Westerhold in York.
188. Beginning in or about February or March 2002 Westerhold began making payments
to Thomas McGraw.
a. The payments were for McGraw's help in obtaining the grant and for
consulting services.
1. Westerhold was under the belief that McGraw would help his
company obtain state contracts.
2. McGraw did make a few referrals for MirTech but nothing ever
materialized.
3. Westerhold was uncertain of the exact nature of McGraw's
relationship with Governor's office and GAT /DCED.
4. McGraw insisted that he was not part of DCED and was not part of
the decision making regarding approval of TriTech's [sic] grant.
189. Westerhold made payments to McGraw at various times over a one year period
between 2002 and 2003 totaling $40,000.
a. McGraw would contact Westerhold wanting a payment.
b. Westerhold felt compelled to make the payments.
190. Thomas McGraw maintains personal bank accounts at Commerce Bank.
a. Between March 15, 2002 and November 13, 2003 $23,500 was deposited to
these accounts in the form of cash.
b. On March 15, 2002, the day McGraw met with Westerhold, $5,000 was
deposited to an account at Commerce Bank controlled by McGraw.
1. Other deposits in March 2002 included $13,500 on March 18, 2002
and $4,000 on March 29, 2002.
191. MirTech was not able to comply with the provisions of the grant contract.
a. MirTech was unable to hire anymore than (20) employees in its prime.
b. MirTech is in the process of repaying a portion of the OGP grant.
192. McGraw's use of the authority of his public position resulted in MirTech receiving a
$200,000 OGP grant.
a. As a result of the use of his public position McGraw was able to extort
$40,000 in cash payments from Westerhold.
b. McGraw concealed the payments by demanding cash.
193. Thomas McGraw never disclosed the payments received from Andy Flanagan
(Eschoolmall.com), Michael Butler (TriTech), Dennis Smith (USTAAD), and Jerry
Westerhold (MirTech) on Federal and State Tax Returns.
194. Thomas McGraw filed a Federal Income Tax Return for the 2001 calendar year on
McGraw, 05 -008
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or about February 23, 2002.
a. The return was prepared by Butler, Naylor, Summerson, and Allemen.
b. The return was a joint filing.
c. Payment of $4,000 from Andy Flanagan was not disclosed.
195. Thomas McGraw filed a Federal Income Tax Return for the 2002 calendar year on
or about March 1, 2003.
a. The return was prepared by the private firm.
b. The return was a joint filing by McGraw and his wife.
196. McGraw did not disclose on his Federal 1040 filing for calendar year 2002 that he
had received a $20,000 payment from Michael Butler and a $32,500 payment from
Dennis Smith and payments from Jerry Westerhold.
a. The only income reported by McGraw was his Commonwealth salary.
197. Thomas McGraw filed a PA State Income Tax Return PA -40 for the 2001 calendar
year on February 23, 2002.
a. The joint return was prepared by the BNSA firm.
b. McGraw did not report the $4,000 payment from Eschoolmall.com.
198. Thomas McGraw filed a Pennsylvania State Income Tax Return Pa -40 for the 2002
calendar year on March 1, 2003.
a. A joint return for McGraw and his wife was prepared by BNSA firm.
b. McGraw did not disclose the payments received from Butler and Smith
totaling $52,500 on his State Income Tax Return.
c. The only income reported by McGraw was his Commonwealth salary.
(The following findings relate to Thomas McGraw's failure to disclose on
Statements of Financial Interests payments received from Eschoolmall.com,
TriTech, USTAAD, and MirTech)
199. Thomas McGraw filed Statements of Financial Interests (SFI) as an employee of
GAT /DCED for the following years:
Calendar Year Date Filed
2003 4/6/04
2002 4/3/03
2001 4/4/02
2000 4/9/01
200. McGraw did not disclose the receipt of $4,000 from Andy
Flanagan /Eschoolmall.com on July 5, 2001 as a source of income on the SFI filed
on April 4, 2002 for the 2001 calendar year.
201. McGraw did not disclose the receipt of $20,000 from Michael Butler /TriTech on
McGraw, 05 -008
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10/1/02 as either direct /indirect source of income or gift on the SFI filed on April 3,
2003 for calendar year 2002.
202. McGraw did not disclose the receipt of the $32,500 wire transfer from Dennis
Smith /USTAAD on the SFI he filed on April 3, 2003 for calendar year 2002.
203. McGraw did not disclose the receipt of payments from Jerry Westerhold in 2002
and 2003 on SFI's filed on 4/3/03 and 4/6/04.
204. By failing to disclose on SFI's his receipt of payments from individuals affiliated with
companies that he recommended receive OGP funds, McGraw concealed from his
supervisors and the public that he used his public position to receive payments not
authorized by Law [sic].
205. McGraw furthered his concealment of payments not authorized by Law [sic] when
he failed to disclose receipt of payments from Eschoolmall.com, TriTech, USTAAD,
and MirTech on annual Code of Conduct forms.
a. Code of Conduct forms are required to be filed by employees of the
Executive Branch of state government.
206. McGraw, in his capacity as a GAT employee annually filed a Governor's Code of
Conduct form as follows:
Year Date Filed
2001 4/9/01
2002 4/4/02
2003 4/3/02
2004 4/6/04
207. The Code of Conduct form in the section titled "Employment" requires the
disclosure of the following:
All payments, compensation, or consideration of any nature (including but
not limited to salaried employment consultant fees, offices, directorships,
honoraria, travel /related expenses, and other fees, etc.) earned during the
previous calendar year."
208. McGraw listed "N /A" to the employment section on each form filed for 2001, 2002,
2003, and 2004.
a. McGraw failed to disclose payments received from companies he
recommended receive OGP funding.
b. McGraw's failure to disclose was an effort to conceal payments he received
as a result of his use of his public position.
(The following findings refer to McGraw's failure to obtain leave approval and
used reward points for personal gain.)
209. As an employee of the Executive Branch of the Commonwealth Thomas McGraw
accumulated leave in the form of annual, personal, and sick.
210. Management Directive no. M530.7 amended in effect since July 7, 1998 for
employees under the Governor's jurisdiction details procedures to be followed when
employees utilize leave.
McGraw, 05 -008
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a. The employee is responsible for submitting a request for leave to the
supervisor.
1. In 2001 form STD -330 was required.
2. The form contained dates of leave and amount of leave in hours used.
211. From June 2001 through December 2001 Thomas McGraw was supervised by
Stephen Morgan.
a. McGraw was required to submit all leave requests to Morgan for approval.
212. McGraw vacation in Avalon, New Jersey from at least July 30, 2001 through August
2, 2001 (findings 64, 65, 66).
a. McGraw did not submit a leave request to his supervisor.
1. Management at GAT did not become aware that McGraw was at the
New Jersey shore until being advised by an employee of McGraw's
whereabouts.
b. McGraw utilized at least 30 hours leave without approval.
1. McGraw was required to work a 7.5 hour day.
213. Leave records for McGraw confirm that McGraw was not charged for annual leave
for the period July 30, 2001 through August 2, 2001.
a. Leave could not be charged to McGraw due to his failure to submit a leave
request or advise his supervisor that he would not be working.
214. In July and August 2001 McGraw was compensated $3,058.50 bi- weekly based on
a 75 hour work schedule.
a. McGraw's hourly rate was $40.78 /hour.
215. McGraw received compensation of $1,223.40 for the period from July 30, 2001
through August 2, 2002 [sic] as though he were working.
a. McGraw had a leave balance of 91.01 hours by August 3, 2001.
b. McGraw was able to save 30.0 hours leave by failing to submit a leave slip
for that period.
216. McGraw traveled to the Outer Banks of North Carolina for a vacation during the
week of August 13, 2001.
a. McGraw had no official business in North Carolina.
217. McGraw did not submit a leave slip for that period as required.
a. Official Commonwealth leave records confirm that McGraw was not charged
with utilizing leave during the period August 13, 2001 through August 17,
2001.
218. McGraw assigned a cellular telephone by GAT for use for official business.
McGraw, 05 -008
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a. McGraw's Commonwealth assigned cellular telephone confirmed use from
Virginia and North Carolina from August 11, 2001 through August 18, 2001.
b. 133 calls originated from Currituck, North Carolina between 10:03 a.m. on
August 11, 2001 to 9:41 p.m. on August 17, 2001.
219. McGraw's calendar for August 11, 2001 through August 18, 2001 confirms the
entire week of August 11, 2001 at the Outer Banks.
a. McGraw had no Commonwealth business at the Outer Banks.
220. McGraw received a gain of $1,529.25 as a result of going on vacation without
claiming leave (37.5 hours X $40.78/hr).
