Exclusive: How California Democrat state workers got caught in a $2.7 million embezzlement scheme

[Leroy N. Soetoro]

https://www.sacbee.com/news/politics-government/the-state-
worker/article255477776.html#storylink=related_inline

The email from Patricia Roberts arrived in Schenelle Flores’ inbox at the
California Office of AIDS at 10:30 a.m. on March 19, 2018.

Roberts was sending an invoice along to Flores, then the chief of the HIV
Prevention Implementation Section of the office, which operates under the
California Department of Public Health and provides condoms, programs and
services to local health entities working to fight the spread of AIDS.

“Please see the attached invoice,” Roberts wrote. “Let me know if you
should have any questions or concerns regarding our services. Thank you
again for allowing us to be part of your team.”

One day later, an Office of AIDS contractor in Coarsegold, a Madera County
community of roughly 1,600 residents between Fresno and the Yosemite
Valley, cut a $50,000 check to pay PR Management Consultants in
Sacramento.

The contractor, MLB Distributors Inc., had a $7.4 million contract with
the state to provide services and materials to the Office of AIDS, and
addressed the check to PR Management Consultants’ address on Calvine Road,
which is a UPS mailbox store.

There was only one problem: There is no Patricia Roberts, and emails sent
to the Office of AIDS from the Roberts’ Gmail account actually were being
sent by another state worker, Christine Iwamoto, who created a phony
consulting firm and bank account and was conspiring with Flores to defraud
the state out of $2.7 million, court records say.

Flores is accused in court documents of submitting $1.47 million in phony
invoices, and of obtaining — along with another, unnamed individual —
1,250 $100 gift cards for herself, her family and friends. Iwamoto is
accused of using the “Patricia Roberts” name and associated bank accounts
to receive $450,000 in state funds from phony invoices, as well as
obtaining 312 of the $100 gift cards.

Both women have pleaded guilty to wire fraud in federal court in
Sacramento, and both are now cooperating with prosecutors, who have
indicated in court filings that at least one other unnamed Office of AIDS
worker was involved in the scheme.

PROBE BEGAN WITH SHREDDED DISNEYLAND ITINERARY
Court papers also say that Flores directed contractors working for the
office to pay out more than $1.4 million in phony invoices to shell
companies tied to her family and friends, and bank records released by
CDPH show about $185,000 in expenses at Disneyland and Disney shops that
were run through MLB’s bank account.

Court documents do not identify the contractor Flores used to siphon off
the money, referring to it only as “Corporation 1” and identifying it as
being based in Coarsegold and Fresno.

But a trove of internal emails, bank account transfer statements and other
documents released to The Sacramento Bee following public records requests
and a lawsuit against CDPH show MLB had addresses in both Coarsegold and
Fresno.

Among the documents is an investigative report that Deloitte financial
advisory services prepared for the department in June 2019. The department
hired Deloitte to investigate budget overages in the AIDS office and
anomalies in the relationship between MLB and Flores, according to the
report.

The report, which also detailed lax oversight and weak budget controls in
the AIDS office, says the investigation started with documents recovered
from a shred bin at the department.

The shredded documents included a Disneyland itinerary listing Flores and
her family members as participants, according to the report. Around the
time of the fall 2018 trip, Disneyland purchases appeared in an MLB
checking account and Flores posted about a Disneyland trip on social
media, including photos of her three daughters with someone dressed as
Stitch from the Disney movie “Lilo and Stitch,” according to the report.

Also among the shredded documents were ticket purchases for San Francisco
Giants and Oakland Raiders games, according to the report. Deloitte
identified about $23,000 in spending on Giants tickets from MLB’s checking
account and about $17,000 in spending on Raiders tickets from the account,
according to the report. Flores’ social media posts showed her and family
members in outfield seats at a Giants game and in a suite for a Monday
night Raiders game.

CONTRACTOR GAVE OUT HIS DEBIT CARD NUMBER
The documents also show that MLB’s owners, Chief Executive Officer Mark
Bell and Chief Financial Officer Leon Pick, were in frequent email contact
with Flores, with Pick musing to her about a flu outbreak, helping to
arrange conferences at hotels in Berkeley and Orange County, providing her
with the company’s debit card number and assuring her “just give me the
order” for anything she or her bosses wanted MLB to do for the Office of
AIDS.

“I want to prove to them that we will do everything necessary to keep this
contract,” Pick wrote to Flores in a March 23, 2018, email that included a
smiley face at the end of the sentence.

“You’re already doing everything that needs to be done to keep this
contract!” Flores replied. “That is absolutely not (and never will be) at
risk!”

