Online public school founder admits to $8M in tax fraud

Markets Associated Press

The founder and former CEO of an online public school that educates thousands of Pennsylvania students pleaded guilty Wednesday to federal tax fraud, acknowledging he siphoned more than $8 million from The Pennsylvania Cyber Charter School through for-profit and nonprofit companies he controlled.

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In entering his plea, Nicholas Trombetta, 61, who headed the school, acknowledged using the money to buy, among other things, a Bonita Springs, Florida, condominium for $933,000, pay $180,000 for houses for his mother and girlfriend in Ohio, and spend $990,000 more on groceries and other items.

He manipulated companies he created and controlled to draw the money from the school, also spending it on a $300,000 plane, Assistant U.S. Attorney Stephen Kaufman said.

Trombetta was making $127,000 to $144,000 annually at PA Cyber when he ran the illegal tax evasion scheme from 2006 to 2012. He faces up to five years in prison when he's sentenced Dec. 20.

By running the money through the companies or their straw owners, Trombetta avoided income taxes, though prosecutors haven't said how much. Most of the siphoned money was squirreled away in Avanti Management Group, which functioned as Trombetta's retirement savings account, Kaufman said.

"This case reflects the priority we've placed on protecting against fraud in education," U.S. Attorney David Hickton said.

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The school, founded in Midland in 2000, had more than 11,000 students across the state when Trombetta was charged three years ago and still has more than 9,000. As a public institution, it's funded by federal, state and local taxes. Districts across the state pay the school to educate any students who opt to enroll in PA Cyber instead of a bricks-and-mortar school.

Trombetta almost didn't plead guilty Wednesday when his attorney, Adam Hoffinger, began sparring with Kaufman, who had to describe the complicated conspiracy to the judge.

Kaufman said Trombetta used Avanti, the National Network of Digital Schools and other companies in the scheme. The Network of Digital Schools markets a curriculum developed in conjunction with PA Cyber and sold it back to the school, while Avanti provided unspecified management services, the prosecutor said. Avanti had four owners who pretended to be equal 25 percent partners when, in reality, Trombetta owned 80 percent of the firm, Kaufman said.

Hoffinger objected to some of Kaufman's descriptions — though they're contained in the indictment — at one point prompting U.S. District Judge Joy Flowers Conti to say, "Well, if you can't agree on that, I can't take this plea." The attorneys recessed to discuss the case for two hours before Trombetta returned to plead guilty.

Hoffinger also took issue with Kaufman calling Trombetta "the" founder of PA Cyber, arguing a "team" of people founded the school.

Hoffinger and Trombetta declined comment afterward, but they're apparently preparing to argue at sentencing that Trombetta didn't direct or head the scheme, in an effort to draw a shorter sentence.

But Hickton said Trombetta was always lauded as the innovative school's founder — at least until he was indicted three years ago.

"You can find a million speeches where he's honored as the 'soul' of this" school, Hickton said. "So I don't buy any of that."

Trombetta's accountant, Neal Prence, also is charged in the tax fraud case and is scheduled for trial next month. His attorney, Stanton Levenson, attended the guilty plea hearing but declined to comment.