221. McGraw's leave balance by August 17, 2001 was 93.90 hours.
a. Had McGraw used leave during July and August for his vacation his leave
balance would have been reduced to 26.4 hours.
222. McGraw submitted a Travel Expense Voucher (TEV) for the period July 19, 2001
through August 9, 2001 to no.'s 222618 and 222619.
a. McGraw claimed expenses for 7/31/01 and 8/1/01.
b. McGraw's expenses included mileage, parking, and tolls for travel to
Baltimore, MD on 7/31/01 and Norristown on 8/1/01:
7/31/01 — mileage 120, parking $8.00
8/1/01 — mileage 200, subsistence, $8.00, tolls $4.40
223. McGraw was reimbursed for expenses on 7/31/01 and 8/1/01 as follows:
Date Mileage Meals Tolls Total
7/31/01 41.40 $8.00 $ 49.40
8/1/01 69.00 $8.00 $4.40 $ 81.40
$130.80
224. McGraw's falsification of his TEV resulted in a personal gain of $130.80.
a. McGraw was in Avalon, New Jersey on 7/31/01 and 8/1/01 and did not incur
any business related expenses.
225. Thomas McGraw traveled to Colorado for a ski vacation from December 12, 2001
through December 16, 2001.
a. McGraw stayed at Park Hyatt, Beaver Creek, Colorado.
1. McGraw is recorded as checking in on December 12, 2001 and
checking out on December 16, 2001.
b. McGraw's travel originated from BWI Airport in Baltimore.
226. McGraw's Commonwealth provided cellular telephone records for the period from
December 12, 2001 through December 16, 2001 confirm use of his Commonwealth
cellular telephone while on vacation.
a. From December 12, 2001 to December 16, 2001 McGraw used his
McGraw, 05 -008
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Commonwealth cellular telephone to place (150) calls.
b. The first call was 6:12 a.m. on December 12, 2001 to (717) 720 -7299 and
the last call was on December 17, 2001 at 2:04 a.m. from Linthicum, MD.
227. McGraw was enrolled in Hyatt's Gold Passport Rewards Program which
accumulated points for stays at Hyatt properties.
228. McGraw's Gold Passport Account confirms that McGraw checked in at the Park
Hyatt, Beaver Creek on December 12, 2001 and checked out on December 16,
2001.
a. The account further reflects that the lodging for December 15, 2001 was paid
for through the accumulation of points.
b. McGraw's rewards account was charged 15,000 points for the evening of
December 15, 2001.
229. McGraw accumulated the points to the Hyatt Gold Passport account through stays
at Hyatt properties which were paid for by the Commonwealth.
230. The cost of the lodging on December 15, 2001 at the Park Hyatt, Beaver Creek was
$495.00.
231. Leave records for Thomas McGraw confirm no leave charged to McGraw for the
period 12/12/01 through 12/16/01.
a. McGraw was not authorized by any official of DCED /GAT to travel on a ski
vacation without using leave.
b. McGraw did not submit a leave request nor did he advise his supervisor that
he would not be working during the week of December 12, 2001.
232. McGraw was earning a $3,058.50 bi- weekly based on a 75 hour work schedule in
December 2001.
a. McGraw's rate was $40.78 /hour.
b. McGraw was paid $917.55 (22.5 @ $40.78/hr) for December 12, 2001
through December 14, 2001.
233. McGraw submitted TEV No. 223958 on January 30, 2002 claiming expenses for
travel on December 12, 2001 and December 13, 2001 while he was vacationing in
Colorado.
a. 12/12/01 Mileage 50 Travel to York
b. 12/13/01 Mileage 50 Travel to York
c. McGraw received mileage reimbursement of $34.50 even though he was not
working on either 12/12/01 or 12/13/01.
234. McGraw maintained a Hyatt Gold Passport Rewards Account No. G369400086.
a. McGraw accumulated points to this account during the course of traveling
while on Commonwealth business.
McGraw, 05 -008
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b. McGraw frequently stayed at the Park Hyatt, Philadelphia.
1. Other Hyatt stays included San Francisco, CA; West Hollywood, CA;
and Beaver Creek, CO.
c. At the time of his termination from Commonwealth employment, McGraw had
amassed in excess of 173,000 points.
235. McGraw converted some of those points for his personal use while on the Colorado
ski trip.
a. McGraw utilized 15,000 of those points for lodging on the night of December
15, 2001 at Beaver Creek Resort.
b. The value of that night's lodging was $495.00.
236. McGraw maintained ownership and control over this account after his August 11,
2004 termination from state employment.
a. On March 27, 2006 McGraw made reservations for (2) rooms at Hyatt's
Chesapeake Bay Resort for the nights of April 12, 2006 through April 14,
2006.
b. McGraw's method of payment for both rooms was the points accumulated on
the Gold Passport account.
c. The cost of the rooms varied between $187 to $225 per night.
d. The value of room nights is between $1,122.00 and $1,350.00.
237. On or about April 2004 the Office of Inspector General (OIG) received information
that a $20,000 payment was received by McGraw.
a. The information indicated that the payment was made to McGraw by Michael
Butler.
238. Following the OIG's investigation McGraw was suspended on July 29, 2004 without
pay from his position with Office of Technology Investment.
a. A letter dated July 29, 2004 forwarded to McGraw by DCED Deputy
Secretary Daniel Gunderson advised that McGraw was being suspended
without pay effective July 29, 2004 pending further investigation.
b. The reason cited for the suspension was McGraw's admission on July 28,
2004 to having engaged in appropriate conduct.
1. The letter noted that, "Specifically, on said date you admitted to your
direct supervisor of having received monies and /or favors from a
private entity during the course of representing the Department in
your former position.
c. Gunderson's letter to McGraw also noted that an investigation was being
conducted into the scope of McGraw's actions and appropriate action would
be taken at the conclusion, including disciplinary suspension, removal from
employment or reinstatement.
239. During a conversation on July 28, 2004 with his then supervisor, Richard
McGraw, 05 -008
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Overmoyer, McGraw admitted to receiving payments from companies he helped get
grants.
a. McGraw had become aware of the OIG investigation and attempts by OIG
investigators to interview him on July 27, 2004.
b. McGraw was upset when talking to Overmoyer and stated that he screwed
up and took payments from companies getting grants.
c. McGraw asked Overmoyer to help him out of the situation.
240. On August 11, 2004 George Spiess, Director of Human Resources DCED
forwarded a letter to McGraw that his employment with the Commonwealth was
terminated, effective immediately.
241. McGraw's use of the authority of his public position resulted in a private pecuniary
gain as follows:
a. Payments:
Eschoolmall.com /Andy Flanagan $ 4,000
TriTech /Michael Butler $25,000 [sic]
USTAAD /Dennis Smith $32,500
MirTech /Jerry Westerhold $40,000
b. Vacation Time
July 30, 2001 — August 2, 2001
August 13, 2001 — August 17, 2001
December 12, 2001 — December 14, 2001
c. Point Reduction $495.06 [sic]
12/15/2001
d. Expenses $130.80
$ 34.50
$100,830.50 [sic]
$1,223.40
$1,529.25
$ 917.55
III. DISCUSSION:
At all times relevant to this matter, the Respondent, Thomas McGraw, (McGraw),
was a public employee subject to the provisions of the Public Official and Employee Ethics
Law, Act 9 of 1989, Pamphlet Law 26, 65 P.S. § 401, et seq., as codified by the Public
Official and Employee Ethics Act, Act 93 of 1998, Chapter 11, 65 Pa.C.S. § 1101 et seq.,
which Acts are referred to herein as the "Ethics Act."
The allegations are that Thomas McGraw, in his capacity as Development Specialist
for the Governor's Action Team (GAT) of the Department of the Community and Economic
Development (DCED), violated Sections 1103(a), 1103(c) and 1105(b)(5) of the Ethics Act
when he used the authority of his position for a private pecuniary gain by making
recommendations and participating in actions of the GAT /DCED including but not limited to
recommending Opportunity Grants be awarded to companies to relocate /expand in the
Commonwealth in return for payments from companies based on his understanding that
his official action and judgment would be influenced thereby; when he participated in
actions of the GAT /DCED, including but not limited to, recommending Opportunity Grants
be awarded to companies to relocate /expand in the Commonwealth at a time when he had
a reasonable expectation that he would be personally receiving funds from such
companies; when he used the authority of his position to solicit funds for personal use from
companies that he was attempting to obtain Commonwealth grant funds; when he offered
McGraw, 05 -008
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to perform consulting services to companies receiving Commonwealth grants and then
demanded payment for such services even though said services were part of his duties as
a Commonwealth employee; when he failed to disclose the receipt of payments from
TriTech Inc. /Michael Butler and Dennis Smith /USTAAD in excess of $1,300 on his
Statement of Financial Interests (SFIs) filed for the 2002 calendar year; when he failed to
disclose payments from Eschoolmall.com /Andrew Flanagan in excess of $1,300 on his
SFIs filed for the 2002 calendar year; when he failed to disclose on SFI's filed for the 2001
and 2002 calendar years payments in excess of $1,300 solicited from MirTech
Consulting /Jerry Westerhold; when he failed to obtain approval or submit leave requests
for annual leave used when traveling for personal purposes in 2001 and 2002; when he
used his public position when traveling on official Commonwealth business paid for by the
Commonwealth to accumulate reward points through Hyatt Gold Passport and then
redeemed a portion of those points to pay for personal room expenses; and when he
retained control and ownership of reward points obtained through travel in his public
position after his termination from Commonwealth employment.