Pick replied with another email and smiley face, adding, “Those words are
truly music to Mark and my ears. We sleep well knowing this.”

MLB Distributors was dissolved as a corporation in October 2019, according
to records with the California Secretary of State’s office.

Pick could not be reached for comment, but Bell said in a brief phone
interview Tuesday that he was cooperating with officials looking into the
scandal.

“We’re supporting the investigation,” Bell said. “I’m not supposed to be
talking about any of this.

“We’ve been told not to discuss it with other people, just with the
investigative team, so I’m just going to stick with that.”

ONE STATE WORKER HAD HISTORY OF MONEY WOES
Flores and Iwamoto are the only individuals who have been charged in the
case. Both face up to 20 years in prison, but prosecutors have said in
court filings that they may recommend a 50% reduction in any sentence
depending on the level of cooperation the two women provide.

Flores is accused of convincing “Corporation 1” to provide her with
hundreds of debits cards that were purported to be used as incentives for
patients of the Office of AIDS, with court documents saying she spent the
money lavishly, buying season tickets to Sacramento Kings games, suites at
Giants and Raiders games, trips to Disneyland and a boat cruise for her
daughter’s birthday.

At the Office of AIDS, Flores, 46, earned a salary of about $92,000 in
2018, according to State Controller’s Office records, but she had a
history of financial difficulty.

In 2005, she and her husband filed a bankruptcy petition in federal court
in Sacramento listing assets of just more than $34,000 and liabilities of
more than $286,000.

Five years earlier, the couple was featured in a Sacramento Bee “Money
Makeover” story in which a financial planner studied their finances to
make suggestions for what Flores said was her ultimate goal: to retire at
age 55. Now she stands to lose part of her pension if it is determined she
committed a felony in the course of her state employment.

DEBIT CARDS FOR PATIENTS SIPHONED IN SCHEME
Court filings say Flores submitted invoices to “Corporation 1” for payment
of personal expenses using state funds, and that the CEO and CFO,
identified as “Individual 4” and “Individual 5,” paid the expenses despite
knowing Flores had “falsely designated personal debit card purchases as
expenses under the state contract.”

“Individual 4 and Individual 5 obtained substantial personal compensation
through Corporation 1, including 2018 annual salaries of approximately
$440,000 each as a result of maintaining the contract with the California
Department of Health,” court records say.

The emails and other records CDPH released after a nine-month fight show
Flores approached Pick, MLB’s chief financial officer, about providing
debit cards from the company to be used by the Office of AIDS.

“Patients receive a $100 token of appreciation in the form of a gift card
for taking part in OA projects,” Flores wrote in a November 2017 email
asking for 250 of the debit cards.

“We will take care of whatever you or the OOA requests,” Pick replied. “As
always, you may consider us 100% your warehouse and clearinghouse for any
purchases.

“You pay us well and we will do whatever it takes to please you.”

The records also include a roster of MLB Distributors’ 2018 expense
transactions - listed under the Office of AIDS state contract number —
that included $184,943.22 in expenses at Disneyland and Disney shops,
$36,047.82 to the Sacramento Kings, seven payments of $49.99 to 24 Hour
Fitness, plus six more of $39.99 and one at $44.99.

Other transactions included airline tickets, Amazon charges, restaurant
payments and 25 transactions involving Target.com.

Sometimes, MLB raised questions about how to properly account for
expenses, such as a $6,170.75 debit card expense to the Kings on July 3,
2018, that Pick asked Flores about in an email.

“Hi Schenelle - Do you know what account we should expense these charges
to?” Pick wrote in an email. “The CPA is classifying entries for the 1st
half of the year. They asked if these should be expensed to: ‘Promotions’
‘Meals & Travel’ ‘Office expenses’ ‘Product’ ‘Facilities expense’ etc.
They tend to expense a lot to office supplies. You can give this some
thought and let me know anytime before year-end.”

Pick also raised questions about some transactions on his debit card from
April 2018 that included $7,615.68 for “luxury liners, a boat rental
company,” $200 to Ubereats, $28.99 to Amazon.com and $72.77 to a Wisconsin
catalog merchant.

“This seems unusual,” Pick wrote to Flores. “Is this one of your charges.
We just received this. Thanks, Leon”

Flores replied two minutes later.

“These yes - it’s really a meal offsite in old sacramento (on the river)
for 50 and the ubereats gift card,” she wrote.

“No worries whatsoever!!” Pick wrote back. “Please don’t ever feel awkward
that I verify something.

“Better safe than sorry. :) Thanks for the fast reply!! Leon”



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