Policy Watch Investigates

Ex-lawmaker LaRoque defends compensation at federal fraud trial

LaRoque_Court2013

A former state lawmaker who criticized government waste in his political career begins a criminal trial today on charges of stealing $300,000 from a taxpayer-funded rural economic development program.

Stephen LaRoque, 49, was scheduled to be in a Greenville federal courthouse this morning while a jury is selected to hear evidence in the criminal case against him. He’s accused of taking hundreds of thousands of dollars from two federally-funded economic development non-profits, the East Carolina Development Company and Piedmont Development Company.

The Kinston Republican’s trial is expected to last several weeks, and puts the one-time lawmaker in N.C. House Speaker’s Thom Tillis leadership circle at risk of going to prison. If convicted of the dozen charges he faces, he could end up with a prison term of more than 90 years.

The non-profits LaRoque founded and ran received more than $8 million in federal dollars since 1997 as part of a U.S. Department of Agriculture program to seek to combat rural poverty by offering loans to struggling small businesses. The non-profits essentially serve as middle men for the anti-poverty program and manage the loans to businesses on behalf of the USDA.

LaRoque received more than $2 million in compensation over the years and is accused of using the non-profits to partially finance his own lifestyle, including buying $5,000 reproduction Faberge eggs for his wife, an ice-skating rink, a car and a Zamboni ice resurfacer. (Click here to read the 77-page indictment.)

Both of the non-profits are still in operation, but USDA spokeswoman Delane Johnson declined to comment on what type of oversight the groups now receive, given the trial and ongoing investigation.

LaRoque has plead not guilty to a dozen criminal charges  — four counts of theft from a program receiving federal funds, four counts of creating financial transactions related to the theft, two counts of covering up the scheme and making false statements, and two final counts of filing false tax returns.

Defense attorney Joe Cheshire has indicated he will argue that LaRoque was owed the money, and that the non-profit’s board of directors okayed the compensation.

“The government admits that the board approved the contracts with Mr. LaRoque and doesn’t allege that he defrauded the board members,” Cheshire wrote in a court motion. “The contracts that the board approved made Mr. LaRoque the rightful owner of the property he is charged with wrongfully obtaining.”

Federal prosecutors disagree, and accused LaRoque of managing a handful of loans and keeping the non-profits flush with cash from the USDA in order to reap big paychecks, according to the indictment. In the most recent years, LaRoque’s brother and wife were the only board members for the charities and approved the generous compensation.

LaRoque’s criminal case stemmed from an August 2011 N.C. Policy Watch investigation that found LaRoque, then the co-chair of the powerful House Rules committee, received generous salaries, of up to $195,000 a year, from the public charities that were supposed to be spurring economic growth in one of the state’s most impoverished regions. Several past board members of the non-profits said they were unaware LaRoque was being paid as much as he was.

The N.C. Policy Watch investigation, “Public Money, Personal Gains” also found LaRoque’s non-profit also gave out loans to close associates, including two fellow GOP legislators, and LaRoque loaned his own for-profit business $200,000 from the non-profit, a potential violation of IRS tax laws that prohibit non-profit leaders from receiving personal or excessive benefits from tax-exempt charities.

LaRoque was indicted on July 17 by a federal grand jury that had been investigating his actions since September 2011, a month after N.C. Policy Watch reported its investigation.

LaRoque has been adamant that he’s done nothing wrong, and said so in a press conference he held shortly after the 2011 articles were published.

“No taxpayer money has been used to pay for any of my salaries,” LaRoque said at his 2011 press conference.

He also defended his right at the time to make money off of the non-profits, saying, “If the profits increases, do I make more money? Absolutely. But this is America and I don’t think profit is a crime.”

N.C. Policy Watch reporter Sarah Ovaska will be covering LaRoque’s trial, and you can follow her occasional updates on Twitter, @SarahOvaska. Updates will also be on N.C. Policy Watch’s blog, available here.

You can also reach Ovaska at (919) 861-1463 or sarah@ncpolicywatch.com .