Former Stillwater Mayor Ken Harycki was sentenced Sept. 27 to one year and one day in federal prison for his part in conspiring to defraud the U.S. government of millions of dollars. Harycki, 54, pleaded guilty to the crime on Jan. 15, 2015 and has spent the last three years cooperating with the prosecution of his co-conspirators Thurlee and Roylee Belfrey, accused of defrauding the government of more than $10 million over more than 10 years. The Belfreys also pleaded guilty for their part in the fraud a few weeks ago.
As part of Harycki’s sentencing in U.S. District Court in Minneapolis, senior U.S. District Judge Ann Montgomery also ordered that he pay $2.2 million in restitution to the Internal Revenue Service. Montgomery agreed that Harycki can self-surrender to serve his time at the U.S. Federal Prison Camp in Duluth, and may be able to delay the start of prison time until after the holidays. After his release, Harycki will serve three years of supervised release.
Assistant U.S. Attorney Robert Lewis told the court that Harycki made two choices; one to commit the crime of fraud against the U.S. government, and one to cooperate with prosecution of the Belfrey brothers for their fraud.
“He did make some choices here and immediately joined in a criminal conspiracy,” Lewis said. “In the very first payroll he did for the Belfreys he committed a federal offense. That is why he was hired.”
According to court documents, from 2007 to 2014 Harycki provided payroll and accounting services to Model Health Care, a home health care company controlled by the Belfreys. At some point, Harycki became aware that although his clients were withholding payroll taxes from employees, they weren’t paying those taxes to the government. Harycki said he knowingly filed false Forms 941, which report the amount paid to the government from wages withheld from employees. He also admitted to preparing false income tax returns for the Belfreys.
On Feb. 18, 2010, Harycki created the company MKH Holdings, which he admitted was used to further the conspiracy. According to the U.S. attorney’s office, the entity was used to pay funds falsely reported on tax returns to the Belfreys and others.
As part of the fraud Harycki put his own money into the operation to try and save it, and withdrew approximately $1 million from his own IRA. Although Harycki owed taxes on the withdrawal, he didn’t have the money, so he falsified his personal tax return.
In March 2014, federal agents raided Harycki’s Stillwater business, Customized Payroll Solutions. Then in November, he abruptly resigned as mayor of Stillwater to “focus on personal issues.” His second term as mayor was set to expire at the end of the year. He began serving on the city council in January 2005 and was elected mayor two years later.
The second choice that Harycki made, Lewis said, was to “do the right thing and assist in the case.”
“We need to have someone with knowledge of the conspiracy to help us prove them,” Lewis said, noting the complexity of financial fraud cases.
Due to his financial expertise, Lewis said that Harycki provided “substantial” assistance and moved for a sentence reduction.
“He would have been a helpful witness at trial,” Lewis said.
‘A good ship moving in harm’s way’
Harycki’s lawyer Joe Friedberg addressed Montgomery about the uniqueness of the case and the difficulty in determining a fair sentence.
“There has been huge delay in this case,” Friedberg said. “A man suffered more under delay, but his family is going to suffer a lot more.”
Friedberg agreed with Lewis that the delay helped Harycki, however, because “the more delay, the more Harycki could cooperate.”
Friedberg called his client “a good ship moving in harm’s way” when Harycki began to do business for the Belfreys and found Harycki to be “the most naive person I have ever dealt with.”
“I could not believe an intelligent person could continue to put his own money in the Belfreys,” Friedberg said. “He believed these people for the longest time.”
Plea for mercy
“I am ashamed and embarrassed, your honor,” Harycki told Montgomery. “I am better than this and I ask for your mercy.”
Harycki explained to Montgomery that around the time he began to work with the Belfreys, his family was facing many health problems including his wife’s diagnosis with breast cancer. Montgomery interrupted Harycki, asking why he continued to put money into the Belfrey fraud when his family was facing financial and medical problems? She said it would make more sense if he committed the crime for financial gain.
There was no financial gain, Harycki stated, but a substantial financial loss.
“I was stretched in many directions,” Harycki said. “My actions exacerbated my families problems.”
Harycki apologized to the federal government and the IRS, and to the city of Stillwater.
“I apologize for any negative attention they have received because of my actions,” he said.
A large portion of his statement in court centered on an apology to his family members, who were gathered around him in court.
“My daughter has gone through four years of high school not knowing anything other than fingers pointed at her,” he said. “My children have learned that locker rooms and playgrounds can be very mean places.”
“They did not bring this upon themselves — I did.”
Harycki said that despite the stress involved with the case, his family is resilient.
“I am proud of my kids and I hope one day they will be proud of me for doing the right thing,” Harycki said.
Montgomery said that she was in a “logical conundrum” when she looked at the evidence before her for sentencing.
“Given your Eagle Scout and AFS (American Field Service) student background, it doesn’t seem like you would be one to get involved in this kind of messy fraud,” she said. “It was not hard to catch on that the Belfreys were not running a legit operation. It just seems so bizarre to me that you got involved with this without thinking it through.”
She said that his comments were insightful, especial his understanding of the affects his actions have had on others.
“It’s a tough sentencing case, and it is going to require some time in custody,” Montgomery said. She added that had he been sentenced on time, Harycki would have been sentenced to the prescribed amount of 37 to 46 months in jail.
“I think it’s essential that you get this time done and move ahead,” she said. “Not just for your family, but for you as well and to move forward.”
Contact Alicia Lebens at [email protected]