Democracy Prep Founder and Thief, Seth Andrew, Pleads Guilty to Wire Fraud.
On Friday, January 14, 2022, Democracy Prep charter schools founder Seth Andrew pled guilty to one count of wire fraud for stealing the money in three school escrow accounts totaling $218K. Andrew is scheduled to be sentenced on April 14, 2022. One count of wire fraud could get Andrew up to 20 years imprisonment.
In April 2021, Andrew was charged with wire fraud, money laundering, and false statements to a bank.
Andrew’s scheme is quite a lesson in how to methodically launder charter school escrow money that is not properly monitored by school authorities in the first place— critical misstep number one for the charter chain. Another critical misstep by Democracy Prep is that school officials allowed Andrew to retain a school email account even though Andrew was no longer associated with Democracy Prep.
So what does Andrew do? Over the course of more than a year– not days or weeks– Andrew is able to steal the escrow money for all three New York-based Democracy Prep schools between March and October 2019; create two fraudulent accounts at other banks; roll all money together from two accounts into one in November 2019; purchase a Certificate of Deposit that matured in May 2020 (which gains Andrew over $2K in interest on this stolen money), then move the money from the matured CD to the account of another nonprofit that Andrew controlled. (At the time, Andrew controlled two related nonprofits. One is Democracy Builders Fund, a 501c3 nonprofit with a name close to Democracy Prep and for which Andrew is listed as the only paid board member–$187K– at the time of his termination in April 2021, in the days following his arrest. Andrew’s other nonprofit, Democracy Builders, a 501c4 lobbying nonprofit related to Democracy Builders Fund, filed its 2018-19 return during the week preceding Andrew’s arrest. It lists no paid officers and is $300K in the red, with most of its debt “due to related party.” Its website is no longer in operation.)
Andrew and his wife, Lana Zak, received a reduced interest rate on their $1.8M mortgage based in part on Andrew’s depositing the stolen funds in fraudulent accounts with the mortgage lender. Apparently, the stolen money increased Andrew’s account balances over the necessary $1M for Andrew to be eligible for a .5% interest rate deduction rather than just a .375% deduction. Zak has not been accused of any wrong.
Below is the text of the press release from the US Attorney’s Office, Southern District of New York, dated January 14, 2022. I replaced the generic term, “School Network-1” as used in the document, with “Democracy Prep, the name of the charter chain.
FOR IMMEDIATE RELEASE
Friday, January 14, 2022
Former White House Advisor Pleads Guilty To Devising A Scheme To Steal $218,000 From Charter Schools He Founded
Damian Williams, the United States Attorney for the Southern District of New York, announced that SETH ANDREW pled guilty today to wire fraud, before United States District Judge John P. Cronan, in Manhattan federal court.
U.S. Attorney Damian Williams said: “Seth Andrew, a former White House advisor, admitted today to devising a scheme to steal from the very same schools he helped create. Andrew now faces time in federal prison for abusing his position and robbing those he promised to help.”
According to previous filings in this case:
In 2005, SETH ANDREW helped create [Democracy Prep], a series of public charter schools then based in New York City. In the Spring of 2013, ANDREW left [Democracy Prep] and accepted a job in the United States Department of Education and, thereafter, as a senior advisor in the Office of Educational Technology at the White House. In November 2016, ANDREW left his role in the White House and, shortly thereafter, in January 2017, ANDREW officially severed his relationship with [Democracy Prep].
[Democracy Prep]’s New York based charter schools must maintain an “escrow account” that may be accessed only if the school dissolves. Three such escrow accounts, for three New York City based-[Democracy Prep] schools, were opened by ANDREW and other [Democracy Prep] employees, at “Bank-1” in 2009, 2011 and 2013. As to each of those three accounts ‑- Escrow Account-1, Escrow Account-2 and Escrow Account-3 — ANDREW was a signatory and had access to the funds in them. However, pursuant to the charter agreement, the funds in the Escrow Accounts were reserved in case the school dissolved, and the funds could not be moved by ANDREW, or anyone, without proper authorization.
After he severed his relationship with [Democracy Prep], on March 28, 2019, ANDREW entered a Bank-1 branch in New York City and closed both Escrow Account-1 and Escrow Account-2. Bank-1 provided ANDREW a bank check in the amount of $71,881.23 made payable to “[Democracy Prep] Charter School” (“Check-1”) and a second bank check in the amount of $70,642.98 to “[Democracy Prep] Harlem Charter” (“Check-2”).
The same day that ANDREW closed Escrow Account-1 and Escrow Account-2, ANDREW entered a Manhattan branch of a different FDIC insured bank (“Bank-2”) and opened a business bank account in the name of “[Democracy Prep] Charter School” (“Fraud Account‑1”). To open that account, ANDREW misrepresented to a Bank-2 employee that he was a “Key Executive with Control of” [Democracy Prep] Charter School and supported that misrepresentation with emails sent to the Bank-2 employee. ANDREW then deposited Check-1 into the account. Five days later, on April 2, 2019, ANDREW used an ATM machine in Baltimore, Maryland to deposit Check-2 into Fraud Account‑1.
On October 17, 2019, ANDREW closed out Escrow Account-3 and received a check (“Check-3”) made payable to “[Democracy Prep] Endurance” in the amount of $75,481.10. On October 21, 2019, ANDREW deposited Check-3 into an account that he opened at a third bank (“Fraud Account-2”).
Approximately one month later, ANDREW obtained a check from Bank-2 for $144,473.29, which constituted the funds stolen from Escrow Account-1 and Escrow Account-2, and ANDREW ultimately deposited those funds into Fraud Account-2. Five days later, ANDREW rolled the funds in Fraud Account-2 into a certificate of deposit. That certificate of deposit matured on May 20, 2020, which earned ANDREW $2,083.52 in interest. ANDREW then transferred the funds from the certificate of deposit — including the funds stolen from the Escrow Accounts — into a bank account held in the name of a particular civic organization that ANDREW then-controlled thereby concealing the money’s association with [Democracy Prep], and depositing the stolen money into an account under Andrew’s complete control.
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ANDREW, 42, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. ANDREW has agreed to pay restitution to the Charter School Network from which he stole. ANDREW is scheduled to be sentenced before Judge Cronan on April 14, 2022.
Even though on Linkedin he is hiding behind the altered name of S. Aaron A. and has removed his headshot, Andrew is still willing to brag on himself, including being “founder and superintendent emeritus” of Democracy Prep, the schools from which he stole.
As one might expect, S. Aaron A. includes nothing about his experience with wire fraud, money laundering, making false statements to a bank, earning interest on stolen funds, or using stolen money to leverage a reduced interest rate.
Sentencing is April 14, 2022.
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