KC, Blue Springs Men Indicted in $388,000 Scrap Metal Scheme

KANSAS CITY, Mo. – A Kansas City, Mo., man and a Blue Springs, Mo., man have been indicted by a federal grand jury for embezzling more than $388,000 from their employer in a scheme to redeem scrap metal.

Russell R. Fotovich, 46, of Kansas City, Mo., and Thomas Ray Jones, 48, of Blue Springs, Mo., were charged in a 13-count indictment returned under seal by a federal grand jury in Kansas City, Mo., on Tuesday, April 10, 2018. That indictment was unsealed and made public today upon the arrests and initial court appearances of Fotovich and Jones.

The federal indictment alleges that Fotovich and Jones embezzled $388,645 from their employer, DST Systems, Inc., by redeeming scrap metal belonging to DST and keeping most of the proceeds for themselves. They did not declare the embezzled income on federal income tax returns, according to the indictment.

Fotovich and Jones worked at DST as facilities engineers at the DST Winchester Data Center. When the facility underwent major renovations from 2011 through 2016, copper wire and other metals were removed and redeemed at a local scrap dealer. Fotovich and Jones conducted all but one of the 138 scrap redemptions. According to the indictment, they turned in only 39 of 137 receipts. Of the total $563,556 in proceeds from the scrap redemption, the indictment says, they turned in only $174,910, causing a $388,645 loss to DST.

Fotovich owned two businesses apart from his DST employment – R&T Heating and Cooling and R&T Mechanical (R&T). Jones did some work for R&T. The indictment alleges they declared little of their income from R&T on federal income tax returns.

According to the indictment, Fotovich and Jones requested that the scrap dealer make checks payable to them personally rather than to DST, and that redemption tickets be split, in order to conceal the total amount of scrap redeemed. Sometimes Fotovich and Jones received as many as four receipts and corresponding checks in one day.

Fotovich and Jones requested that DST buy an industrial wire-stripping machine to improve and expedite the scrap redemption. The machine cost approximately $5,000, and allowed Fotovich and Jones to receive a higher redemption value for the DST-owned scrap they sold. (Non-stripped copper wire carried a lower redemption value.) After DST purchased the wire-stripping machine in early 2014, the indictment says, Fotovich and Jones increased their fraudulent thefts more than ten-fold. From 2014-2016, Fotovich and Jones embezzled $355,146 in scrap redemptions from DST.

Fotovich and Jones both purchased vehicles with proceeds from the conspiracy, including a 2010 Ford Mustang (purchased for $34,743), a 2012 Harley Davidson motorcycle (purchased for $29,000), a 2017 Chevrolet pickup truck (purchased for $49,350) and a 2016 Polaris Victory motorcycle (purchased for $23,626). They also paid personal expenses, including a home mortgage, with the proceeds.

In addition to the conspiracy, the indictment charges Fotovich and Jones together in one count of wire fraud. Fotovich also is charged with one count of money laundering and five counts of filing a false tax return. Jones also is charged with one count of money laundering and four counts of filing a false tax return.

The indictment also contains forfeiture allegations, which would require Fotovich and Jones to forfeit to the government any property derived from the proceeds of the alleged offenses, including $388,645 (representing the proceeds of the alleged fraud conspiracy), Fotovich’s residential property, a 2010 Ford Mustang and 2012 Harley Davidson motorcycle owned by Fotovich, and a 2017 Chevrolet pickup truck and 2016 Polaris Victory motorcycle owned by Jones.

The charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.

This case is being prosecuted by Assistant U.S. Attorney Kathleen D. Mahoney. It was investigated by IRS-Criminal Investigation.