Former Controller Of College Of New Rochelle Sentenced To 3 Years In Prison For Failure To Pay Payroll Taxes And Securities Fraud

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that KEITH BORGE, the former controller of the College of New Rochelle (“CNR”), was sentenced to 36 months in prison for failing to pay more than $20 million in payroll taxes and for securities fraud.  BORGE pled guilty to both charges in March 2019.  U.S. District Judge Vincent L. Briccetti imposed today’s sentence. 

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Keith Borge failed to pay payroll taxes on behalf of CNR’s employees, and covered up CNR’s true financial condition.  Borge thereby denied CNR’s leaders the opportunity to address the college’s financial problems, defrauded CNR’s bondholders, and left the college with a $20 million tax liability.  He is now paying the price for those crimes.” 

According to the allegations contained in the Information and other publicly filed documents:

From in or about 2011 to in or about August 2014, BORGE was the vice president for financial affairs at CNR, a private college with its main campus in New Rochelle, New York.  From in or about August 2014 to in or about June 2016, BORGE was CNR’s controller.  CNR had approximately 500 to 900 paid employees, depending on the time of year.  The college withheld from its employees’ pay both federal income tax and its employees’ contributions to Social Security and Medicare.  Federal law required that the college pay over those withheld taxes and contributions within one week of the day it paid its employees.  During that one-week period, CNR held those withheld taxes and contributions in trust for the federal government.

As controller, BORGE managed CNR’s financial affairs and was responsible for paying over withheld payroll taxes and contributions.  From the third quarter of 2014 through the second quarter of 2016, BORGE failed to do so.  By the end of the second quarter of 2016, BORGE had failed to pay over more than $20 million in combined federal and state payroll taxes and contributions.

BORGE also made false entries into CNR’s books and records to conceal the college’s actual financial condition.  As a result, CNR’s financial statements for its fiscal year ending June 30, 2015, reported the college had net assets of $25 million, which was an overstatement by at least $24 million.  Among other things, BORGE caused the financial statements to understate CNR’s liability for federal and state payroll taxes by approximately $11 million; to overstate accounts receivable by approximately $9.2 million by recognizing pledged donations twice; to understate accounts payable by at least $1.5 million by failing to enter unpaid vendor invoices into CNR’s books and records; and to overstate investment assets by at least $2.2 million by recognizing assets that did not exist and by failing to enter his withdrawals from CNR’s investment accounts into the college’s books and records.

BORGE caused CNR’s inaccurate financial statements for the fiscal year ending June 30, 2015, to be released to the public by, among other things, providing the financial statements to the Municipal Securities Rulemaking Board for publication on the Electronic Municipal Market Access web site, where they could be reviewed by the investing public.  As a result, investors in bonds issued by the college through the City of New Rochelle Industrial Development Agency were defrauded by BORGE’s materially false and misleading statements in CNR’s financial statements. 

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In addition to the prison term, BORGE, 63, of Valley Cottage, New York, was sentenced to three years of supervised release and ordered to pay a fine of $25,000.

Mr. Berman praised the outstanding investigative work of the Postal Inspection Service and IRS-CI and also thanked the Securities and Exchange Commission, which has brought a civil proceeding against Borge.

This case is being handled by the Office’s White Plains Division.  Assistant United States Attorneys James McMahon and Dan Loss are in charge of the prosecution.