Former president of Wilkins-based company to be sentenced
Richard E. McDonald's World Health Alternatives appeared to be a corporate success story until the Allegheny County company went bankrupt and a federal grand jury indicted McDonald for defrauding investors of $41 million.
When McDonald, 38, of Armstrong County appears in court on Monday, he'll face nearly 20 years in prison and a $5 million fine, according to court records.
The former president of the Wilkins-based company pleaded guilty this year to wire and securities fraud, payroll and income tax evasion, and making false reports to the Securities and Exchange Commission.
Defense attorney Tina Miller of Pittsburgh accused the government of “piling on” and said her client deserves no more than seven years in prison. She said the longer sentence is the result of the government's “fetish with abstract arithmetic.”
“No further time is warranted or necessary” since McDonald is a first-time offender, Miller said. People convicted of similar crimes, she said, typically received sentences of 18 to 24 months.
“The empirical research regarding white-collar offenders shows no difference between the deterrent effect of probation and that of imprisonment,” Miller said. “It is the certainty of being caught and punished, not the amount of punishment, that has the deterrent effect.”
Miller argued that sentencing guidelines for securities fraud “have so run amok that they are patently absurd on their face.”
Federal Judge Joy Flowers Conti ruled Thursday that McDonald is ineligible for probation.
Sentencing guidelines in white-collar crime cases are based on a number of factors: the length of the fraud, whether it involved sophisticated means, the amount of loss, the number of victims, whether the defendant was an officer in the company, and whether the crime put the company's solvency at stake.
“Any case involving a corporate officer and a multimillion-dollar fraud will almost always trigger (sentences) that have the effect of punishing the defendant over and over for the same basic thing — conducting a big fraud in a corporate setting,” Miller said.
McDonald, a Lower Burrell native, took over World Health Alternatives Inc. as a vitamin company and morphed it into a publicly-traded medical staffing firm. Prosecutors contend that between February 2003 and Aug. 15, 2005, McDonald defrauded investors by transferring company funds to his personal bank account and other accounts under his control.
He manipulated the company's financial records and statements by understating the amount of unpaid payroll taxes and by overstating the amount of loans his firm made to him, prosecutors said. In addition, prosecutors claim McDonald stole money by directing purchasers of newly-issued shares of stock to transfer money for the shares to accounts under his control.
McDonald spent $6.4 million to support his lavish Murrysville home, luxury car, travel on private jets and ownership of a New Kensington sports complex that Penguins owner Mario Lemieux recently purchased.
A week after McDonald resigned, the company's stock dropped from $3.55 a share to 49 cents.
Prosecutors claim McDonald lied to the SEC by deceiving shareholders on how many outstanding shares World Health held. The bogus financial claims overstated the company's earnings per share and increased the market value of stock. As a result, shareholders lost $41 million, said the U.S. Attorney's Office in Pittsburgh.
U.S. Attorney David Hickton said prosecutors will oppose any reduction in McDonald's sentence.
Deanna Seruga of Penn Township, the company's former controller, was sentenced to probation for failing to report a felony and lying to the SEC. Another former executive, Marc Roup of Murrysville, was ordered to repay more than $5.3 million and pay a $120,000 civil penalty, SEC records show. He was not charged with any crimes.
Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at firstname.lastname@example.org.