laroque sentencing memo, prosecution

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UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA

EASTERN DIVISION

NO. 4:12-CR-88-1H(2) UNITED STATES OF AMERICA ) ) GOVERNMENT’S RESPONSE TO v. ) DEFENDANT’S SENTENCING ) MEMORANUDM (DE-284) STEPHEN A. LaROQUE )

The United States of America, by and through the United

States Attorney for the Eastern District of North Carolina,

hereby responds in opposition to the Defendant’s Sentencing

Memorandum.

SUMMARY OF POSITION

The Defendant should be sentenced to a term of 30 months

imprisonment1 for his theft of hundreds of thousands of dollars

from a defenseless nonprofit organization. It is vital for

society to know that those holding high-paying fiduciary

positions (whether in Government or as head of a non-profit)

will be punished if they use such sacred positions to enrich

themselves. To grant the Defendant a probationary sentence, as

requested by the defense, would signal to the public that such a

misuse of power is not to be taken seriously.

1Such a sentence would be at the top of the advisory guideline

range of 24-30 months.

Case 4:12-cr-00088-H Document 290 Filed 07/06/15 of 10

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FACTS

By 2007, the Defendant had seized full control of a non-

profit named East Carolina Development Corporation (“ECDC”).

From this point forward, though the Defendant continued paying

himself a hefty salary, ECDC’s began making fewer and fewer

loans.2 See Summary of ECDC Loans as Exhibit 1. On January 22,

2009, the Defendant authorized his attorney to begin preparing

civil complaints to be filed against his brothers in connection

with the distribution of his mother’s trust and estate. See

Exhibit 2. On the same date, January 22, 2009, the Defendant

and his wife (on behalf of ECDC) signed a fraudulent employment

agreement in order to effectuate the Defendant’s plan to steal

$300,000 from ECDC. The criminal charges in question focused on

the $300,000, rather than the amount misappropriated from ECDC

in the form of inflated salary and unauthorized expense

reimbursements.3

The Defendant withdrew the $300,000 that he stole from ECDC

under the guise of four loan disbursements from ECDC to his

2As shown in Exhibit 1, most of ECDC’s loans during this period

were to the Defendant’s lawyer, an acquaintance of the Defendant who lived outside of the area in which ECDC was empowered to make loans, and to the Defendant’s own company (as part of his theft).

3During the period from 1998 through 2012, the Defendant received

wages of $1.6 million and unauthorized reimbursement payments of approximately $133,591.


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management company, LMG. Although the Defendant funneled the

money through LMG, the money was used to purchase assets held in

his individual name. In the audited financial statement for

2008-09 (which covered the period during which the $150,000 loan

to LMG was purportedly made), the $150,000 bogus loan was

concealed as an organizational cost. See Exhibit 3 at 14-15.4

In April of 2010, the Defendant, in correspondence with the

North Carolina Board of Elections (“NC-BOE”), was asked the

following question: “Does LMG receive any funds from the non-

profit organizations [ECDC and PDC]?” In response to this

inquiry, the Defendant misled the NC-BOE by stating as follows:

I have a management contract with the two non-profit organizations to manage both of them in all aspects with the primary responsibility including Administration, Marketing, Loan Packaging and Loan Servicing. LMG performs loan underwriting for another non-profit organization on an as needed basis for a fee.

See Exhibit 4 at 3.

In the fall of 2010, the Defendant ran for the North

Carolina House seat for North Carolina District 10. During the

campaign his opponent published mailed campaign fliers stating

that the Defendant “uses Federal Government loans to finance his

4It is also noteworthy that the audited financial statement fails

to identify the $150,000 zero percent interest loan to LMG in the list of ECDC’s notes receivable. Exhibit 3 at 9-11.


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businesses. . . .” The Defendant responded by sending out

campaign mailings denying that federally funded loans had been

made to LMG and stating that he had filed a defamation suit

against his opponent. See Exhibit 5. During civil discovery in

the case, the Defendant refused to allow ECDC to comply with a

discovery request which might have revealed the $300,000 in

purported loans to LMG. ECDC would ultimately pay $40,796.75 in

legal fees and $17,250 in contempt fines to fund the Defendant’s

personal lawsuit.

In mid-2011, an investigative reporter from NC Policy Watch

began making inquiries regarding the manner in which the

Defendant compensated himself over the years. See Exhibit 6.

After some negative articles were published by NC Policy Watch

referring to the Defendant’s refusal to respond to the NC Policy

Watch, the Defendant responded that he would hold a press

conference on August 16, 2011, in Kinston. At the press

conference the Defendant disclosed neither the existence of

$300,000 of the purported loans to LMG nor the additions made to

ECDC’s Board the day before the press conference.

On August 23, 2011, ECDC’s accountant, pursuant to the

Defendant’s instruction, altered ECDC’s completed 2009-10

Compilation Report (which had been executed by ECDC’s outside


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accountant on October 25, 2010) to include an “accrued contract

services” liability of $192,257.95. See Exhibits 7 and 8.

Exhibit 7 includes the pages removed from the original

Compilation Report, while Exhibit 8 (which purports to be the

final compilation signed on October 25, 2010) contains the

altered pages generated per the Defendant’s instruction in

August 2011.

