Former College of New Rochelle controller Keith Borge pleaded guilty yesterday to securities fraud and failure to pay more than $20 million in federal payroll taxes.
Simultaneously, the U.S. Securities and Exchange Commission sued him for allegedly overstating the college’s financial condition by $33.8 million.
Borge, 62, of Valley Cottage inflated assets and underreported liabilities from 2014 to 2016, the government said, to disguise the college’s rapidly deteriorating financial condition.The irregularities were not discovered until after he left the college in June 2016, but by then he had fooled college administrators, the board of trustees, an auditing firm and investors in the college’s bonds.
The College of New Rochelle, founded in 1904 as the first Catholic college for women in New York, has announced that it will close its doors to 2,900 students after the summer semester. Mercy College in Dobbs Ferry has agreed to accept eligible students as transfers in the fall.
Borge began working for the college in 1979 as an assistant controller, was promoted in 2010 from controller to vice president for financial affairs and then demoted in 2014 back to controller.
By then, according to the SEC, fewer students and declining tuition revenues had caused chronic cash flow problems.
Borge still had significant control over finances: preparing financial statements, overseeing the budget and recording ledger entries.
As early as spring 2013, Borge had begun dipping into the college’s endowment to pay operational expenses, according to the SEC, without getting approval from the trustees. When the board learned that he had liquidated $4.5 million from the endowment, he described the transactions as loans that had already been repaid.
“In reality,” the SEC said, “Borge had merely transferred funds back to the endowment account temporarily and then immediately transferred the funds back out to the relevant operating accounts, to pay the college’s operational expenses.”
One of his jobs was handling federal, state and local payroll taxes and Social Security and Medicare deductions for up to 900 employees. But for two years, according to the U.S. Attorney’s Office, he failed to deposit more than $20 million in payroll deductions.
He did not record the tax liabilities on the general ledger and he concealed the tax obligations from his boss, the college president and the trustees, the SEC said, by reclassifying payroll liabilities under other accounts.
Even after he left in 2016, he allegedly told his replacement that he had paid the taxes and he provided a fabricated document that purportedly contained the proof.
Borge artificially inflated the college’s assets, according to the criminal information and SEC complaint. For instance, as donors became increasingly disgruntled with the college and no longer followed through on pledges Borge did not account for the shortfalls. When donations were made, he recorded them twice: when they were pledged and when they were collected.
The dodgy accounting overstated net assets by about $13 million on the 2015 fiscal year financial statements, the SEC said.
He also concealed liabilities, the SEC contends, by not recording $4.4 million in vendor invoices and $2.6 million owed to the federal government under a loan program.
After Borge left in 2016, The College of New Rochelle hired a forensic accountant and law firm to figure out the full scope of the financial problems. In 2017, the college issued a revised financial statement for fiscal year 2015.
The new statement decreased assets by $13.7 million and increased liabilities by $20.1 million, for a net decrease of $33.8 million.
The fictitious finances had implications to investors. The New Rochelle Industrial Development Agency had issued $24 million in municipal bonds in 1999 to finance renovations at the school. The college was obligated to repay the bonds and to regularly disclose its finances to the bond market.
When the financial troubles were initially disclosed in late 2016, the value of the bonds decreased significantly. The criminal case charges Borge with defrauding bond investors.
The SEC is demanding that the court order Borge to pay penalties for his conduct.
Borge is scheduled to be sentenced on the criminal charges July 11 before federal Judge Vincent Briccetti in White Plains.
“The actions committed by this individual,” The College of New Rochelle said in press release, “have caused irreparable damage to a beloved institution.”