Nonprofit Execs Lose Appeal in Fraud Case

(CN) - The 3rd Circuit partially upheld the fraud convictions of two top executives of a Pittsburgh nonprofit who padded a Navy contract with more than $1 million in unnecessary expenses, including a "lavish" $700,000 event.

The case required the Philadelphia-based appellate panel to determine if "honest services" fraud, a federal crime, extends beyond public officials. The court concluded that it does.

Chief Judge Scirica said other courts have found honest services fraud to encompass private actors who have used mail to defraud people of their privacy and other rights.

In 1995, the Ben Franklin Technology Center had agreed to administer a Navy project known as the National Network for Electro-Optics Manufacturing Technology.

Lawrence McGeehan, the center's CEO, and Kathleen Haluska, its chief operating officer, were charged with 22 counts of mail fraud and two counts of wire fraud for allegedly using project money to pay for extras, such as "lavish travel and entertainment." That money was supposed to go to grant recipients or researchers, according to the ruling.

The district court pruned about half of the charges, but upheld charges that the executives defrauded the center and the Navy of honest services, and knowingly caused the center to siphon more than $1 million from the Navy.

Only Haluska pleaded guilty, but both were convicted on 17 counts and were sentenced to 34 months in prison.

The appeals court said the defendants owed a fiduciary duty to the center, but not to the Navy. The three-judge panel upheld their convictions on charges involving the center, vacated their convictions on seven counts related to the Navy, and remanded to determine if their convictions on the aiding and abetting counts were tainted by the evidence of mail and wire fraud.

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