Sentara loses $7.6 million to Illinois man's fraud

A retirement fund for Sentara Healthcare executives was emptied of nearly $7.6 million by an Illinois investment adviser who pleaded guilty to fraud late last month.

Sentara's loss was the largest among 11 businesses and individuals defrauded of a total of $16.2 million over seven years, according to court documents.

Sentara officials said they were doing what they could to recover the money, but weren't optimistic about receiving a significant portion back.

Although all but several thousand dollars of the account was lost to the fraud, no individual employee of the Norfolk-based health system will be affected, they said.

"These are mutual funds owned by Sentara, and therefore, the losses are Sentara losses," Vicky Gray, Sentara's senior vice president of system development, wrote in an email message to The Pilot. "Sentara has a legal obligation to pay retirement benefits offered to employees and whether the losses are due to market fluctuations or theft, Sentara is still obligated to honor those benefits for all employees."

Timothy J. Roth, 56, pleaded guilty in Illinois federal court on Oct. 25 to charges of mail fraud and money laundering in connection with the scheme.

Roth, who was based in Urbana, Ill., admitted that he "fraudulently transferred, liquidated and removed mutual fund shares from clients' accounts for his own personal and business use," according to a written release from the U.S. attorney for the Central District of Illinois.

The fraudulent transfers started in May 2004 and continued until last March, according to the plea agreement.

In March, the U.S. Securities and Exchange Commission sued Roth, seeking to "put an immediate stop to Roth's ongoing violations of the federal securities laws," and to compel him to return profits obtained illegally. The SEC also sought civil penalties against Roth "stemming from his violations of the securities laws."

At the request of the SEC, a federal judge froze Roth's assets. The judge also appointed Illinois attorney Timothy Bertschy as a receiver, responsible for tracking down and taking control of the assets. The criminal charges against Roth came on Oct. 11.

Sentara hired Keysoft Consulting Group LLC - a business owned by Roth - in 2004 to manage a supplemental retirement fund for executives. The losses in its account occurred between December 2008 and 2010, court records show.

Documents from the two court cases give this account of Roth's actions.

Roth worked as an investment adviser for Comprehensive Capital Management Inc. He also formed and operated several consulting companies - including Keysoft Consulting - and designed a software program to assist businesses in tracking mutual fund option plans.

Employers paid Keysoft to use the software. Through that company, Roth also provided other services, including maintaining plan records and handling trades of mutual funds when employees exercised their options.

When employees wanted a distribution from their plan, they would instruct their employer to give Roth written authorization to transfer mutual fund shares from the plan's brokerage account to an account held by KeyOp Exercise Inc., a company controlled by Roth.

Roth was supposed to sell the shares and forward the proceeds to the plan or participant. Some clients authorized Roth to transfer money for distribution based on oral instructions rather than a written authorization.

According to court filings, Roth fraudulently moved shares from clients' accounts without permission, and then used the assets for personal gain. He also sent "bogus account statements" to clients to hide his theft, according to the SEC complaint.

An investigation by federal, state and local authorities began after someone from an investment advisory company called the Champaign Police Department in March, according to the U.S. attorney's office.

Roth faces a maximum of 20 years in prison for mail fraud and 10 years for money laundering upon sentencing in July. He also may be ordered to pay restitution.

Under the plea agreement, Roth will be ordered to forfeit property derived from proceeds traceable to his admitted criminal activity and to pay a money judgment of about $16.2 million. Forfeited assets may be used toward satisfying the judgment.

Prosecutors indicated they would seek a sentence on the lower end of the guidelines because Roth accepted responsibility for his actions and gave timely notice of his intention to plead guilty, allowing them to avoid preparing for a trial.

Since March, Bertschy, the receiver, has sold some of Roth's assets that were recovered. Bertschy said it was too early to know how much would be recovered; however, he said, "I don't think it will come close" to the full amount.

The money was used to invest in several technology companies and as a loan to help finance the 2010 movie "Caught in the Crossfire" starring rapper 50 Cent, Bertschy said.

Much of the money for the movie had been repaid before Bertschy was appointed receiver, he said, and the film's producers had no role in or knowledge of the fraud.

Amy Jeter, (757) 446-2730, amy.jeter@pilotonline.com