Former Stillwater Mayor Sentenced To Prison For Tax Fraud Conspiracy

STILLWATER, MN — Former Stillwater Mayor Kenneth Frank Harycki, 54, will spend year and a day in prison for his involvement in a tax conspiracy. Harycki, who pleaded guilty in 2015 to one count of conspiracy to defraud the federal government in the collection of taxes, was sentenced before U.S. District Judge Ann D. Montgomery in Minneapolis.

Most of Harycki's crimes took place while he was mayor of Stillwater, a position he was elected to in 2006. He resigned in 2014. The sentencing for Harycki was delayed three times, a result of a provision in Harycki’s guilty plea, which stated that he would assist in the prosecution of his co-conspirator, Thurlee Belfrey.

Harycki's crimes

According to his guilty plea and documents filed in court, during the course of the conspiracy, Harycki owned and operated two businesses that provided bookkeeping, payroll, and accounting services, including tax-related services, to clients.

In mid-2007, the defendant began providing payroll services for Model Health Care (Model). Harycki quickly learned that while payroll taxes were being withheld from the wages of employees, those taxes were not being paid over to the government.

(For more local news, click here to sign up for real-time news alerts and newsletters from Minnesota Patch, click here to find your local Minnesota Patch. Also, follow us on Facebook, and if you have an iPhone, click here to get the free Patch iPhone app.)

He discovered there was a standing order that the payroll withholdings not be paid to the government but instead be used for other purposes, including compensating the co-conspirators and their family members and funding other businesses operated by the co-conspirators.

“Mr. Harycki, a former elected official and certified public accountant, consciously chose to assist a criminal conspiracy,” said Assistant U.S. Attorney Robert Lewis in a statement. “He later made the right choice to plead guilty and assist in the investigation. Today’s sentencing should serve as a reminder that anyone who attempts to cheat the tax system, regardless of their position or status, will be held accountable for their actions.”

According to the guilty plea and documents filed in court, in February 2010, Harycki formed a company of his own, MKH Holdings, to assume control over bank accounts receiving Medicare and Medicaid funds the government paid for claims submitted by his co-conspirators’ companies.

MKH Holdings furthered the conspiracy by causing funds falsely reported on income tax returns to be funneled to the co-conspirators and others. During the course of the conspiracy, Harycki used his business and accounting skills for the conspiracy as well, incorporating businesses and obtaining employer identification numbers and new bank accounts, in order to avoid payment of all taxes due and owing on income.

In total, Harycki offense led to a criminal tax loss of more than $2 million, according to a news release.

On Sept. 14, 2017, the operator of Model, Thurlee Belfrey pleaded guilty in a related case to conspiracy to defraud the federal-state Medicaid program and failing to withhold and pay over payroll taxes for his employees. On the same day, Belfrey pleaded guilty to failing to withhold and pay over payroll taxes for employees at related companies.

Image via Shutterstock