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Democracy Prep Enabled Its Founder to Rip It Off.

May 1, 2021

On April 27, 2021, founder and former superintendent of Democracy Prep charter schools, Seth Andrew, was arrested for stealing $218K from school bank accounts. From the US Attorney’s Office press release (Southern District of New York):

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a complaint charging SETH ANDREW with wire fraud, money laundering, and making false statements to a financial institution, in connection with a scheme in which ANDREW stole $218,005 from a charter school network that he founded.  ANDREW was arrested this morning in New York, New York, and will be presented today before U.S. Magistrate Judge Gabriel W. Gorenstein.

Manhattan U.S. Attorney Audrey Strauss said:  “As alleged, Seth Andrew abused his position as a founder of a charter school network to steal from the very same schools he helped create.  Andrew is not only alleged to have stolen the schools’ money but also to have used the stolen funds to obtain a savings on a mortgage for a multimillion-dollar Manhattan apartment.  Thanks to the FBI’s diligent work, Andrew now faces federal charges for his alleged scheme.”

FBI Assistant Director William F. Sweeney Jr. said:  “Locking into the lowest interest rate when applying for a loan is certainly the objective of every home buyer, but when you don’t have the necessary funds to put down, and you steal the money from your former employer to make up the difference, saving money in interest is likely to be the least of your concerns. We allege today that Andrew did just that, and since the employer he stole from was a charter school organization, the money he took belonged to an institution serving school-aged children. Today Andrew himself is learning one of life’s most basic lessons – what doesn’t belong to you is not yours for the taking.”

Seth Andrew

The actual complaint details just how Andrew proceeded to steal the money. I was curious about how he managed to do so, particularly since he left Democracy Prep in 2017, and the theft occurred two years later, in 2019.

First of all, even though Andrew was no longer serving in any official capacity at Democracy Prep, the CEO of the charter network allowed Andrew’s school email to remain active for the purposes of forwarding emails to another nonprofit Andrew operated. (Note: This other nonprofit identified in the complaint is actually two related nonprofits, Democracy Builders, Inc., EIN: 27-3717969, and Democracy Builders Fund, Inc., EIN: 46-4897222. It seems that the agent conflated the two in reporting.) The CEO could have done so without allowing former employee Andrew direct access to the account by resetting the password. That did not happen, so even two years later, Andrew, who promised not to use the account, was able to do so in order to falsely portray himself as current leadership.

Secondly, Democracy Prep apparently does not conduct timely/regular reviews of its bank statements. Andrew stole the $218K from three separate Democracy Prep school escrow accounts, but he did not clean out those accounts on the same, recent day. On March 28, 2019, Andrew emptied two of the three escrow accounts, and he waited until almost five months later– October 17, 2019– to steal wipe out the third. How is it that Democracy Prep had no clue that two escrow accounts had been closed– closed!– for five months AND that Andrew was able to take his time and return for the remaining $75K. In fact, a month after Andrew stole the money from Escrow 3– on November 19, 2019– almost six months after his first dip in the stolen escrow pool– Andrew was able to successfully consolidate all of his stolen escrow cash into “Fraud Account 2.”

The next day– November 20, 2019– Andrew bought a Certificate of Deposit (CD) with the funds AND was able to allow it to mature for six months– until May 20, 2020.

Six months– or a total of of 14 months after Andrew’s initial steal.

Imagine if Democracy Prep even cursorily reviewed its bank statements at least every month. Such a practice might have deterred Andrew from trying this stunt. At the very least, he would have been detected before cleaning out the third account. Andrew sure operated with the casualness of someone who believed his actions would not be detected, even across months.

Yes, Andrew stole the money, and that is on his head. But Democracy Prep leadership is also to blame for a looseness of operation that enabled the likes of Andrew to effect this stroll of a fraud.

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