PITTSBURGH (AP) -- The former chief executive of a western Pennsylvania medical billing and staffing firm has been sentenced to nearly 11 years in prison for securities fraud and tax evasion in a penny stock scheme that cost shareholders tens of millions of dollars.
Prosecutors say 38-year-old Richard McDonald of Leechburg siphoned money from World Health Alternatives and manipulated records to hide $2.3 million in unpaid payroll taxes. They also say he fudged documents overstating loans he made to the company and financial statements used to fool auditors and shareholders.
Federal prosecutors initially claimed the scheme cost investors $200 million but allowed McDonald to be sentenced on a figure of $41 million, the agreed-upon loss on which his April guilty plea was based.
The investors lost money when the scheme was first uncovered in August 2005, as McDonald resigned and shares of the company plummeted from $3.55 to 49 cents each. Meanwhile, prosecutors contend, McDonald lined his pockets with $6 million he stole before the firm filed Chapter 11 bankruptcy.
"This was not an aberration, one offense, one day," Assistant U.S. Attorney Shaun Sweeney said in asking the judge to impose a stiffer sentence of at least 15½ years in prison. "Essentially, when Mr. McDonald went to work for 2½ years, he lied, cheated, and stole from people every day."
U.S. District Judge Joy Flowers Conti imposed a lesser sentence — 130 months — than Sweeney sought partly because McDonald has helped prosecutors investigate his case and bankruptcy trustees and others rebuild the company, which Sweeney said is now profitable under a new name.
Still, the judge was troubled by McDonald's apparent greed and refused defense attorney Tina Miller's request for just seven years in prison. The judge was told that McDonald was raised by a good family, is married and has a child, and didn't blow the money on drugs, gambling or secret debts.
"One thing you didn't mention was the greed factor," Conti told McDonald, after he apologized for his actions. "Six million dollars was taken. Where did the money go?"
McDonald's wife, Liane, claimed she didn't know. And in a tearful plea for leniency, she expressed concern that their young son would be fatherless for years once McDonald reports to prison early next year.
"We lost everything," she told the judge. "We didn't end up with millions or thousands of dollars as so many (media) reports have suggested."
The sentence essentially split the difference between the sentence McDonald's attorney sought and the term Sweeney said was warranted by federal sentencing guidelines. The guidelines assign a numerical score to crimes based on various factors, in this case the amount of the shareholders' loss, the fact that McDonald endangered the solvency of a publicly traded company, and because the scheme had more than 10 victims.
But Miller argued those sentencing enhancements amount to piling on. She noted that Gregory Podlucky, who was convicted of looting his southwestern Pennsylvania soft-drink firm, Le-Natures, is serving only 20 years in prison for an accounting scheme that cost lenders, vendors and investors $684 million and siphoned $30 million to him from the now-defunct firm. Podlucky was sentenced last year.
"When you look at the person before you today, it's a very different person from the president and CEO of World Health," Miller said of McDonald. "He tried mightily to do everything he could to make the shareholders whole."
Sweeney said shareholder debts were settled through civil litigation for pennies on the dollar. Any victims who still felt they were owed money were asked to present claims at sentencing and only one did, an Indiana woman who lost $39,000.
McDonald must start paying her back from a share of his prison wages then must pay $100 monthly once he's released on probation.