Pursuant to Section 1103(a) of the Ethics Act quoted above, a public official /public
employee is prohibited from engaging in conduct that constitutes a conflict of interest.
The term "conflict of interest" is defined under Act 93 of 1998 as follows:
Section 1102. Definitions
"Conflict" or "conflict of interest." Use by a public
official or public employee of the authority of his office or
employment or any confidential information received through
his holding public office or employment for the private
pecuniary benefit of himself, a member of his immediate family
or a business with which he or a member of his immediate
family is associated. "Conflict" or "conflict of interest" does not
include an action having a de minimis economic impact or
which affects to the same degree a class consisting of the
general public or a subclass consisting of an industry,
occupation or other group which includes the public official or
public employee, a member of his immediate family or a
business with which he or a member of his immediate family is
associated.
65 Pa. C. S. § 1102.
Section 1103(a) of the Ethics Act prohibits a public official /public employee from
using the authority of public office /employment or confidential information received by
holding such a public position for the private pecuniary benefit of the public official /public
employee himself, any member of his immediate family, or a business with which he or a
member of his immediate family is associated.
Section 1103. Restricted Activities
(c) No public official, public employee or nominee or
candidate for public office shall solicit or accept, anything of
monetary value, including a gift, loan, political contribution,
reward, or promise of future employment based on any
understanding of that public official, public employee or
nominee that the vote, official action, or judgment of the public
official or public employee or nominee or candidate for public
office would be influenced thereby.
McGraw, 05 -008
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65 Pa.C.S. §1103(c).
Section 1103(c) of Act 93 of 1998 quoted above provides in part that a public
official /public employee shall not solicit or accept anything of monetary value based upon
any understanding that his vote, official action or judgment would be influenced thereby.
Section 1105. Statement of financial interests
(b) Required information. - -The statement shall include the
following information for the prior calendar year with regard to
the person required to file the statement:
facts.
(5)
The name and address of any direct or indirect source
of income totaling in the aggregate $1,300 or more.
However, this provision shall not be construed to
require the divulgence of confidential information
protected by statute or existing professional codes of
ethics or common law privileges.
65 Pa.C.S. §1105(b)(5).
Section 1105(b)(5) of the Ethics Act, which requires that every public official /public
employee and candidate list the name and address of any direct or indirect source of
income totaling in the aggregate of $1,300 or more.
Having noted the issues and applicable law, we shall now summarize the relevant
McGraw was employed by DCED from May 22, 2000 until he was terminated for
inappropriate conduct on August 11, 2004. At the time he was fired, McGraw was the
Technology Initiatives Manager in DCED for the GAT with duties and responsibilities of
identifying companies for relocation or expansion in the Commonwealth through grants or
low interest loans; identifying Commonwealth companies and encouraging their expansion;
and determining the financial needs of the companies. McGraw could also make referrals
of companies to other agencies. McGraw was required to complete a "due diligence" on
each company that he would recommend to receive financial assistance through the
Opportunity Grant Program (OGP). McGraw made recommendations to his supervisor, the
GAT Director, who forwarded the information to the DCED Secretary.
Eligibility for Opportunity Grants (OG) included municipalities, IDAs and IDCs,
municipal authorities, redevelopment authorities, private developers and private
companies. OGs could be utilized for job training, infrastructure
conservation /rehabilitation, property acquisition, building construction /rehabilitation,
machinery and equipment purchases, working capital, site preparation, environmental
assessments, remediation of hazardous materials and, to a certain extent, architectural
and engineering fees. However, OGs could not be used for the refinancing or retirement
of existing debt and costs unrelated to a company's expansion or location in Pennsylvania.
In order for an eligible company to receive an OG, it has to locate, expand or
maintain operations in Pennsylvania, invest private capital at a Pennsylvania site, and
create or preserve jobs at the site. Any company seeking OGP funding is required to
submit a detailed letter of intent to DCED, which determines eligibility by scoring the
requests according to specified criteria. If it is determined that a funding request is valid, a
recommendation is made to the DCED Secretary to award the OG. DCED then issues a
commitment letter to the company, specifying the terms and conditions for the OG. The
company's representative must sign and return the commitment letter and agree to its
terms and conditions.
McGraw, 05 -008
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Subsequent to the issuance of the committal letter, the applicant and DCED
executed a grant agreement that interalia specified: conditions of funding commitments;
certification of expenses; non - discrimination clauses; and disbursements via the
submission of payment requests with accompanying invoices and documentation to verify
incurred costs. Failure of a company to adhere to the grant agreement will result in the
imposition of a penalty up to the full amount of the OG plus an additional 10 %. Non-
adherence to the grant agreement would encompass the failure to operate at the site for a
minimum number of years, the failure to create or preserve the number of jobs specified in
the commitment letter or the failure to provide the required amount of capital.
As Manager of Technology Initiatives, McGraw was the primary person responsible
for identifying technology companies for OGP funding. McGraw was the only individual
who had statewide assignments as to the OGP. During the time period from June 2000
through January 2003, McGraw recommended OGP funding for at least 33 companies
totaling approximately $5.8 million. McGraw, as the GAT representative, had involvement
in funding awarded to the following companies that relate to this inquiry: STM II, Ltd. d /b /a
TriTech, USTAAD Systems, Eschoolmall.com and MirTech Consulting. The contact
persons for the foregoing companies were Michael Butler, Dennis Smith, Andrew Flanagan
and Jerry Westerhold, respectively.
McGraw, as the Technology Initiatives Manager, solicited and received payments
from those four individuals. Even though such services were part of McGraw's duties as a
Commonwealth employee, he used his position to solicit payments from companies
seeking grants. In return, McGraw promised OGP funding for a percentage of the grant
funds paid to the companies. See, Fact Finding 36(a). In addition, McGraw solicited
payments after the grants were received on the purported basis of either providing
consulting /marketing services to the grant recipient or developing contacts with investors.
In the time frame of July 2001 to December 2002, McGraw solicited and received $96,500
from the above four mentioned companies that received OGP funding. The actions by
McGraw as to the four companies will now be summarized.
Eschoolmall.com
Eschoolmall.com is an internet based software company that provides services to
school districts to reduce paperwork, save time and cut costs as to the purchase of goods
and services. Andrew Flanagan (Flanagan), the CEO of Eschoolmall.com, contacted GAT
in the summer of 2000, seeking information about OGP funding. McGraw, as the GAT
representative assigned to Flanagan, recommended OGP funding in the amount of
$300,000. Thereafter, by letter of September 21, 2000, the DCED Secretary forwarded a
letter to Flanagan that outlined the offer of assistance to Eschoolmall.com for its
expansion: Eschoolmall.com would have to create 200 new jobs within three years and
invest $13 million. The information contained in the DCED Secretary's letter was
developed and recommended by McGraw.
Flanagan agreed to the assistance package and then faxed a letter of intent to
DCED's Economic Development Assistance Office. Subsequently, on November 7, 2000,
Flanagan was notified of the $300,000 OG approval subject to certain conditions, as
delineated in Fact Finding 48. The contract between Flanagan and DCED had a standard
integrity provision that prohibited the grantee from offering or agreeing to give a pecuniary
benefit to anyone in consideration for the decision, opinion, recommendation or exercise of
discretion by an officer or employee of the Commonwealth.
Eschoolmall.com then submitted a payment request in the amount of $65,389 as
reimbursement for recruitment consulting services. Eschoolmall.com received payment
and then submitted a second request for the balance of the OGP grant in the amount of
McGraw, 05 -008
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$234,611. That request was approved and payment was issued to Eschoolmall.com in
January 2001.
Throughout the above process, McGraw maintained contact with Flanagan and
advised him that he (McGraw) wanted to be Eschoolmall's consultant. In this regard,
McGraw stated that he could introduce Flanagan to other officials in other agencies.
