FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC or
MARCIA MURPHY at 410-209-4885
OCTOBER 24, 2007
FOR IMMEDIATE RELEASE
FORMER MERCANTILE VICE PRESIDENT PLEADS GUILTY IN FRAUD SCHEME
Used His Position to Secretly Funnel Over $900,000 in Bank Payments
to a Company Owned by Him
Baltimore, Maryland - Thomas W. Small, age 53, of York, Pennsylvania, pleaded guilty today to two counts of mail fraud related to a scheme to defraud his former employer, announced United States Attorney for the District of Maryland Rod J. Rosenstein.
According to the plea agreement, from March 1997 until August 2003, Small was a Vice President and later Senior Vice President in charge of information technology for the Investment Management Division of Mercantile-Safe Deposit Bank & Trust Company (Mercantile), headquartered in Baltimore, responsible for approving purchases of computer hardware and software on behalf of Mercantile and hiring outside contractors to install computer hardware systems and developing software. Small also operated a small computer and technology consulting business out of his home, known as Computer & Data Consultants, Inc. (C&DC)
Starting in 2000, Small developed a self-dealing scheme that resulted in the payment of over $900,000 from Mercantile through two outside contractors that were performing work at Mercantile, and then ultimately to C&DC. The payments were structured to hide C&DC’s and his own involvement.
Small told the two contractors that he wanted to purchase computer hardware, software, repair services and other items for Mercantile from C&DC, which was not an approved Mercantile vendor. Small did not tell the owners that he actually owned C&DC. Small advised the contractors that since their companies were established Mercantile vendors, he wanted to route Mercantile’s payments to C&DC through their companies. Small further advised that C&DC would supply the purchased items to Small directly at Mercantile, so the companies would not need to process the goods and services that C&DC was supplying to Mercantile. Once the companies received the invoices and payment, they would pay C&DC and keep a mark-up of between 8% to 30%.
On some three dozen occasions between September 2000 and December 2002, Small authorized the payment of a total of $467,564.65 by Mercantile to one of the contractors for computer hardware and software supposedly provided to Mercantile by C&DC. The contractor in turn paid over $430,509.42 to C&DC.
Between March and December 2001, Small authorized the payment of a total of $229,851.82 by Mercantile to the other contractor for computer hardware, software, other equipment and services supposedly provided to Mercantile by the contractor. In turn, this contractor paid $169,900.33 to C&DC.
In addition, on three occasions between July and December 2001, Small authorized the payment of a total of $15,050 by Mercantile through the contractors to an individual, supposedly for data processing services and other computer services. Unbeknownst to Mercantile and the contractor owners, this individual was a family member of Small, whose computer skills were limited to data entry. Small maintains that his relative did perform some data entry work on behalf of Mercantile, but acknowledges that the relative was overpaid.
Finally, in June 2002, Small advised one of the contractors that $400,000 was available in “soft dollar” credits in an account with a company that handled securities trades for Mercantile (Company). The money was supposed to be used for research services and software development that would benefit Mercantile’s investment customers. Small told the contractor that he wanted to develop a web portal system whereby Mercantile customers could access information about their accounts on a real-time basis. Small falsely told the contractor owner that he wanted to use an individual as the software developer. If the contractor would agree to serve as the prime contractor and hire this individual as a subcontractor, Small promised that the contractor would receive $85,000, or about 21% of the proposed project cost. Small did not tell the contractor that the individual he wanted to hire was his relative. The contractor agreed, and with Small’s assistance, sent an invoice for $400,000 to the Company with a basic description of the proposed project. The Company issued a check to the contractor for the requested amount. The contractor kept $85,000, and sent $315,000 to Small’s relative who kept $2,000. The relative wrote a check for $313,000 payable to C&DC. Within six weeks, Small used over $80,000 of the C&DC funds to purchase a car, pay off credit cards, pay for home remodeling and landscaping expenses and pay on a personal line of credit. Small spent the remainder of the money over the course of 2003 and 2004. None of the services described in the invoice were provided to Mercantile, who subsequently repaid the $400,000 to the Company.
As a result of the above schemes, Small caused Mercantile to pay over $930,000 to C&DC and his relative.
Small faces a maximum sentence of 30 years in prison followed by five years of supervised release on each of two counts of mail fraud. U.S. District Judge J. Frederick Motz has scheduled sentencing for January 25, 2008 at 9:30 a.m.
United States Attorney Rod J. Rosenstein praised the Federal Bureau of Investigation, U.S. Postal Inspection Service and the Federal Deposit Insurance Corporation - Office of Inspector General for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorney Jefferson M. Gray, who is prosecuting the case.