Former CEO indicted on $200 million securities fraud
Saturday , August 29, 2009 14:14ET
Aug 29, 2009 (Pittsburgh Post-Gazette - McClatchy-Tribune Information Services via COMTEX) -- Nearly four years after the SEC launched an investigation into financial irregularities at a former Wilkins business, the president and CEO has been indicted on charges that he orchestrated a $200 million securities fraud.
Richard F. McDonald, 35, of Leechburg, was indicted by a federal grand jury on Thursday. He ran World Health Alternatives Inc., a publicly traded company that provided medical staffing. He appeared yesterday before U.S. Magistrate Judge Amy Reynolds Hay.
He faces 20 counts, including wire fraud, securities fraud, making false statements to the SEC, and failure to pay both payroll and personal income tax.
Mr. McDonald, dressed in a gray Penguins T-shirt and jeans, was released on a $100,000 cash or property bond and faces formal arraignment on Friday.
Prosecutors claim he illegally transferred corporate funds to his personal account; had vendors send payments for newly issued stock to his personal account and manipulated corporate financial records to conceal that payroll taxes went unpaid.
According to the U.S. attorney's office, the company's stock price fell to 49 cents per share from $3.55 per share during a one-week period in August 2005 as a result of Mr. McDonald's actions.
The loss to shareholders was more than $200 million, based on approximately 69 million outstanding shares, the government contends.
Mr. McDonald abruptly resigned from World Health on Aug. 15, 2005, stating family and health reasons.
The company's stock plunged after company officials disclosed the accounting errors and discrepancies in the company's financial reports.
When the financial irregularities became public in 2005, the company had 310 corporate employees, 1,100 full-time health-care workers and 17 offices.
Several lawsuits were filed against World Health, and the company filed for Chapter 11 bankruptcy in February 2006.
Mr. McDonald became part of World Health in February 2003 when his previous company, Better Solutions Inc., was acquired. He became the CEO at World Health in June 2004.
According to the indictment, Mr. McDonald claimed that he had loaned large sums of money to World Health and then issued checks to himself as repayment.
In October 2004, the government said, he wrote checks totaling $750,000 from company accounts and deposited them in his personal accounts.
Further, prosecutors say that Mr. McDonald forged the signature of a fellow board member so that the company could issue three additional lots of more than 1 million shares of World Health stock.
When those were sold, the indictment said, Mr. McDonald had the purchasers wire some $2 million into accounts controlled by him.
Mr. McDonald is also charged with collecting more than $2.2 million in payroll taxes from company employees and not turning it over to the IRS, as well as not paying personal income tax on approximately $6 million he earned between 2003 and 2005.
The former controller of World Health, Deanna Seruga, pleaded guilty to a count known as "misprision of felony," in October. According to prosecutors, Ms. Seruga knew that false financial certifications were being submitted to the SEC, but she failed to alert anyone.
She is scheduled to be sentenced on Oct. 30 before U.S. District Judge Joy Flowers Conti.
Paula Reed Ward can be reached at pward@post-gazette.com or 412-263-2620.
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