Further, McGraw suggested that he could introduce Flanagan to venture capitalists who
might be interested in investing in Flanagan's company.
McGraw then demanded payments from Flanagan, beginning in January 2001.
McGraw initially sought a $25,000 payment from Flanagan for the services that McGraw
performed on his behalf. Flanagan refused and McGraw lowered his demand. On June
30, 2001, Flanagan authorized a wire transfer of $4,000 from an Eschoolmall.com account
to a trust account for McGraw in the law firm of Kegan, McDonald & France (KMF) in York,
Pennsylvania. Attorney Michael Butler (Butler), who was then associated with the KMF law
firm, arranged to receive the wire transfer on behalf of McGraw. No other members of the
KMF law firm were aware of the relationship or transactions between McGraw and Butler.
McGraw used the $4,000 transferred by Flanagan to rent a beach house in Avalon,
New Jersey in July 2001. The rental property was jointly used by McGraw and Butler.
During the week that McGraw stayed at the Avalon beach property, he did not submit a
leave request to the Commonwealth. In addition, McGraw, during that period of time, used
the Commonwealth cell phone for making telephone calls. In that McGraw was
compensated by the Commonwealth for the week that he vacationed with Butler in Avalon,
New Jersey, he received 30 hours of compensation totaling $1,223.40 without any
accompanying reduction in leave time. During the time period that McGraw, with the
assistance of Butler, received the $4,000 payment from Eschoolmall.com, McGraw, as a
GAT representative, also took action as to Butler's company, TriTech, regarding OGP
funding.
TriTech
STM II, Ltd. d /b /a TriTech (TriTech) is a limited liability company formed by Butler
pursuant to a Certificate of Organization filed with the Pennsylvania Corporation Bureau in
May 2001. STM II, Ltd. was established in connection with School Technology
Management (STM), a Maryland corporation that is now controlled by Dennis Smith
(Smith). STM's business function is to sell, maintain and support software solutions to
schools. STM II, Ltd. does business in Pennsylvania as TriTech.
Between February and June of 2001, McGraw and Butler met to discuss financial
assistance that GAT could provide for TriTech, which at that time had not even been
created. Five days after Butler filed documents with the Pennsylvania Department of
State for TriTech, Butler again met with McGraw. Three days later, the DCED Secretary
forwarded to Butler an outline letter of assistance based upon STM's relocation to
Pennsylvania. The details of the OGP grant in the amount of $200,000 are detailed in
Fact Finding 78. The letter that the DCED Secretary sent to Butler was based upon
information and recommendations provided by McGraw. Butler and McGraw met in July
prior to their vacation in Avalon, New Jersey. In August of 2001, Butler registered TriTech
as a fictitious name. In the following month, Butler, as CEO and President of TriTech,
forwarded a letter of intent for the OGP funding, the details of which letter are set forth in
Fact Findings 83 and 84.
On September 24, 2001, the DCED Secretary forwarded a letter to Butler advising
that STM II, Ltd. d /b /a TriTech was awarded OGP funding in the amount of $200,000,
subject to certain conditions as delineated in Fact Finding 86. TriTech was required within
three years to create 100 full -time jobs, invest at least $1,500,000 in private matching
funds and operate the project for a minimum of five years. A letter of September 24, 2001
McGraw, 05 -008
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was signed by Smith as Chairman of the Board of TriTech acknowledging and agreeing to
accept the terms and conditions. A contract between DCED and TriTech was signed on
September 28, 2001 by Butler as TriTech President and Smith as Board Chairman, which
contract contained the standard integrity provisions. At the time that McGraw had
recommended OGP funding in the amount of $200,000 to TriTech, it had no employees, no
contracts and no sales.
On October 24, 2001, Butler submitted a payment request to DCED in the amount of
$30,000 for renovating space at a location in York, Pennsylvania. After the payment
request was denied, a second request was submitted by Butler. That request was also
rejected. Thereafter, Butler submitted a request to expand the scope of the work for costs
and expenses attributed to leasehold improvements for TriTech's principal offices. DCED
approved the request, which included machinery equipment, furniture and fixtures.
However, the DCED analyst was advised to "red flag" TriTech payment requests, based in
part upon Butler's request to reimburse his salary. Butler submitted a third payment
request in the amount of $60,354 for lease payments, which request was approved by
DCED.
Three additional payment requests were subsequently submitted by Butler in the
amounts of $76,725, $44,908 and $18,013. Following approval by DCED, checks were
issued and deposited into a TriTech account. McGraw requested DCED to issue
payments to TriTech without delay. McGraw even offered his assistance in obtaining
approval for the prior payment request that had been rejected and in expediting payments
by contacting the State Treasury and the Department of Revenue. Such actions by
McGraw as a GAT representative would be highly unusual based upon his job duties and
responsibilities.
In March of 2000, McGraw and his spouse began the process of purchasing a lot
and building a home. McGraw discussed his home project with Butler and Smith. Butler
assisted McGraw in obtaining an attorney from the KMF firm to represent McGraw and his
spouse as to the lot purchase and home building. Butler had agreed to make a $20,000
payment to McGraw for his assistance in obtaining the $200,000 OGP grant for TriTech.
See, Fact Finding 113. Butler, in a sworn statement, specifically admitted that he paid
McGraw 10% for obtaining the $200,000 grant. Butler agreed to wire $20,000 from the
TriTech account into a KMF trust account for McGraw at the time that McGraw would have
settlement on his home. A wire transfer of $20,000 from the TriTech into the KMF trust
account occurred on October 2, 2002.
The $20,000 remained credited to McGraw's KMF account until November 8, 2002
when McGraw settled with Guaranty Bank as to the mortgage on his new home. McGraw
made a payment of $55,163.50 from the KMF trust account, which included the $20,000
from Butler resulting from the TriTech OGP funding. $32,500 was also paid by McGraw
from funds in that amount that he received from Smith relative to USTAAD OGP funding,
infra.
Subsequently, when it was determined that TriTech did not comply with the
requirements of its OGP funding contract, DCED sought to have the OG money returned.
See, Fact Findings 124, 125. Butler, through his attorney, issued a check to DCED in the
amount of $20,000. After Butler's attorney received a letter from DCED requesting the
payment of the $200,000, Butler's attorney wrote to DCED's counsel requesting
acceptance of the $20,000 payment as full satisfaction of TriTech's obligation. DCED
accepted the $20,000 and closed the matter.
USTAAD Systems, Inc.
During the time period that McGraw made a recommendation for TriTech to receive
OGP funding, he also assisted Butler's business partner, Smith, in OGP funding for
McGraw, 05 -008
Page 51
USTAAD Systems, Inc. (USTAAD). USTAAD is a software - development and consulting
company that provides technology consulting and enterprise solutions to enable customers
to analyze, assess and evaluate business processes. Smith and Butler have ownership in
a coffeehouse as well as affiliation with STM in that Smith is an owner and Butler is the
Chief Financial Officer. TriTech and USTAAD are affiliated companies. During the time
that McGraw had discussions with Butler about TriTech, he became aware of USTAAD.
McGraw met with Smith to discuss OGP funding for USTAAD.
During the summer of 2001, McGraw recommended USTAAD for OGP funding.
Since McGraw encouraged Smith to seek the grant, McGraw provided Smith with the data
that needed to be included in the grant request. Based upon the submitted plans, together
with McGraw's recommendation to GAT, DCED offered $225,000 to USTAAD for the
expansion of its headquarters. Smith, as President of USTAAD, then submitted a letter of
intent to DCED formally seeking OG funding in the amount of $225,000 for an expansion
project with costs totaling $3,000,000 over a three year period. Subsequently, DCED
faxed to Smith a list of specific questions and on November 6, 2001 Smith faxed back the
form containing the information, as detailed in Fact Finding 141.
An OG for USTAAD was approved by DCED in November 2001 as per a letter of
the DCED Secretary, with certain conditions for USTAAD: to have 15 employees in
Pennsylvania, to create within three years 80 full -time jobs and to invest at least
$2,775,000 in matching funds with the company operating at the project site for a minimum
of five years. The DCED Secretary's letter also noted the penalty for failure to meet the
terms and conditions of the OG and set forth the standard integrity conditions within the
contract.
In January of 2002, Smith submitted an OGP payment request in the amount of
$225,000. Although the payment request form was approved, USTAAD's payment was
delayed when questions arose regarding payroll and information as to employees. After
USTAAD ostensibly provided detailed payroll information, the $225,000 was released to
USTAAD in January of 2002. After the DCED check was deposited, McGraw met with
Smith and Smith became aware that Butler intended to pay $20,000 to McGraw.
