John Scholtz faces charges of wire fraud, fraud against a local government receiving federal funds and money laundering
UPDATE: Payroll CEO released on $500K bond after fed court appearance
TRENTON -- The owner of a New Jersey payroll company was charged Wednesday with defrauding more than 50 clients -- including the City of Trenton -- out of more than $5.6 million, U.S. Attorney Paul J. Fishman announced.
John Scholtz, 67, the former president of Innovative Payroll Services, is accused of withdrawing funds from a company trust account and using them to pay for his own use, including a deposit on a $1.8 million house in Florida, credit card payments, investments and payments for cars, boats and airplanes.
Scholtz, of Winslow, faces charges of wire fraud, fraud against a local government receiving federal funds and money laundering. The company is based in Berlin, Camden County, but also has an office in Largo, Fla.
He is scheduled to appear in federal court Wednesday afternoon.
Scholtz's attorney, Lisa Mathewson, said before the hearing that he "is accepting responsibility for his actions and is dedicated to making restitution."
"The precise contours of the resolution have not been determined," Mathewson said in response to a question about how he would plead in court.
Trenton's troubles with IPS first became public knowledge in February when the Mercer County Prosecutor's Office launched an investigation. The city later sued IPS and Scholtz, alleging that he and his two daughters embezzled millions owed for federal and state payroll taxes.
In late December, the city had discovered a shortfall of $3.36 million in federal payroll tax deposits for the third and fourth quarters of the year.
The city also found a discrepancy between the nearly $1.9 million the city deposited with IPS for state payroll taxes and what IPS paid to the state, but that exact dollar amount has not been specified.
In February and March, federal and state court orders were issued against IPS and Scholtz to preserve assets that could be used to help satisfy any future judgments.
On Wednesday, the U.S. Attorney's Office and court documents filed in the case against Scholtz described his alleged embezzlement scheme.
Each pay period, IPS provided its clients with a payroll summary with the payroll taxes owed for that period.
Clients then deposited the specified payroll taxes into an IPS trust account, where the company held the funds until they were sent to the federal and state taxing authorities.
Starting at least in June 2015, Scholtz allegedly began withdrawing funds from his company's trust account, the U.S. Attorney's office said.
The federal complaint charged that in one instance on June 3, Trenton deposited $869,573 into the IPS tax impound account. That same day, $400,000 was transferred by wire to an account held by Scholtz. Two days later, Scholtz transferred $380,000 to a third party in Florida as part of a deposit on a $1.8 million home.
In another instance on Sept. 23, the federal complaint said, Trenton deposited $921,235 into the IPS account. On the same day, $175,275 was transferred to Scholtz's account and then wired the following day to a yacht and ship services company in Florida.
Over time, the ongoing misappropriation of funds put many clients into a delinquent status with the IRS, and state and local taxing authorities, the U.S. Attorney's office said.
As clients' tax deposit funds came in, IPS allegedly used the funds to pay other clients' taxes owed for prior pay periods as well as penalties and interest.
The scheme caused more than $5.6 million in losses for dozens of clients based on federal tax deposits that IPS failed to make as well as associated penalties and interest.
No other clients were named in the complaint, but IPS counted municipalities, educational institutions and small- to medium-sized, privately held companies among its clients.
After the alleged scheme was discovered, Scholtz resigned in January as the company's president, treasurer and secretary, but still maintains an ownership interest, officials have said.
The wire fraud charge carries a maximum 20-year prison sentence, while the other two counts each carry up to 10 years in prison. All three charges also carry a fine of $250,000 or twice the gross gain or loss that resulted from the offense.
Editor's Note: This story has been updated with comment from Scholtz's lawyer.
- NJ Advance Media reporter Tim Darragh contributed to this story.
Cristina Rojas may be reached at crojas@njadvancemedia.com. Follow her on Twitter @CristinaRojasTT. Find The Times of Trenton on Facebook.