KC Man Pleads Guilty to $388,000 Scrap Metal Scheme

KANSAS CITY, Mo. – A Kansas City, Missouri, man pleaded guilty in federal court today to embezzling more than $388,000 from his employer in a scheme to redeem scrap metal.

Russell R. Fotovich, 47, pleaded guilty before U.S. District Judge Greg Kays to participating in the wire fraud conspiracy and to filing a false tax return.

By pleading guilty today, Fotovich admitted he conspired with others from April 2011 to June 2016 to redeem scrap metal belonging to his employer, DST Systems, Inc., and keep a major portion of the proceeds for themselves. Conspirators should have turned in all receipts and proceeds of the scrap redemption transactions to DST, which totaled $563,556. However, they turned in only 39 of 137 receipts, and only $174,910 of the proceeds, causing a $388,645 loss to DST.

Fotovich also pleaded guilty to filing a false tax return. Fotovich admitted he did not declare the embezzled income on federal income tax returns.

Fotovich worked at DST as a facilities engineer at the DST Winchester Data Center. (Fotovich owned two businesses apart from his DST employment – R&T Heating and Cooling and R&T Mechanical.) 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 a co-conspirator conducted all but one of the 138 scrap redemptions. 

Conspirators 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 they received as many as four receipts and corresponding checks in one day.

Conspirators requested that DST buy an industrial wire-stripping machine to improve and expedite the scrap redemption. The machine cost approximately $5,000, and allowed conspirators 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, conspirators increased their fraudulent thefts more than ten-fold.

By pleading guilty today, Fotovich agreed to forfeit to the government $138,758 (representing his proceeds of the fraud conspiracy). The court will determine the amount of restitution Fotovich must pay to DST at the sentencing hearing. Under the terms of today’s plea agreement, Fotovich must pay restitution to the Internal Revenue Service in an amount to be determined, of not more than $79,949 (not including interest). Fotovich also must pay restitution to the Missouri Department of Revenue in an amount to be determined, of not more than $16,209.

Under federal statutes, Fotovich is subject to a sentence of up to eight years in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

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