McGraw approached Smith and indicated that he (McGraw) wanted $32,500 for
obtaining the grant and serving as a consultant to USTAAD. After Smith agreed to pay
McGraw's demand for the $32,500, McGraw indicated that he wanted the payment in cash.
McGraw told Smith that he did not want any fingerprints on the money so that he (McGraw)
could conceal the $32,500. On September 30, 2002, USTAAD made a wire transfer of
$32,500 to McGraw's KMF trust account. The $32,500 remained in McGraw's trust
account until the November 8, 2002 closing on his new home. Although McGraw obtained
a second mortgage in the amount of $55,163.50, relative to his home purchase, payment
in that amount was made on November 8 to satisfy that obligation.
Of the $55,163.50 transferred from McGraw's KMF trust account, those funds came
from Smith of USTAAD, Butler of TriTech and Flanagan of Eschoolmall.com. The funds
represented payments from the companies that McGraw solicited for obtaining OGP
funding.
USTAAD never complied with the terms of the OG and sought relief from the
repayment by contacting DCED. At the time, questions were raised by Commonwealth
officials about McGraw's solicitation of funds from OG recipients. McGraw told Smith to tell
the Commonwealth officials that he had obtained an interest valued at $32,500 in
McGraw's house, but Smith refused to recite such a prevarication.
MirTech
McGraw, 05 -008
Page 52
MirTech is a consulting firm that specializes in information technology solutions.
Butler filed a Certificate of Organization for the company in October of 2002 with the
Pennsylvania Corporation Bureau. Jerry Westerhold (Westerhold), the President of
MirTech, was introduced to McGraw by Smith in 2001. During that time, McGraw
encouraged Westerhold to seek OGP funding for MirTech. McGraw never fully explained
to Westerhold his position with GAT or DCED. Instead, McGraw told Westerhold that he
(McGraw) desired to act as MirTech's consultant for compensation. Based upon McGraw's
representations, Westerhold applied for an OGP grant.
In November of 2001, the DCED Secretary forwarded an outline letter of assistance
to Westerhold. The DCED Secretary offered a $200,000 OGP grant to MirTech to expand
its headquarters. In turn, MirTech was to create 100 new jobs within three years and
invest $2.2 million in the project. The DCED Secretary's offer resulted from information
provided by McGraw as well as his recommendation for an OG to MirTech. In December
2001, Westerhold submitted a letter of intent to DCED requesting the $200,000 OGP
funding. In the letter, Westerhold anticipated the creation of 110 jobs for programmers
and analysts as well as an investment of $2.2 million.
In January of 2002, Westerhold was advised by the DCED Secretary that the
request for OGP funding was approved, subject to conditions: the grant was to be used for
working capital at the company's facility, the company was required to provide DCED with
copies of all project related purchase orders and contracts, and the grant funds had to be
utilized by June 30, 2004. The letter of the DCED Secretary also noted that the grant was
being provided based upon the representation by MirTech that 110 full -time jobs would be
created, an investment of $2,000,000 would be made by the company, and the company
would remain at the site for a minimum of five years.
MirTech received the grant in two payments: $181,773 on March 1, 2002 and
$18,227 on March 29, 2002. Thereafter, Westerhold began making payments to McGraw
for his help in obtaining the grant and for consulting services. McGraw did make a few
referrals for MirTech but nothing materialized as to those actions. Westerhold made
payments to McGraw totaling $40,000 between 2002 and 2003.
MirTech was not able to comply with the provisions of the OGP contract in that it
was unable to hire any more than 20 employees. MirTech is in the process of repaying a
portion of the OGP grant. McGraw, by virtue of his Commonwealth position, was able to
effectuate the $200,000 OGP grant to MirTech and receive a $40,000 cash payment from
Westerhold.
McGraw never disclosed the payments he received from Eschoolmall.com, TriTech,
USTAAD or MirTech on his federal or state tax returns. In fact, the only income reported
by McGraw was his Commonwealth salary.
Statements of Financial Interests of McGraw
McGraw, as a Commonwealth employee of GAT /DCED, filed SFIs for the calendar
years 2000 through 2003. For the calendar year 2001 SFI, McGraw failed to disclose
Flanagan /Eschoolmall.com as a source of income from which he received $4,000. For the
calendar year 2002 SFI, McGraw failed to disclose Butler /TriTech from which he received
$20,000 and Smith /USTAAD from which he received $32,500 as sources of income. For
the 2002 and 2003 calendar year SFIs, McGraw failed to disclose Westerhold as a source
of income. Parenthetically, the SFI allegations as to the payment from Westerhold
references the calendar years 2001 and 2002 rather than 2002 and 2003. McGraw was
also noncompliant as to his filings relative to the Governor's Code of Conduct.
Commonwealth Leave, Purported Expenses, Cell Phone Use and Reward Points Use
McGraw, 05 -008
Page 53
McGraw took a vacation to Avalon, New Jersey in the summer of 2001 without
submitting a leave slip to his supervisor. McGraw used at least 30 hours of leave without
such approval. In that McGraw did not submit a leave request, his leave time was not
debited for his annual leave. Thus, McGraw received compensation of $1,223.40 without a
debit for that leave time. McGraw also submitted a travel expense voucher (TEV) for
reimbursement of purported travel expenses to Baltimore and Norristown in the total
amount of $130.80. Since McGraw was on vacation in Avalon, New Jersey in that time
frame, the claimed expenses were bogus.
McGraw also traveled to the Outer Banks of North Carolina for a vacation during the
week of August 13, 2001 without submitting a leave slip. As a consequence, McGraw
received $1,529.25 for the vacation without being debited for any leave time. During the
above time frame of August 11, 2001 through August 18, 2001, McGraw used his
Commonwealth cell phone. Even though the cell phone was only to be used for official
Commonwealth business, McGraw made calls in Virginia and in North Carolina that did not
involve official Commonwealth business.
McGraw traveled to Colorado for a ski vacation in December of 2001 where he
stayed at the Park Hyatt in Beaver Creek, Colorado. McGraw used accumulated points on
his Hyatt's Gold Passport Rewards Program card for a one night stay at the Hyatt during
his ski trip. McGraw accumulated those points through overnight stays while on
Commonwealth official business. In paying for lodging during his Colorado ski trip at a
cost of $495.00, McGraw converted those Hyatt reward points. Parenthetically, McGraw
continued to use the Hyatt points for personal purposes even after he was fired from
Commonwealth employment. See, Fact Finding 236.
For the ski trip, McGraw did not submit a leave request. During this time frame of
unauthorized leave, McGraw was paid $917.55 by the Commonwealth without being
debited for annual leave. While McGraw was on vacation, he submitted a TEV for
purported Commonwealth travel expenses in the amount of $34.50 to York. The travel
expense was bogus because McGraw was on vacation in Colorado at the time.
In summary, McGraw took a Colorado vacation without submitting a leave request
and obtained compensation from the Commonwealth without being debited for the leave.
In addition, he paid for lodging through Hyatt bonus points that were obtained while on
official Commonwealth business. Finally, McGraw submitted expenses for reimbursement
from the Commonwealth for bogus business travel while he was on his Colorado ski
vacation.
In April of 2004, the Office of Inspector General received information about a
$20,000 payment that McGraw received. Following an investigation, McGraw was
suspended on July 29, 2004 without pay and then was terminated from Commonwealth
employment on August 11, 2004. As noted, McGraw still maintains ownership and control
over the Hyatt Gold Passport account.
McGraw, through the use of his Commonwealth office, obtained a financial gain that
was not authorized in law for himself as follows: $96,500 in payments as to OG grants;
$3,670.20 for vacations while McGraw received his Commonwealth compensation without
obtaining leave and having such leave debited; $495.00 in Hyatt bonus points for lodging
on a Colorado ski trip; and $165.30 in reimbursements for bogus travel expenses.
