SNOW HILL — While no criminal charges have yet been filed against a resort area businessman amidst an investigation into alleged fraud and embezzlement, one of his clients this last week filed a civil suit in Worcester County Circuit Court, seeking over $1 million in compensatory and punitive damages.
Earlier this year, the Worcester County Bureau of Investigation (WCBI) began probing alleged “account improprieties” carried out by William W. Scott and Scott and Co., Inc., a full service public accounting firm that also handled property management for various condominium associations in the resort area.
The investigation began when it came to light Scott and Co. had allegedly bilked several area condo associations out of hundreds of thousands of dollars in operating and reserve account funds through a months-long pattern of misappropriation and fraud.
The investigation is ongoing and formal charges could come at any time. According to one source close to the investigation, a grand jury was convened last week and formal charges against Scott could be announced soon.
In the meantime, one of the condominium associations allegedly victimized by Scott and Co., the Assateague House Condominium Council of Unit Owners, through its attorney, last week filed a civil suit in Worcester County Circuit Court seeking over $1 million in damages.
Assateague House is seeking $437,417 in compensatory damages, representing the figure Scott allegedly misappropriated from the association through various schemes, along with $100,000 in “special consequential damages.” In addition, Assateague House is seeking $500,000 in punitive damages against Scott.
According to the complaint, Assateague House hired Scott in June 2008 to do the accounting for the condo association and perform certain other management functions including collecting fees and assessments, making bank deposits, paying bills, keeping financial records and other fiscal duties. However, the association soon began to notice irregularities with its accounting and financial records.
“Beginning in late 2008, Scott and Co. began secretly misappropriating funds from Assateague House accounts,” the complaint filed last Friday reads. “The misappropriations continued through at least December 20, 2010.”
According to the complaint, three separate Assateague House accounts were targeted during the scheme including the association’s operating account, a construction account and a money market reserve account. At first, it appeared the misappropriations came in the form of direct payments to Scott and Co., but later forensic accountants allege Scott began to shuffle funds from Assateague House to another client he handled, the San Remo condominium association.
According to the complaint, it appears Scott was carrying out his misappropriation scheme at several of the condo associations he handled and was shuffling funds between various accounts in an effort to cover the shortfalls. For example, the misappropriation of funds from Assateague House’s operating account totaled $26,810 in the form of direct checks to Scott and Co., while $11,216 in direct checks were made to the San Remo association.
“Assateague House was unable to locate an invoice or verify that these payments were related in any way to Assateague House business and they were not recorded by Scott and Co. in Assateague House’s accounting system,” the complaint reads.
The largest of Scott’s alleged improprieties came from Assateague House’s money market reserve account, from which $325,791 in direct checks to the company were drawn. In addition, the complaint alleges Scott misappropriated $73,600 from Assateague House’s construction account.
According to the complaint, Scott and Co. also caused unauthorized advances to be made upon Assateague House’s open line of credit with PNC Bank totaling $125,000.
“While these advances were paid into Assateague House accounts initially, the borrowed funds were used, in whole or in part, to fund Scott and Co.’s aforesaid misappropriations,” the complaint reads.
The complaint asserts Assateague House hired Scott and his company upon belief he was a certified public accountant (CPA), only to learn later he did not carry the credentials.
“Not only did Scott falsely represent himself as a CPA, which he is not and on information and belief never was, but his scheme to misappropriate hundreds of thousands of dollars from Assateague House and then cover it up by giving false financial statements to the Assateauge House Board of Directors was reprehensible to say the least and provided no benefit to Assateague House whatsoever,” the complaint reads.
The suit filed last week seeks over $1 million combined on three counts including wrongful taking, fraud and deceit and breach of contract. The latter count for the association’s payment for Scott’s services at $650 per month for 31 months, totaling $20,150.
“Scott and Co.’s misappropriations were made without Assateague House’s knowledge, permission or consent, and were done wrongfully, with malice and reckless disregard of Assateague House’s rights,” the complaint reads.
In The Dispatch’s story on March 4, numerous local property management companies reported knowledge of the allegations against Scott and reminded local condo associations to make sure they understand the need to carefully scrutinize the companies they are entrusting with their dollars. Additionally, local insurance companies reminded associations to be sure to have adequate coverage against these sorts of malfeasance.