Some parents will do anything to get their kids into an elite university – even commit tax fraud. That’s what the Federal Bureau of Investigation (FBI) and the U.S. Attorney’s Office in Boston allege happened as part of a massive multi-million dollar college entrance admissions scandal. At least 40 people, including actresses Felicity Huffman (Desperate Housewives) and Lori Loughlin (Full House), have been named in the scheme, referred to as “Operation Varsity Blues.”
According to federal prosecutors, wealthy parents paid William Rick Singer millions to guarantee placement at high-profile universities, including Georgetown, Stanford, UCLA, and Yale. Singer helped parents fake admissions exam score and pass off children as student-athletes, even when the students possessed little or no athletic ability. As part of the scheme, Singer helped disguised payments as charitable contributions for a non-profit organization. The result was that the parents also walked away with a tax break.
In February, Singer pleaded guilty on information to charges of racketeering conspiracy; conspiracy to launder money; conspiracy to defraud the United States; and obstruction of justice. When charges are brought on information, it generally means that the defendant has accepted the charges and is cooperating with the investigation.
(You can find the complaint and supporting documents, including a list of those accused in the scheme here.)
Here’s a breakdown of the charges against Singer, and what they mean:
Conspiracy to racketeer. Racketeering can cover a range of illegal activities, including crimes committed through extortion or coercion. According to court documents, Singer and his co-conspirators facilitated cheating on college entrance exams, including the SAT and ACT exams. Parents of prospective students paid up to $15,000 to $75,000 per test; in exchange, others secretly took the exams in place of the actual students, or students’ exam responses were corrected after they had completed the tests. To make it easier to pull off the scheme, Singer bribed test administrators.
Singer was also paid approximately $25 million in a scheme promoting recruits for competitive college athletic teams. In one instance, Singer sent the head coach of the Yale women’s soccer team an athletic profile claiming that a potential student was the co-captain of a prominent club soccer team; the student did not play competitive soccer. The lie costs the parents $1.2 million, but it worked. The student was considered a recruit for the team.
The complaint alleges similar behaviors took place at USC and UCLA for soccer. At USC, four students were considered soccer recruits at the school in exchange for cash even though none of the children played competitive soccer. At UCLA, a coach designated a student as a recruit for the UCLA women’s soccer team in exchange for a bribe.
The bad behaviors were rampant in sports other than soccer, too. At USC, the water polo coach designated two students as recruits for the water polo team; in exchange, Singer made private school tuition payments for the coach’s children. At Georgetown, Singer says that he paid bribes to a tennis coach in exchange for labeling twelve applicants as recruits for the Georgetown tennis team; a University of Texas tennis coach accepted a similar bribe. At Wake Forest, Singer paid money to the women’s volleyball coach in exchange for designating a prospective student – who had been waitlisted—as a recruit for the women’s volleyball team. And at Stanford, the sailing coach treated a potential student as a recruit in exchange for payment even though the student had minimal sailing experience.
The result, of course, of all of these bribes and payments was to enrich Singer and his co-conspirators personally.
Conspiracy to launder money. According to court documents, Singer conspired with others to conduct and attempt to conduct financial transactions, specifically “payments to athletic coaches, university administrators, and standardized test administrators” knowing that the property was related to unlawful activity, and then, Singer attempted to “conceal and disguise the nature, location, source, ownership and control of the proceeds” of the activity. Money laundering is, at its most basic, hiding or flipping money. Most commonly, it’s used to conceal “dirty money” gained through criminal activities so that it can appear “clean” or legitimate.
Conspiracy to defraud the United States. According to court documents, “a principal purpose and object of the tax fraud conspiracy was to allow clients… to improperly deduct the cost of the bribes from their federal income taxes, and thereby to defraud the United States by underpaying federal income taxes.” Singer directed this behavior through a fraudulent non-profit called the Key Worldwide Foundation, or KWF. KWF is, by all appearances, a legitimate organization registered in Newport Beach, CA. A quick search with the Internal Revenue Service (IRS) website reveals that it has tax-exempt status (you can see it here), receiving a determination letter from the IRS in 2014.