The parties were given the opportunity to file position statements. Although
McGraw has not filed a position statement, the Investigative Division has done so and
proffers the following:
• McGraw, a public employee in DCED, identified and encouraged companies
to relocate /expand in the Commonwealth via OGs, conducted reviews as to
OG applications, and made recommendations;
McGraw, 05 -008
Page 54
• As to the four companies /individuals in issue, McGraw assisted in the OG
process and solicited payments for himself based upon the obtainment of the
OGs;
• For Eschoolmall.com /Flanagan, McGraw recommended approval of the OG
and then advised that he wanted to be a paid consultant;
• As to TriTech /Butler, McGraw assisted Butler in obtaining the OG and Butler
promised to pay McGraw $20,000 for the $200,000 OG that Butler received;
• For USTAAD /Smith, McGraw offered his assistance, recommended approval
of a $225,000 OG and obtained a payment of $32,500 from Smith;
• As to MirTech /Westerhold, McGraw sought to act as a consultant,
encouraged Westerhold to apply for an OG, assisted in the grant approval
process that resulted in Westerfield obtaining $200,000, and received
payments totaling $40,000;
• McGraw failed to disclose reportable sources of income from the above
companies /individuals on SFIs for the calendar years 2001 through 2003;
• McGraw took three separate vacations as a Commonwealth employee and
received paid leave without any submission of leave slips and without any
debit to his accrued leave time;
• McGraw as a Commonwealth employee falsified TEVs for mileage and travel
expenses totaling $130.80 [sic];
• McGraw used Hyatt Hotel Gold Passport Reward Points accumulated on
Commonwealth travel to pay a $495 bill for personal lodging;
• McGraw committed multiple violations of the Ethics Act that included
instances of solicitation and acceptance of compensation to perform his
public duty;
• McGraw violated Section 1103(a) both in obtaining financial gain regarding
OGs that he recommended for the four companies /individuals and in
subsequently providing consulting /services;
• McGraw violated Section 1103(a) in each instance as to the solicitation and
acceptance of money based upon McGraw's understanding that he would
take official action as to obtaining grants for those companies /individuals;
• McGraw violated Section 1103(a) of the Ethics Act in each instance when he
took paid vacation leave without submitting leave slips and without having
his accrued leave debited;
• McGraw violated Section 1103(a) of the Ethics Act both when he used the
Hyatt Hotel Gold Passport Rewards Card to pay for personal lodging and
retained that card after his termination;
• McGraw violated Section 1105(b)(5) in each instance when he failed to
disclose reportable income from the four companies /individuals on his SFIs
for calendar years 2001 through 2003;
McGraw, 05 -008
Page 55
• This Commission should impose restitution of $105,830.50 plus a treble
penalty in the amount of $317,491.50;
• This Commission should refer this case to the U.S. Attorney for the Middle
District with a recommendation to initiate criminal charges;
• This Commission should refer this case to the Office of General Counsel of
the Governor; and
• This Commission should direct McGraw to file amended SFIs and relinquish
the Hyatt Hotel Gold Passport Rewards Card.
In applying the provisions of the Ethics Act to this case, the group of allegations as
to the OGs will first be addressed. Each of the OGP grants will be reviewed seriatim, first
as to the applicability of Section 1103(a) and then as to Section 1103(c) of the Ethics Act.
First, we again note that since an Answer was not filed to the Investigative
Complaint, all of the averments therein are admitted. We focus on Fact Finding 36, which
states in part that during the relevant specified time period, McGraw solicited and received
payments from the four individuals, "promising that OGP funds would be provided in return
for a percentage of the grant funds being paid to him." Fact Finding 36.
Second, as to this Commission's prior precedent under Sections 3(b)/1103(c) of the
Ethics Act, we have found violations of Sections 3(b)/1103(c) when the public official's or
public employee's improper solicitation or acceptance of something of monetary value has
occurred vis -a -vis official action as to the target of the solicitation. See, e.q., Scott, Order
1250; Zwick, Order 1062; Livingston, Order 1030; Kasaback, Order 993; Yezzi, Order 825;
Helsel, Order 801.
Third, as to Fact Finding 36 and other subsequent Fact Findings, we will interpret,
as we must, the other Findings in a manner to ensure consistency with Finding 36 and all
other Fact Findings.
The first OGP funding was for Eschoolmall.com, the CEO of which is Andrew
Flanagan. There were uses of authority of office on the part of McGraw as to the
Eschoolmall.com OGP funding. But for the fact that McGraw was a DCED employee, he
would not have been in a position to assist in obtaining the $300,000 OG for Flanagan.
With McGraw completing a review and making a recommendation, the DCED Secretary
approved an OG for Eschoolmall.com. After Eschoolmall.com received funding, McGraw
demanded $25,000 from Flanagan. When Flanagan did not accede to McGraw's
demands, McGraw lowered his amount and accepted a $4,000 payment. McGraw
received that financial gain of $4,000 as a result of his use of authority of office relative to
the $300,000 OG for Eschoolmall.com. Accordingly, McGraw violated Section 1103(a) of
the Ethics Act when he used the authority of office to receive $4,000 from
Eschoolmall.com, for which McGraw effectuated a $300,000 funding grant from DCED.
See, Metrick, Order 1037.
As to Section 1103(c) of the Ethics Act, McGraw sought $25,000 from Flanagan vis-
a -vis the OG obtained for Eschoolmall.com. Even though Flanagan of Eschoolmall.com
initially refused McGraw's demands, McGraw lowered the amount of his solicitation and
ultimately received $4,000 from Flanagan. This solicitation by McGraw related to the
approval for Eschoolmall.com of $300,000 in OGP funding from DCED and his receipt of
$4,000 from Flanagan from Eschoolmall.com. In this regard, we find Fact Finding 36 to be
consistent with Fact Findings 54, 55, 57. Accordingly, McGraw violated Section 1103(c) of
the Ethics Act when he solicited and received a $4,000 payment from Andrew Flanagan of
Eschoolmall.com vis -a -vis McGraw's review and recommendation of a $300,000 OG from
DCED to Eschoolmall.com. See, Yezzi, supra.
McGraw, 05 -008
Page 56
The next company in the series of OGP funding involves TriTech. There were the
same types of uses of authority of office by McGraw. McGraw performed a review and
made the recommendation for an OG in the amount of $200,000 to TriTech through its
President and CEO, Butler, a long term acquaintance of McGraw. Through McGraw's
efforts and recommendation, DCED awarded a $200,000 OG to TriTech. Butler and
McGraw agreed that he would receive a $20,000 payment as a result of helping TriTech to
obtain the OGP grant. TriTech made a wire transfer of $20,000 to the trust account for
McGraw. Thus, McGraw used his Commonwealth position to effectuate a $200,000 grant
to TriTech, which in turn generated a $20,000 payment from Butler of TriTech into the
personal trust account of McGraw. Accordingly, McGraw violated Section 1103(a) of the
Ethics Act when he used the authority of his office to obtain a $200,000 OG to TriTech that
resulted in a $20,000 payment from Butler to McGraw. See, Foster, Order 749.
As to Section 1103(c) of the Ethics Act, an arrangement existed between McGraw
and Butler whereby McGraw used his position to effectuate a $200,000 OG for TriTech on
behalf of Butler and in return Butler made a $20,000 payment to McGraw. Butler in a
sworn statement admitted that McGraw solicited him, and as a consequence, McGraw
assisted Butler in obtaining an OG grant for TriTech based on the understanding that
Butler would pay $20,000 to McGraw. See, Fact Findings 121, 122. Accordingly, McGraw
violated Section 1103(c) of the Ethics Act when he solicited and received a payment of
$20,000 from Butler of TriTech in return for McGraw's actions as a DCED employee in
obtaining a $200,000 OG for TriTech. See, Scott, supra.
Turning to the USTAAD OG, McGraw encouraged Smith to seek an OG and then
used his position to recommend USTAAD for a grant. Based upon a submitted USTAAD
business plan from McGrath as well as his recommendation to DCED, USTAAD was
approved for an OG in the amount of $225,000. With the OGP funding grant approved,
payments were issued in January 2002 and deposited into a USTAAD account in February
2002. McGraw requested and received $32,500 from Smith relative to the OG approval.
Following an established pattern, McGraw used his position to obtain OGP funding for
USTAAD followed by the receipt of the $32,500 payment from Smith to McGraw.
Accordingly, McGraw violated Section 1103(a) of the Ethics Act when he used the
authority of office to review and recommend an OG of $225,000 to USTAAD followed by a
payment of $32,500 from Smith of USTAAD to McGraw. See, Shaner, Order 1163.
The above payment that McGraw received was a result of a solicitation by McGraw
to Smith and the receipt by McGraw of the $32,500 after McGraw obtained the $225,000
OGP funding grant for USTAAD. McGraw solicited Smith for compensation if he (McGraw)
would help USTAAD /Smith obtain an OG. See, Fact Finding 156(a). Fact Findings 156
and 157 are thus consonant with Fact Finding 36. Accordingly, McGraw violated Section
1103(c) of the Ethics Act when he solicited and received a payment of $32,500 from Smith
of USTAAD vis -a -vis McGraw's use of his position to obtain a $225,000 OG for USTAAD.
See, Zwick, supra.
The last of the four OGP funding grants relates to MirTech, the President of which is
Westerhold. After Smith introduced McGraw to Westerhold, McGraw encouraged
Westerhold to seek an OG in the summer of 2001. McGraw followed his established
pattern by encouraging Westerhold to apply for the grant and by actively participating in
recommending USTAAD for an OG. With McGraw's assistance and recommendation,
MirTech obtained approval in January 2002 of a $200,000 OG. Once the OG was
approved and paid to MirTech, Westerhold made payments to McGraw totaling $40,000.
