Nicholas Trombetta, founder of the Pennsylvania Cyber Charter School in Beaver County, became a federal felon on Wednesday after pleading guilty to a tax conspiracy charge related to the siphoning of $8 million from the school to a network of other entities he created.
After a contentious hearing in which he agreed to plead and then appeared to back out, he finally admitted to U.S. District Judge Joy Flowers Conti that he defrauded the U.S. “by shifting income, your honor, yes” to hide it from the IRS.
Judge Conti will sentence him Dec. 20. He remains free until then.
Mr. Trombetta, 61, and his lawyer, Adam Hoffinger, declined to comment as they walked down a courthouse hallway to the federal probation office.
U.S. Attorney David Hickton said the case highlights the dedication of his office to protect against fraud in education at all levels. Taxpayers, he said, have a right to expect school leaders, whether in traditional buildings or running cyberschools, to invest in children and “not condos and airplanes.”
Mr. Trombetta, regarded at one time as a savior in Midland, where he founded PA Cyber in 2000, faces up to five years behind bars. Mr. Hickton would not comment on what he might actually get, saying that’s up to the judge.
The plea was in doubt for much of the day because Mr. Trombetta initially refused to agree with the government’s detailed summary of the evidence against him.
The judge began the hearing in the morning but then took a break until the afternoon while the parties haggled. At one point Mr. Hoffinger objected to Assistant U.S. Attorney Stephen Kaufman’s recitation of the facts, saying it read like a “press release” rather than a description of the tax offense to which his client was pleading. But Mr. Kaufman said he was merely reading from the indictment to establish some basis for the tax charge, because the case involves a complex maze of companies and nonprofits.
When Judge Conti finally asked Mr. Trombetta how he pleaded, he paused momentarily and said, “Guilty.”
Mr. Trombetta was indicted in 2013 on 11 counts of conspiracy, mail fraud and tax offenses.
He pleaded to tax conspiracy from 2006 to 2013 in diverting some $8 million to his sister and four straw owners of a related company he created, Avanti Management Group, to conceal his true income.
A co-defendant in the case, accountant Neal Prence, is still scheduled to go to trial. He asked for a delay because of the Trombetta plea, but the judge denied it.
Mr. Trombetta’s critics have been waiting years for the conviction. One of them, Karen Beyer, a former state legislator from Lehigh County, said she raised concerns about cyberschools years ago and said Mr. Trombetta once threatened her because of her challenges to the lack of financial review.
When she introduced legislation to regulate cybercharters, she said she remembers telling a colleague, “I don’t think these guys have any kind of oversight. They do anything they want with the money they are getting.”
She said that proved to be true with Mr. Trombetta.
“I figured that justice would ultimately be served, that they would be found out — how he had defrauded the taxpayers of Pennsylvania,” she said. “We still have cybercharter schools that are unregulated. This plea should stand as a warning to the Legislature that they have got to do something about regulating these schools.”
When Mr. Trombetta was indicted three years ago, Mr. Hickton said he had presided over an empire of for-profit and nonprofit entities in Midland and Ohio that he used to enrich himself at taxpayer expense.
In 2008 he set up Avanti Management, which did contract work for the National Network of Digital Schools, a nonprofit that Mr. Trombetta established to manage the cyberschool and develop its curriculum.
Prosecutors said he installed four straw owners at Avanti with the agreement that he would later assume control and they would each receive $500,000 for reduced ownership.
Mr. Trombetta became the true owner and essentially used the company as his “retirement account,” in the words of Mr. Hickton, as it brought in money from contracts with NNDS.
Money also flowed to another shell company, one2one, owned by Mr. Trombetta’s sister, Elaine Neill. Mr. Hickton said Mr. Trombetta used one2one as a “checking account” for his daily expenses.
Prosecutors said Avanti made several land deals, including the purchase of an apartment complex for $276,000. The property was then torn down and the empty lot sold to NNDS for $900,000, with Avanti profiting about $156,000.
Mr. Trombetta also directed Avanti and a related company, Palatine Development, to buy his former home in Steubenville, Ohio; his sister’s home; a $933,000 Florida condo; and a $300,000 airplane.
Two of the Avanti straw owners became witnesses for the government and agreed to record their conversations with Mr. Trombetta.
Torsten Ove: tove@post-gazette.com or 412-263-1504.
First Published: August 24, 2016, 2:44 p.m.
Updated: August 24, 2016, 7:04 p.m.