On September 6, 2011, the day before federal grand jury

subpoenas began to be served in this case, the Defendant sent an

email to Debra Clary requesting her to sign an affidavit

pertaining to an alleged employment contract with Piedmont

Development Corporation (“PDC”). See Exhibit 9 at 2. In the

email the Defendant stated as follows: “[a]ttached is a copy of

the contract and the board minutes authorizing you to sign the

contract (last page).” Id. On the last page of the attached

minutes the Defendant redacted the unsigned signature block

shown on the official minutes. See Exhibit 9 at 5. The

Defendant then attached a copy of a corporate borrowing

resolution and an assigned employment contract. Id. at 6-9. A

copy of the same minutes from PDC’s official records shows that

the Defendant redacted the unsigned signature block from the

minutes. See Exhibit 10 (compare to Exhibit 9 at 5).


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Soon after being served with grand jury subpoenas, the

Defendant began cashing out personal investments in an effort to

raise funds to pay back the bogus loans to ECDC.5 Ultimately he

was able to raise enough cash to pay back $200,000 of the

$300,000 taken out of ECDC in the form of loans.6 After paying

back the $200,000 bogus loan, the Defendant then withdrew this

amount in the form of bogus salary payments. See Exhibit 11.

DISCUSSION

The Defendant claims that the facts of this case dictate a

sentence of probation and argues that a portion of his agreed

full restitution payment should be held back and used in payment

of his lawsuit against ECDC. As discussed below, both of these

requests should be denied.

I. A probationary sentence is not appropriate in this case.

The Defendant suggests that he should be given credit for

paying back $200,000 of the stolen proceeds in September of 2011

(Def. Sent. Memo at 8). This argument ignores the fact that

after paying back $200,000 of the $300,000 in bogus loans, the

5It is the Government’s position that this was done in an effort

to support a later argument that the bogus zero percent interest loans were somehow legitimate.

6As to the remaining $100,000 loan, the Defendant simple ripped

up the promissory note.


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Defendant simply pulled the $200,000 back out of ECDC in the

form of bogus salary.

The Defendant next claims that probation is warranted

because, in his opinion, the theft of $300,000 should have been

handled as a civil matter or, at most, as a misdemeanor charge

(Def. Sent. Memo at 6). This position is meritless. The theft

of $300,000 from a defenseless nonprofit clearly warrants a

federal prosecution. In this case, the use of a federal grand

jury was essential to develop the evidence necessary to trace

the manner in which the Defendant concealed his criminal

conduct.

The Defendant also argues that a probationary sentence is

somehow warranted because he had to endure the expense and

embarrassment caused by a criminal prosecution (Def. Sent. Memo

at 1, 8). Any argument that the Defendant is somehow a victim

in this case ignores the indisputable fact that the Defendant

could have avoided such expense and embarrassment by simply not

committing the crime. Likewise, the Defendant’s suggestion that

his decision to plead guilty was motivated by a desire to save

“substantial time and expenses for the court and the government”

is inaccurate. The Defendant’s plea came just a week prior to

trial and less than 24 hours before he was required, by Court


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Order, to provide his computer to the Government for examination

of metadata.

Finally, the Defendant argues that probationary sentences

resulting from a number of white collar prosecutions throughout

the United States somehow require that he also be sentenced to

probation. This argument ignores a history in this district of

strong white collar and public corruption prosecutions that have

resulted in lengthy sentences.

II. The Court should order payment of $300,000 in restitution to the United States Department of Agriculture.

In the Memorandum of Plea Agreement the Defendant agrees as

follows:

To make restitution to East Carolina Development Corporation, Inc., a North Carolina non-profit corporation, in the sum of $300,000, and to any other victim, in whatever amount the Court may order, pursuant to 18 U.S.C. §§ 3663 and 3663A. Said restitution shall be due and payable immediately.

Memorandum of Plea Agreement at ¶2(b). This agreement contains

no reservation allowing for a portion of the restitution to be

held in trust in order to allow the Defendant to sue his victim.

The Defendant has pleaded guilty to stealing significant amounts

of money from ECDC. The Defendant has also agreed to pay


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$300,000 in restitution and that such amounts are “due and

payable immediately.” Consequently, the Defendant should be

ordered to make full restitution.

Respectfully submitted, this 6th day of July, 2015. THOMAS G. WALKER

United States Attorney BY: /s/ Dennis M. Duffy DENNIS M. DUFFY Assistant U.S. Attorney 310 New Bern Avenue, Suite 800 Raleigh, North Carolina 27601 Telephone: (919) 856-4530; Fax: (919) 856-4487 E-mail: [email protected] NC Bar No. 27225


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CERTIFICATE OF SERVICE

This is to certify that I have this 6th day of July, 2015, served a copy of the foregoing upon the defendant in this action either electronically or by depositing a copy of the same in the United States mail in a postpaid envelope addressed as follows:

Keith A. Williams, Esq. 321 South Evans Street Suite 103 Greenville, NC 27835

Christopher A. Rogerson, Esq. 123 East Caswell Street Kinston, NC 28501

Elliot S. Abrams, Esq. Cheshire Parker Schneider & Bryan 133 Fayetteville Street, Suite 500 Raleigh, NC 27602

THOMAS G. WALKER United States Attorney BY: s/ Dennis M. Duffy

DENNIS M. DUFFY Assistant U.S. Attorney 310 New Bern Avenue, Suite 800 Raleigh, North Carolina 27601 Telephone: (919) 856-4530; Fax: (919) 856-4487 E-mail: [email protected] NC Bar No. 27225


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