After the grant was paid in February and March of 2002, McGraw obtained payments from
Westerhold during 2002 and 2003 totaling $40,000. Once again, McGraw used the
authority of his office to obtain money from Westerhold whom he encouraged and assisted
in obtaining OGP funding. Accordingly, McGraw violated Section 1103(a) of the Ethics Act
when he used the authority of his office to obtain a $200,000 OG for Westerhold of
McGraw, 05 -008
Page 57
MirTech that resulted in payments from Westerhold to McGraw totaling $40,000. See,
Fact Finding 192.
As to the MirTech OG, McGraw indicated to Westerhold that he wanted to be
Westerhold's consultant. McGraw advised that he would introduce Westerhold to state
officials who make decisions as to contracts. McGraw also stated that he could direct
Westerhold through the application process. Accordingly, McGraw violated Section
1103(c) of the Ethics Act when he assisted and recommended $200,000 in OGP funding
for Westerhold and in return received $40,000 in payments from him. See, Fact Finding
36(a).
There are two other groups of allegations as to McGraw: (1) taking vacations
without the requisite leave approval, submitting bogus TEVs and using Hyatt points
accrued for Commonwealth business to pay for personal lodging; and (2) failing to disclose
reportable income on his SFIs. These two groups of allegations will now be considered.
While a Commonwealth employee, McGraw took three vacations at the following
locations: Avalon Beach, New Jersey; the Outer Banks, North Carolina; and Beaver
Creek, Colorado. In all three instances, McGraw did not submit leave slips and did not
obtain approval for those days off. As a result, McGraw received Commonwealth pay for
the vacation days that he took as well as retained his existing leave without any debit to
his accrued leave. Since it is an administrative requirement of the Commonwealth that
leave be submitted for approval with the appropriate debiting from accrued leave, the
failure of McGraw to submit leave slips resulted in his receipt of compensation for those
unauthorized vacation days.
As a consequence, McGraw's paid leave became a financial gain that was not
authorized and as such was a private pecuniary benefit. This Commission has held that
action by a public official /public employee of engaging in private business activity or
personal activity on Commonwealth time without submitting and receiving approval for
such leave is a violation of Section 1103(a) of the Ethics Act. See, Holt, Order 1153;
Fiorello, Order 1363. Accordingly, McGraw violated Section 1103(a) of the Ethics Act in
each of the three instances when he took unauthorized paid leave for vacations in Avalon,
New Jersey, Outer Banks, North Carolina, and Beaver Creek, Colorado without any debit
to his accrued leave.
Turning to the matter of the TEVs, the record establishes that on two separate
instances McGraw submitted TEVs for Commonwealth travel expense reimbursements,
one in the amount of $130.80 and the other in the amount of $34.50. The record
establishes that McGraw did not incur such expenses but merely submitted bogus TEVs.
Under such circumstances, McGraw used the authority of office to obtain a financial gain
for bogus expenses that were never incurred. Such actions were uses of authority of office
on the part of McGraw. Such actions by McGraw as a Commonwealth employee resulted
in private pecuniary benefits to him in the total amount of $165.30. All the elements for a
violation of Section 1103(a) of the Ethics Act exist.
However, there are two exclusions to Section 1103(a) regarding actions that would
otherwise constitute a conflict. One of those exceptions is the de minimis exclusion.
Under the Ethics Act and prior precedent of this Commission, if the resultant private
pecuniary benefit is of an economic consequence that has an insignificant effect (de
minimis) such action does not constitute a conflict. See, Bixler v. State Ethics
Commission, 847 A.2d 785 (Pa. Cmwlth. 2004). In this case, the financial gain only
amounted to $165.30.
Based on the above analysis and an allegata et probata issue, we find that McGraw
did not violate Section 1103(a) of the Ethics Act when he prepared and submitted bogus
McGraw, 05 -008
Page 58
TEVs for expenses he did not incur as to Commonwealth business trips in that the private
pecuniary benefit of $165.30 was de minimis. See, Rietscha, Order 1366.
The final issue from this group of allegations concerns the utilization of the Hyatt's
Gold Passport Rewards card by McGraw. Hyatt points accrued from various
Commonwealth business trips taken by McGraw. However, when McGraw went on a skiing
vacation in Colorado, he used those Hyatt points for the payment of lodging in the amount
of $495.00. This Commission held in the Stefanko Opinion, 90 -015 that public officials
who accumulated frequent flyer miles as a result of governmental business trips could not
use such points for personal purposes. In that McGraw as a Commonwealth employee
accumulated these Hyatt points from Commonwealth business trips, those points may only
be used for Commonwealth purposes. However, as noted, McGraw used the Hyatt points
to pay for lodging on his skiing vacation. Accordingly, McGraw violated Section 1103(a) of
the Ethics Act when he used Hyatt points accrued from Commonwealth business trips for
the payment of lodging on a personal skiing vacation in Colorado. See, Savitsky, Order
1017 -2.
The last group of allegations concerns McGraw's SFIs. The record reflects that
McGraw failed to disclose reportable income from Flanagan of Eschoolmall.com on his
2001 calendar year SFI; failed to disclose reportable income from Butler of TriTech and
from Smith of USTAAD on his SFI for calendar year 2002; and failed to disclose income in
excess of the reporting threshold from Westerhold on both his 2002 and 2003 calendar
year SFIs.
Accordingly, McGraw violated Section 1105(b)(5) of the Ethics Act when he failed to
disclose the source and address of reportable income from Flanagan of Eschoolmall.com
on his 2001 calendar year SFI; and McGraw violated Section 1105(b)(5) of the Ethics Act
in each instance when he failed to disclose the source and address of reportable income
from Butler of TriTech, Smith of USTAAD and Westerhold of MirTech on his SFI for
calendar year 2002. However, McGraw did not violate Section 1105(b)(5) of the Ethics Act
as to failing to list Westerhold as a source of income on his calendar year 2001 SFI (see,
allegation, supra.) in that McGraw did not receive any income from Westerhold in 2001.
McGraw is directed to file amended SFIs for the calendar year 2001, 2002 and
2003, making a true and complete listing of all reportable financial interests including the
listing of the above sources of income within 30 days of the mailing of this Order. The
original filings are to be made at DCED with copies filed with this Commission for
compliance verification purposes. Failure to comply will result in the institution of an order
enforcement action.
Having disposed of the allegations before us, we must now consider the issues of
payback and referral.
Section 1107(13) of the Ethics Act empowers this Commission to impose restitution
in instances where a public official /public employee has obtained a financial gain in
violation of the Ethics Act. In this case, McGraw received $96,500.00 from Flanagan,
Butler, Smith and Westerhold by effectuating OGP funding for them in return for such
payments. In addition, McGraw on three separate instances took vacations and received
his Commonwealth compensation without obtaining approval and without any debit to his
accrued leave. The total unauthorized compensation that he received for those three
vacations amounted to $3,670.20. Lastly, McGraw's use of the Hyatt points that had
accrued from Commonwealth business trips amounted to $495.00. The grand total of these
three groups of financial gain by McGraw totaled $100,665.20.
Both the letter and spirit of the Ethics Act demand the imposition of restitution of the
above amount to the Commonwealth. McGraw saw his position with the Commonwealth as
a means of bankrolling himself with large amounts of money through the subversion of his
McGraw, 05 -008
Page 59
duties and responsibilities to the Commonwealth and the public trust. McGraw'sfocuswas
to use his Commonwealth position to obtain as much financial gain for himself as possible
through the machination of effectuating OGP funding to various businesses /individuals in
return for large amounts of money. Such deliberate conduct on his part transcended into
other aspects of his Commonwealth employment: taking compensated leave without
submitting leave slips for approval and the debit to his accrued leave; submitting bogus
TEVs for reimbursement for non - existent Commonwealth business travel and expenses;
and using Hyatt points accrued from Commonwealth business trips to pay for lodging on a
personal ski trip.
McGraw was not motivated by public service duty but rather by personal greed. The
drive for illegal financial gain was accompanied by the fixation to avoid being caught:
demands that kickbacks be paid in cash, actions of failing to list such amounts on his SFIs
and Governor's Code of Conduct forms and his failure to report the income on state and
federal income tax returns. McGraw's quest for financial gain through public employment
finally ended when he was fired from Commonwealth service. Since McGraw's actions
were solely guided by financial gain, payback is necessitated. We hereby direct McGraw
within 30 days of the mailing of the date of this Order to make payment through this
Commission to the Commonwealth Treasury in the amount of $100,665.20.
