Trouble in Stillwater: A Minnesota mayor lends a helping hand to fraud scheme

Evan SweeneyIt hasn't been a great year for ex-Stillwater, Minnesota mayor Ken Harycki, and it doesn't look like 2015 is getting much better.

Harycki was brought into a Minneapolis U.S. District Court on Thursday to face charges in a home health scheme that fraudulently billed Medicaid more than $10 million. Harycki stood before a federal judge and pleaded guilty to one count of conspiracy to defraud the United States.

If Harycki's name sounds familiar, it's because his name has popped up in Minnesota headlines for the past year. It started in March, when IRS and FBI agents raided his accounting and payroll business. By November, Harycki abruptly resigned as mayor of Stillwater, citing personal issues. A month later, he was charged with fraud.

Harycki's story is interesting for two reasons. First, his eight-year term as mayor, including a reelection in 2010, reveals a local government official embroiled in a scheme to steal state funding. These days, conspiracies involving public officials feel like a Choose Your Own Adventure book, offering a variety of scandals, schemes and bribes. The ending is usually the same, as resignations have become almost commonplace, but a small-town politician linked to a scheme stealing government money offers an interesting twist on the usual corruption.

The second reason is that Harycki's role in the home health scheme was peripheral in the sense that he was not directly involved in fraudulently billing Medicaid. Instead, he helped two owners of a cluster of home health agencies fudge their tax documents and hide the money they were stealing from the government. The fraudsters, Thurlee and Roylee Belfrey, cooked up a scheme that lasted for 12 years, according to officials. The Belfreys have been under state and federal scrutiny since 2001. In 2003, Thurlee Belfrey pleaded guilty to $35,000 in Medicaid billing fraud and he was banned from participating in Medicare and Medicaid for 10 years, according to an FBI release.

But the brothers started a new company in 2002, and named Thurlee Belfrey's wife as the owner in order to disguise his involvement. For the next 12 years, the company fraudulently billed Medicaid, collecting more than $10 million. In December, the brothers were charged with conspiracy to defraud the U.S. and healthcare fraud.

Harycki didn't get involved until 2007, just one year after he began his stint as mayor, but his role was impactful. Through his public accounting business, Customized Payroll Solutions, Harycki knowingly prepared and submitted tax forms he knew were incorrect, according to his plea agreement.

Harycki and his lawyers will have you believe he was just a naïve number-cruncher along for the ride. Although Harycki didn't speak to the media, his attorney, Joe Friedberg told the Pioneer Press that Harycki thought the Belfry brothers had "a good business model, but were terrible businessmen." According to Friedberg, Harycki even took $1 million from his retirement account and sunk it into the home health companies.

The FBI release leaves a slightly different impression. The Belfreys moved fraudulent claims between as many as 138 personal and business accounts, which were regularly opened and closed. They used the stolen Medicaid dollars to fund lavish purchases, including cruises, plan tickets, resorts and shopping trips to Luis Vuitton.

When Harycki entered the picture, he provided bookkeeping, payroll and tax-related services. That's when he began helping the Belfreys avoid detection by the government by fabricating entries in tax forms.  

When you read indictments and FBI releases, you often see officials reference the "mastermind" behind fraud schemes. But Harycki's supporting role was probably just as crucial to the scheme itself. Certainly the Belfreys are the ones who devised the scheme to steal from Medicaid for more than a decade--but Harycki helped them fly under the radar. Without him, it's possible their scheme could have been detected years earlier.

I suppose you could choose to believe that Harycki was an oafish pawn in the scheme, manipulated by the Belfrey brothers over the course of seven years. Look at the circumstances surrounding the scheme, though--the previous criminal convictions, the 138 bank accounts, the lavish spending--and it's hard to believe that a man who held the position of mayor was completely clueless.

The truth of Harycki's involvement will emerge over the next couple months. The Belfrey brothers' trial is scheduled for Feb. 17. Harycki will play big role in the proceedings. Prosecutors have indicated that they will recommend a reduced sentenced for Harycki--his charges carry a maximum sentence of three years--if he provides "substantial assistance."

Perhaps that assistance will shed a little more light into the scheme, and Harycki's role in it. - Evan (@HealthPayer)