KWF filed its forms 990 with the IRS, as a proper 501(c)(3) is expected to do (you can download the 2016 form as a PDF here.) According to the form 990, the organization received nearly $2 million in contributions and grants in 2015, and double that amount in 2016. Singer, who signed the form as President, represented that he received no salary for his role.
The 2016 form 990 reflects donations made to educational institutions and programs including Chapman University ($150,000), DePaul University ($50,000), NYU Athletics ($83,181), University of Miami ($60,000), University of Texas Athletics ($252,500), USC Soccer program ($25,000) and USC Women’s Athletics Board ($50,000). From 2013 to 2016, KWF allegedly distributed more than $7 million in grants.
(You can find out more about forms 990 here.)
According to court documents, receipts to the KWF were not charitable, but were instead payment for services to guarantee college placement. And those grants to schools and other charitable organizations? Disguised bribes.
To keep up appearances, employees of KWF acknowledgment letters falsely attesting that no goods or services were exchanged for the purported donations (you can read more about quid pro quo here). Those letters allowed KWF clients – those parents willing to pay to have their children placed – to improperly deduct the bribes from their federal income taxes as charitable contributions.
In addition to generating and supporting false charitable donations, by incorporating KWF as a fake tax-exempt organization, Singer created the perfect cover. And those parents who took advantage of the chance to get their children into an elite school by making a “donation” to KWF? They may now be on the hook for tax fraud.
Obstruction of Justice. Typically, obstruction of justice happens when a defendant “corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.” In this case, the feds alleged that Singer gave a heads up to several co-conspirators about the investigation and encouraged them to “take steps to thwart its progress.”
The allegations don’t stop with Singer. Former Yale University women’s soccer coach Rudolph “Rudy” Meredith was also charged in the massive scheme. Meredith eventually pleaded guilty to his participation in the scheme and cooperated with authorities.
Also charged are Gordon Ernst, the head coach of men’s and women’s tennis at Georgetown; Donna Heinel, the senior associate director of the University of Southern California; Ali Khrosroshahin, the former head of women’s soccer at the University of Southern California; Laura Jane, the former assistant coach of women’s soccer at the University of Southern California; Jovan Vavic, the water polo coach at the University of Southern California; Jorge Salcedo, the head coach of men’s soccer at the University of California at Los Angeles; William Ferguson, the women’s volleyball coach at Wake Forest University; Lisa “Niki” Williams and Igor Dvorskiy, standardized test administrators for the College Board and ACT, Inc.; Martin Fox, president of a private tennis academy and camp in Houston; Steve Masera, an accountant and financial officer for organizations including KWF; and Mikaela Sanford, who was employed in “various capacities” for KWF and related organizations.
Dozens of others are accused of wrongdoing, including well-known actors and entrepreneurs. The cheating scandal extended into Wall Street. The CEO of Hercules Capital, an NYSE-listed lender to Silicon Valley technology companies, Manuel Henriquez and his wife were charged in the scheme for their alleged efforts to pay for fraudulent SAT and ACT scores to get their daughter into Georgetown. William McGlashan, co-founder and CEO of TPG’s Rise Fund, is alleged to have paid for fraudulent scores and bribes paid to an athletic department officer to increase the odds his son would be admitted to the University of Southern California. A TPG spokesman said about the allegations, “As a result of the charges of personal misconduct against Bill McGlashan, we have placed Mr. McGlashan on indefinite administrative leave effective immediately. Jim Coulter, Co-CEO of TPG, will be interim managing partner of TPG Growth and The Rise Fund. Mr. Coulter will, in partnership with the organization’s executive team, lead all investment work for both going forward.”
The story is developing and we fully expect more details as the story unfurls. However, it’s clear that prosecutors aren’t cowed by the potential star power involved. U.S. Attorney Andrew Lelling said about the charges, ”There will not be a separate admissions system for the wealthy, and there will not be a separate criminal justice system either.”