©Copyright 2014, The Oklahoman
PONCA CITY — An FBI investigation is underway into allegations that a husband and wife team committed a multimillion-dollar fraud against an Oklahoma State University-owned company engaged in sensitive national security research, The Oklahoman has confirmed.
Attorneys representing OSU and its Ponca City research company allege that some of the diverted funds were used to support an upscale dress shop on Oklahoma City's Classen Curve, while some other funds ended up in Cyprus offshore accounts.
OSU and its research company are attempting to recover the lost funds through a lawsuit filed last April in Kay County District Court.
The alleged victim of the schemes was OSU-Multispectral Laboratories (UML), a Ponca City-based limited liability company owned by the university that conducts sophisticated research involving drones and other devices for the benefit of U.S. defense, intelligence and homeland security agencies.
UML representatives said “no federal or state appropriated funds were involved” in the alleged fraud and there is no indication that any classified information or research was stolen through the schemes. They said they are working closely with federal authorities.
“The losses occurred at UML, a stand-alone entity owned by OSU,” UML representatives said in response to questions submitted by The Oklahoman. “Currently, UML is conducting an extensive investigation. The UML will have a solid understanding of the scope of the scheme, and the amount of funds involved, when the investigation is completed.”
Filings in OSU's lawsuit have all the intrigue of a John Grisham thriller, complete with allegations of betrayal by the former contractor-operator of the OSU-owned lab, diversion of funds through a web of interlocking companies and an alleged “trust account scheme” involving out-of-state attorneys and the wire transfer of $1.675 million to Cyprus bank accounts.
At the center of the allegations is Daniel Webster Keogh, the former president of Triton Scientific. Keogh reports having a doctorate in chemistry from the University of Maryland and prior work experience as a technical and business leader at Los Alamos National Laboratory.
UML contracted with Triton to operate its Ponca City lab. The university alleges that Keogh used this position of trust to divert funds from UML to more than a half dozen other companies in which Keogh, his wife, Danielle, and/or his wife's uncle were owners, officers and/or employees.
“Using Dr. Keogh's vast experience with government contracting and technical scientific knowledge in conjunction with Danielle's financial training and expertise as a certified fraud examiner, Dr. Keogh and Danielle have utilized Triton to operate UML for their own personal gain and the gain of the related entities, improperly diverting funds and abusing the trust placed in them,” OSU alleges.
Keogh and his companies have acknowledged that the Keogh Group did, for a time, bill UML in behalf of its wholly owned subsidiaries. However, Keogh contends the invoices were legitimate billings.
“We are confident that when the UML can finally finish its analysis of its own computer system and financial records, the allegations against the Keoghs will be shown to be false,” said Oklahoma City attorney Dan Webber, who represents the couple.
Webber said Keogh also has been cooperating with federal authorities.
Keogh was forced to leave his position at the Ponca City lab in late 2012, about the same time UML officials say they reported the alleged fraud to federal authorities.
Upscale clothing store
In one alleged scheme, OSU claims that a company owned by Danielle billed Triton, which in turn billed UML, for financial services that were actually costs associated with the operation of Liberte — an upscale women's clothing store owned by Danielle that is located on Oklahoma City's Classen Curve.
Webber said the Keoghs have “provided a wide range of financial information to the UML attorneys in an effort to rebut the allegations, including the allegation about the dress store.”
Another alleged scheme, that cost UML $1.675 million, had all the characteristics of a classic confidence game. UML contends Keogh was one of the perpetrators of the scheme, while Keogh contends he was taken in by a fraud committed by others and received none of the money.
In a sworn affidavit, Keogh states he was introduced to a man named Jay Moore in February 2012 while fundraising for UML. “Jay Moore” was an alias used by Joseph P. Motley, Jr., of Astoria, N.Y., according to other court documents.
Keogh said “Moore” represented himself as controlling a large trust fund that funded projects like ones done by UML and put Keogh in contact with Patrick E. O'Donnell, an attorney with the multinational law firm Squire Sanders.
Keogh said O'Donnell wrote him letters in September 2012 saying he had been approved for funding of two projects — one totaling $5 million and the other $8.4 million. To obtain the funds, Keogh was asked to first transfer $1.675 million to two accounts designated by O'Donnell, with $175,000 going to one account and $1.5 million to the other.
Cyprus bank accounts
Keogh said he was told he would get the $1.65 million back, along with the $13.4 million in project funding. Keogh said he transferred the money, but received nothing in return. Instead, the money ended up being transferred to bank accounts in Cyprus, according to court documents.
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.
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.
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.”
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