A Rockland couple that used a web of shell companies to steal money from a federal school subsidy program have been ordered to forfeit $1.14 million in ill-gotten gains.
Peretz and Susan Klein, of Spring Valley, had pleaded guilty to defrauding the Federal Communications Commission E-Rate program that underwrites telecommunications services and equipment for schools that serve students of poor families.
“In a purely technical sense, they defrauded a government program,” federal prosecutors stated in a sentencing memorandum. “But what they really did was steal from underprivileged schoolchildren.”
The Kleins were among seven individuals from Rockland and Orange counties who were arrested in 2018. All have pleaded guilty and the Kleins are the first to be sentenced.
U.S. District Court Judge Kenneth M. Karas sentenced Peretz Klein to four years in prison and two years of supervised release for conspiracy to commit wire fraud. Susan Klein, also known as Suri Klein, was sentenced to one year of supervised release for conspiracy to violate the laws of the United States.
The judgments were imposed in June and filed publicly on July 18.
The E-Rate program is paid for with federal fees that are charged on telephone bills. Schools and libraries use the funds to buy internet services and telecommunications equipment, subsidizing from 20% to 90% of the purchase prices.
“The system, however, relies in large part on self-regulation,” the prosecution memo states. “Schools and vendors are trusted to abide by the rules, prepare accurate paperwork, certify truthfully, and generally be honest in monitoring themselves. The defendants saw that weakness and exploited it.”
In this case, the seven defendants requested more than $35 million in E-rate funds for private religious schools and received more than $14 million, from 2010 to 2016.
Peretz Klein profited more than any other defendant, according to the prosecution memo. He used more than 20 shell companies to make it appear as if several, independent vendors were bidding for contracts from the schools. He also paid two consultants, Simon Goldbrener, of Monsey, and Moshe Schwartz, of Monroe, hundreds of thousands of dollars to steer business to him.
Five of the Kleins’ companies sought $28.7 million in E-Rate funds and received $12.2 million for equipment and services for six schools.
But the Kleins and other defendants did more than rig bids. They cheated the schools, according to prosecutors.
They billed for equipment and services that were never provided, supplied cheaper stuff than purchased, provided stuff that had nothing to do with education, and billed for services the schools already had.
Yeshiva Chofetz Chaim preschool, for instance, paid a Klein company more than $120,000 for a “media master system,” but investigators who searched the school in 2016 could not find it.
“Instead,” prosecutors said, “they found a run-of-the-mill daycare center whose only technology was two computers in the administrative offices.”
Ohr Yochanan school in Suffern used more than $232,453 in E-Rate funds to buy technology from Klein and other defendants, but investigators were unable to fund half of the equipment and services.
They were not surprised, according to the prosecution memo, because the students are not allowed to use electronics. A student registration form translated from Yiddish proclaims “our duty to stay away from the ugliness of all the technological devices, which open the way to sin.”
Some schools were complicit in the fraudulent scheme, prosecutors noted, but “in many cases it appears that school officials were unaware of the fraud being committed in their school’s name.”
Other schools caught up in the scheme include Bais Yehuda, Monsey; Shaar Ephraim, Monsey; Cheder Ateres Tzvi, Suffern; Imrei Shufer, Monsey; and Community Enrichment Center daycare, Spring Valley.
Judgments have not been imposed or recorded yet against consultants Goldbrener and Schwartz; the Kleins’ nephew, vendor Ben Klein, of Monsey; vendor Sholem Steinberg, of Monsey; and Aron Melber, of Money, who was an administrator at Imrei Shufer.
The case was investigated by the FBI, the FCC Office of Inspector General, and the Rockland County district attorney’s office. Assistant federal prosecutors handling the case are Michael D. Maimin, Hagan Scotten, and Vladislav Vainberg.
