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OSU sues over alleged fraud

An FBI investigation is underway into allegations that a husband and wife team committed a multimillion fraud against an Oklahoma State University-owned company engaged in sensitive national security research, The Oklahoman has confirmed.
by Randy Ellis and Chris Casteel Modified: January 19, 2014 at 10:00 pm •  Published: January 19, 2014

Keogh has accused “Moore” and O'Donnell of fraud.

O'Donnell has denied the allegation, saying he “does not now nor has ever possessed the money,” and that the allegations “relate to a financial investment that failed after the funds were in control of other defendants.”

The Squire Sanders law firm has attempted to distance itself from O'Donnell, referring to him in court documents as a “former Squire Sanders of counsel attorney who operated an independent side business.”

The firm confirmed O'Donnell was of counsel to Squire Sanders in 2012, but said during that same time period, “O'Donnell also engaged in separate, personal business endeavors entirely for his own benefit. These business ventures were not approved or sanctioned by Squire Sanders, and were not associated with Squire Sanders in any way.”

OSU claims Keogh also defrauded UML by preparing invoices that falsely indicated that UML owed Triton and the Keogh Group money that was not really owed, and then selling those accounts receivable at a discount through The Receivables Exchange, an Louisiana-based online marketplace that provides businesses a forum to buy and sell accounts receivable.

False invoices

Some of the invoices were “inflated” and some were “wholly fraudulent,” OSU alleges. UML refused to pay the invoices after the alleged fraud was detected in late 2012.

The Receivables Exchange has since filed a counterclaim against OSU and UML in which it is seeking payment for more than $5.68 million in accounts receivable that were sold through the exchange.

The Louisiana company claims that the Keogh Group transferred about $3.9 million that it received from buyers of the accounts receivable into UML accounts. At the very least, The Receivable Exchange argues UML and OSU should be required to pay back the $3.9 million, plus late charges and discount fees.

UML bank statements indicated the Keogh group made multiple transfers totaling about $3.9 million into UML accounts in late 2012, but tracing the actual source of funds is difficult because “it is believed fraudulent entries were made or directed to be made by Dr. Keogh,” attorneys for OSU and UML said in the lawsuit.

Drone research

The OSU-University Multispectral Laboratories were among several Oklahoma entities involved in a recent proposal to the Federal Aviation Administration that sought selection of Oklahoma as a site for drone research and testing.

The FAA passed over Oklahoma in favor of six other states. There has been some speculation that financial oversight failures at the Ponca City laboratory may have been a contributing factor to the decision.

Stephen McKeever, Gov. Mary Fallin's cabinet secretary of science and technology, said he doesn't believe that was the reason Oklahoma was bypassed.

“I don't see how this could at all play a role,” he said, noting the lab already operates restricted air space for a Homeland Security test site. “It's all speculation as to why we didn't get it because we haven't had the debrief yet.”

In a strange twist, McKeever was serving as executive director of the Ponca City laboratory at the time the alleged financial fraud occurred. He has not been implicated in any of the financial wrongdoing.

Governor's cabinet member

McKeever has since left his executive director's post as well as his position as OSU's vice president of research and technology transfer. McKeever said that at his own request, he has assumed new positions as an OSU physics professor and director of the university's National Energy Solutions Institute. He remains a member of the governor's cabinet.

Like McKeever, UML representatives said they have no reason to believe that current legal proceedings had any impact on the FAA's decision.

“What we do know is the six sites that won either spent or committed between $2.6 million and $5.5 million, basically subsidizing the unfunded FAA program,” UML representatives said. “Even though Oklahoma had a very strong technical proposal, the State of Oklahoma did not commit resources to the program in advance of the bid, opting rather to consider the possibilities later should we win.”

They stressed that “OSU has not and does not manage the day-to-day operations of the UML.”

Strengthened oversight

UML has made key modifications to its business model to strengthen oversight and accountability since the alleged fraud was detected, UML representatives said.

“UML's previous business model known as GOCO, which stands for the Government Owned/Contractor Operated, was replaced to give UML employees direct oversight,” UML representatives said. “In other words, UML employees replaced the third-party contract operator. This new business structure provides a strong system of checks and balances.”

“UML's new management and board provide great oversight, controls, and accountability,” they said. “Previous federal customers have awarded the UML several multimillion dollar contracts over the past few months, which is an indication of the confidence in and viability of the UML moving forward. These contracts were awarded after the management and model change at the UML.”

Contributing: Staff Writer Chris Casteel has disabled the comments for this article.
by Randy Ellis
Investigative Reporter
For the past 30 years, staff writer Randy Ellis has exposed public corruption and government mismanagement in news articles. Ellis has investigated problems in Oklahoma's higher education institutions and wrote stories that ultimately led to two...
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by Chris Casteel
Washington Bureau
Chris Casteel began working for The Oklahoman's Norman bureau in 1982 while a student at the University of Oklahoma. After covering the police beat, federal courts and the state Legislature in Oklahoma City, he moved to Washington in 1990, where...
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