former consultant hired to manage a large-scale project aimed at bringing Internet access to all New York City public schools was charged Thursday with stealing $3.6 million from the Department of Education, authorities said.
The charges marked the second time in less than a year that federal prosecutors accused consultants hired by the city of multimillion dollar thefts in connection with a high-profile technology initiative.
In December 2010, six people were charged for allegedly defrauding the city of $80 million allocated to a long-delayed computerized payroll system, known as CityTime.
In the most recent case, the former manager of Project Connect, Willard "Ross" Lanham, hired outside consultants, including his brother, at low rates and billed subcontractors at much higher rates, then "pocketed the difference," prosecutors said.
The money was redirected to his company, Lanham Enterprises, and was used to finance a lavish lifestyle that included $600,000 in luxury cars and to purchase and develop real estate on Long Island, prosecutors said. Mr. Lanham was eventually fired in 2008—two years after investigators received tips about the alleged fraud, prosecutors said.
Joseph Ryan, Mr. Lanham's attorney, said his client denies that he is guilty of wrongdoing and called him a "problem-solver extraordinaire on Project Connect and other DOE projects."
The complaint alleged that Mr. Lanham went to great lengths and enlisted the help of vendors to conceal the theft.
A report by the special commissioner of investigation for city schools, Richard Condon, alleged that Mr. Lanham convinced International Business Machines Corp. and Verizon, the two largest vendors involved in the project, to deal with him, not directly with the Department of Education. Mr. Condon's report said all of the vendors involved "profited, to some extent, from Lanham's scheme."
In separate statements, both IBM and Verizon said they were cooperating with the investigation. IBM said that none of its employees have been charged in the case, and that the company was misled by Mr. Lanham.
Verizon said its employees were "unaware of any wrongdoing in connection with the project" and that the company was prepared to return any "inappropriate profits."
Mr. Condon's report also criticized the DOE for giving Mr. Lanham complete control over the project while "no one exercised any oversight."
Newly appointed Schools Chancellor Dennis Walcott, in a statement, said his agency "should have been more vigilant in our oversight of this project."
"Since we severed ties with this contractor and reported his criminal activity in 2008, the Department of Education has established new safeguards to ensure that no contractor has oversight over his own projects," the statement said.
Mr. Lanham surrendered to authorities Thursday morning and was charged with one count of mail fraud and one count of theft concerning a program receiving federal funds. If convicted, he faces a maximum of 20 years in prison on the mail-fraud count and 10 years for the theft count, as well as a maximum fine of $250,000.
Mr. Lanham appeared in federal court in Manhattan briefly, where a judge informed him of the charges against him and agreed to a prosecution request for $250,000 bail.
During the hearing, U.S. Attorney Paul Krieger said Mr. Lanham has said he has "substantial debt."
The announcement of the allegations comes as schools face budget cuts and potential layoffs. In January, Mayor Michael Bloomberg and the City Council agreed to cut $4 million from IT consulting contracts at the DOE, to stave off the closing of 20 fire companies at night. At the same time, the DOE is set to increase technology spending to about $542 million in 2012.
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