In addition to the above payment, Section 1109(c) of the Ethics Act provides in part:
(c) Any person who obtains financial gain from violating any
provision of this act, in addition to any other penalty provided
by law, shall pay a sum of money equal to three times the
amount of the financial gain resulting from such violation into
the State Treasury or the treasury of the political subdivision.
65 Pa. C. S. §1109(c).
Given the intentional and egregious conduct on the part of McGraw, the imposition
of a treble penalty is also warranted. McGraw is also directed to pay a treble penalty in the
amount of $301,995.60 through this Commission into the treasury of the Commonwealth of
Pennsylvania within 30 days of the date of mailing of this order. The total payment
required to be made by McGraw is $402,660.80. Failure to comply will result in the
institution of an order enforcement action.
Turning to the matter of referral, given the criminal penalties associated with the
Ethics Act and the applicability of other laws, we shall refer this Order to the Office of
Attorney General of the Commonwealth of Pennsylvania and the U.S. Attorney's Office of
the Middle District with our recommendation that criminal prosecutions be instituted
against McGraw.
In addition, copies of this Order will be forwarded to both the IRS and Pennsylvania
Department of Revenue for appropriate action regarding the non - reporting of income.
Lastly, in that it appears that McGraw retains the Hyatt card with the accumulated points
from Commonwealth business travel, a copy of this Order will be forwarded to the Office of
General Counsel of the Commonwealth for review and appropriate action.
IV. CONCLUSIONS OF LAW:
1. Thomas McGraw, as Development Specialist for the Governor's Action Team of the
Department of the Community and Economic Development, for the relevant time
period was a public employee subject to the provisions of Act 9 of 1989 as codified
by Act 93 of 1998.
McGraw, 05 -008
Page 60
2. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
office to receive $4,000 from Eschoolmall.com, for which McGraw effectuated a
$300,000 funding grant from DCED.
3. McGraw violated Section 1103(c) of the Ethics Act when he solicited and received a
$4,000 payment from Andrew Flanagan of Eschoolmall.com vis -a -vis McGraw's
review and recommendation of a $300,000 funding grant from DCED to
Eschoolmall.com.
4. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
his office to obtain a $200,000 funding grant to TriTech that resulted in a $20,000
payment from Butler to McGraw.
5. McGraw violated Section 1103(c) of the Ethics Act when he solicited and received a
payment of $20,000 from Butler of TriTech in return for McGraw's actions as a
DCED employee in obtaining a $200,000 funding grant for TriTech.
6. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
office to review and recommend a $225,000 funding grant to USTAAD followed by a
payment of $32,500 from Smith of USTAAD to McGraw.
7 McGraw violated Section 1103(c) of the Ethics Act when he solicited and received a
payment of $32,500 from Smith of USTAAD vis -a -vis McGraw's use of his position
to obtain a $225,000 funding grant for USTAAD.
8. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
his office to obtain a $200,000 funding grant for Westerhold of MirTech that
resulted in payments totaling $40,000 from Westerhold to McGraw.
9. McGraw violated Section 1103(c) of the Ethics Act when he assisted and
recommended $200,000 in OGP funding for Westerhold and in return received
$40,000 in payments from him.
10. McGraw violated Section 1103(a) of the Ethics Act in each of the three instances
when he took unauthorized leave for vacations in Avalon, New Jersey, Outer
Banks, North Carolina, and Beaver Creek, Colorado without any debit to this
accrued leave.
11. McGraw did not violate Section 1103(a) of the Ethics Act when he prepared and
submitted bogus TEVs for expenses he did not incur as to Commonwealth business
trips in that the private pecuniary benefit of $165.30 was de minimis.
12. McGraw violated Section 1103(a) of the Ethics Act when he used Hyatt points
accrued from Commonwealth business trips to pay $495 for lodging on a personal
skiing vacation in Colorado.
13. McGraw violated Section 1105(b)(5) of the Ethics Act when he failed to disclose the
source and address of reportable income from Flanagan of Eschoolmall.com on his
2001 calendar year SFI.
14. McGraw violated Section 1105(b)(5) of the Ethics Act in each instance when he
failed to disclose the source and address of reportable income from Butler of
TriTech, Smith of USTAAD and Westerhold of MirTech on his SFI for calendar year
2002.
McGraw, 05 -008
Page 61
15. McGraw did not violate Section 1105(b)(5) of the Ethics Act as to failing to list
Westerhold as a source of income on his calendar year 2001 SFI in that McGraw
did not receive any income from Westerhold in 2001.
In Re: Thomas McGraw,
Respondent
ORDER NO. 1397
File Docket: 05 -008
Date Decided: 5/31/06
Date Mailed: 6/2/06
1 Thomas McGraw, as Development Specialist for the Governor's Action Team of the
Department of the Community and Economic Development, violated Section
1103(a) of the Ethics Act when he used the authority of office to receive $4,000
from Eschoolmall.com, for which McGraw effectuated a $300,000 funding grant from
DCED.
2. McGraw violated Section 1103(c) of the Ethics Act when he solicited and received a
$4,000 payment from Andrew Flanagan of Eschoolmall.com vis -a -vis McGraw's
review and recommendation of a $300,000 funding grant from DCED to
Eschoolmall.com.
3. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
his office to obtain a $200,000 funding grant to TriTech that resulted in a $20,000
payment from Butler to McGraw.
4. McGraw violated Section 1103(c) of the Ethics Act when he solicited and received a
payment of $20,000 from Butler of TriTech in return for McGraw's actions as a
DCED employee in obtaining a $200,000 funding grant for TriTech.
5. McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
office to review and recommend a $225,000 funding grant to USTAAD followed by a
payment of $32,500 from Smith of USTAAD to McGraw.
6. McGraw violated Section 1103(c) of the Ethics Act when he solicited and received
a payment of $32,500 from Smith of USTAAD vis -a -vis McGraw's use of his position
to obtain a $225,000 funding grant for USTAAD.
7 McGraw violated Section 1103(a) of the Ethics Act when he used the authority of
his office to obtain a $200,000 funding grant for Westerhold of MirTech that
resulted in payments totaling $40,000 from Westerhold to McGraw.
8. McGraw violated Section 1103(c) of the Ethics Act when he assisted and
recommended $200,000 in OGP funding for Westerhold and in return received
$40,000 in payments from him.
9. McGraw violated Section 1103(a) of the Ethics Act in each of the three instances
when he took unauthorized leave for vacations in Avalon, New Jersey, Outer
Banks, North Carolina, and Beaver Creek, Colorado without any debit to this
accrued leave.
10. McGraw did not violate Section 1103(a) of the Ethics Act when he prepared and
submitted bogus TEVs for expenses he did not incur as to Commonwealth business
trips in that the private pecuniary benefit of $165.30 was de minimis.
McGraw, 05 -008
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11. McGraw violated Section 1103(a) of the Ethics Act when he used Hyatt points
accrued from Commonwealth business trips to pay $495 for lodging on a personal
skiing vacation in Colorado.
12. McGraw violated Section 1105(b)(5) of the Ethics Act when he failed to disclose the
source and address of reportable income from Flanagan of Eschoolmall.com on his
2001 calendar year SFI.
13. McGraw violated Section 1105(b)(5) of the Ethics Act in each instance when he
failed to disclose the source and address of reportable income from Butler of
TriTech, Smith of USTAAD and Westerhold of MirTech on his SFI for calendar year
2002.
14. McGraw did not violate Section 1105(b)(5) of the Ethics Act as to failing to list
Westerhold as a source of income on his calendar year 2001 SFI in that McGraw
did not receive any income from Westerhold in 2001.
15. McGraw is directed within 30 days of the mailing of this Order to:
a. make payment in the amount of $100,665.20 plus a treble penalty of
$301,995.60 for a total of $402,660.80 through this Commission to
the State Treasury; and
b. file amended Statements of Financial Interests for the calendar years
2001, 2002 and 2003 with DCED with copies filed with this
Commission for compliance verification purposes.
Failure to comply with the provisions of this paragraph will result in the institution of
an order enforcement action.
16. This matter will be referred to:
a. the Office of Attorney General of the Commonwealth of Pennsylvania
and the U.S. Attorney for the Middle District with our recommendation
that criminal prosecutions be instituted against McGraw.
b. the IRS and Pennsylvania Department of Revenue for appropriate
action regarding the non - reporting of income.
c. the Office of General Counsel of the Commonwealth for review and
appropriate action in that McGraw retains the Hyatt Hotel Gold
Passport Reward Card with the accumulated points from
Commonwealth business travel.
BY THE COMMISSION,
Louis W. Fryman, Chair