The former mayor of Stillwater was charged in federal court Wednesday with fraudulent accounting that helped a Twin Cities home health company conceal millions of dollars in state and federal tax liabilities.
Ken Harycki, who abruptly resigned from office in November, was criminally charged on an "information" by the U.S. Attorney in Minneapolis, a procedure that indicates the defendant is expected to plead guilty.
Two brothers who own the home-care company were arrested by federal agents Tuesday and indicted Wednesday on a charge of Medicaid fraud.
Thurlee Belfrey and his brother, Roylee, own and manage multiple health care businesses with a history of Medicaid fraud and lavish spending, according to court documents unsealed Wednesday. The companies include Royal Health Care, Model Health Care, Integrated Health Services Inc. and an entertainment business, according to court documents and state records.
Prosecutors said millions of dollars in federal payments flowed to the companies over a period of 12 years.
Harycki, a certified public accountant, began doing accounting for the Belfreys and their companies in 2007, and came under IRS investigation in October 2012, according to a federal search warrant affidavit. Court documents say he created shell companies for the Belfreys and "regularly prepared and assisted in the preparation of'' tax forms he knew to be false.
In an affidavit filed with the charges, an IRS agent said the Belfreys and Harycki methodically hid the fraud by using several bank accounts, making numerous money transfers per day between the accounts, and placing the business bank accounts in other people's names. Harycki and the Belfreys opened and closed "dozens of personal and business bank accounts in the last five years," the agent stated.
One of the health company accounts also showed thousands of dollars in personal expenditures to a cruise ship line, a hotel and restaurants in Las Vegas, a Miami hotel, airlines and the Belfrey's entertainment business, MN Finest Entertainment, according to the IRS.
Health care companies controlled by the Belfreys and family members have outstanding federal tax liabilities of $12 million, according to court documents unsealed Wednesday, and state tax liabilities of $2.3 million as of April 2013.
Harycki could not be reached for comment Wednesday.
Dismay in Stillwater
Harycki's accounting office in Stillwater was raided last March by agents from the IRS, the FBI and the inspector general's office of the U.S. Health and Human Services Department. They spent hours removing boxes of business records and questioned Harycki at length. At the time, Harcyki said in a statement that he was "deeply disappointed by this situation and we are fully cooperating with authorities." Since then, he has declined to respond to questions.
Harycki, 51, served two years on the Stillwater City Council before being elected mayor in 2006 and re-elected in 2010.
Mike Polehna, who became Stillwater's interim mayor when Harycki resigned, said the criminal charge "casts bad impressions on Stillwater, but you have four other City Council members who have worked hard for our integrity."
Polehna said he was confident Harycki didn't tamper with taxpayer money at City Hall. "We have everything under control in the city," Polehna said. "There's a check and a double check and a triple check." Just Tuesday evening, Polehna added, the City Council gave Harycki an appreciation award for his years of service to the city.
Jesse Kurtz, who owns a private detective business in Stillwater, said the raid last March and Wednesday's charges were "a sad story" for Stillwater.
"We like to think the people we elect to office are good, upstanding citizens," said Kurtz, a former law enforcement officer. "It's not good for the city of Stillwater. Not good at all."
Previous charges
The Belfreys have been under state and federal scrutiny since 2001 in connection with a personal-care assistance business. In 2003, Thurlee Belfrey pleaded guilty to roughly $35,000 in Medicaid billing fraud while operating Royal Health Care. He was ordered to pay a $160,000 fine and sentenced to 60 days in the Ramsey County workhouse. In addition, the federal government banned him from participating in the Medicare and Medicaid programs for 10 years, according to court records.
In 2002, authorities said, the Belfreys arranged the incorporation of a new company, Model Health Care Services, and recruited Thurlee's now-wife, Lanore, to be named as owner.
"From 2002 until at least March 2014, the defendants engaged in a conspiracy and scheme to defraud the Medicaid program," the indictment states. "The business … received millions of dollars from Medicaid during the course of the conspiracy."
In a statement Wednesday afternoon, U.S. Attorney Andy Luger said, "When individuals steal from government agencies like Medicaid, they are effectively taking money from us all to line their own pockets."
No court date has been set for Harycki to enter a plea.
Paul McEnroe • 612-673-1745
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