Nigerian scam takes town's money, trust

Nigerian scam takes town's money, trust
Residents fear fallout from treasurer's actions
January 31, 2007
BY JIM SCHAEFER and TINA LAM
FREE PRESS STAFF WRITERS
HARRISVILLE, Mich. -- Way up high on Michigan's index finger, in a sparsely populated place with lazy streets and a cluster of buildings on Lake Huron, the county treasurer can also be the referee of your kid's basketball games, the guy in the next booth at the diner, the man who does your tax returns.
Thomas Katona, 56, was all those things as he oversaw Alcona County finances for more than a decade. But now Katona is a prisoner in the local jail, accused of violating one of rural northeastern Michigan's most hallowed tenets:
Trust thy neighbor.
Police and prosecutors say Katona lost at least $186,500 in county funds last year to one of the notorious Nigerian investment frauds, the kind of seemingly transparent schemes that people delete from their e-mail boxes every day. The damage, authorities say, may be much worse. An ongoing audit so far concluded more than $1.2 million in county money is missing. Police say Katona also lost $72,500 from his personal bank account.
As Katona awaits a Feb. 28 preliminary hearing on 10 counts of embezzlement and forgery, residents in Harrisville, the 500-resident county seat, are dismayed by the unfolding drama and fearful over what the loss means to a county with an annual operating budget of about $4 million.
The sheriff, whose department eats up about half the budget each year, said he worries he'll have to cut patrols. Government workers fret over their pensions. There is anger that officials were unable to spot the fraud earlier, and there is confusion over how someone with an accountant's smarts could have fallen for such a scheme.
"Here we have a gentleman that not only has been the treasurer for 13 years ... but he's got an extensive financial background," said State Police Sgt. Steve Harshberger, who investigated the case. "And he still allowed himself to knowingly get involved in this."
Shock and worry
At the Flour Garden Restaurant, the central meeting place in Harrisville, rumors about Katona swirled for two months, right after authorities closed his office and the County Commission fired him. That was in November, after Katona returned from a mysterious trip to England, where he told friends he had gone to "pick up checks."
By then, State Police said, Katona had wired nearly $187,000 in county funds to banks based in Taiwan, London and New York. All but one of the transfers went into accounts linked to a well-known Nigerian scam.
"It shell-shocked a lot of people," said Brenda Renner, 47, a waitress at the restaurant and bakery.
Stanley Gill, 71, said he and his friends, who meet every morning for coffee at the Flour Garden, are all "wondering how things can go so far without being noticed, wondering if our board of commissioners is asleep at the switch or what."
Owner Manny Pompa, who retired as a Detroit cop and opened the Flour Garden in 1999, said his customers are expecting more bad news.
"A lot of people are upset because they don't know if their taxes are going to go up because of the shortfall," Pompa said.
Alcona County is a summer place, where visitors to Lake Huron during warmer months push its sleepy year-round population from 11,000 to upwards of 70,000. A third of the county is private hunting land or government forest, and the majority of the people are retirees.
Katona's father, now deceased, was president of the local school board and a cattle farmer. The family's land anchors the south-central area of the county, near Sprinkler Lake. Katona's younger brother still lives there, running the farm while helping care for their elderly mother.
People in Harrisville, about 20 miles from the Katona farm, say the family is well-respected. Thomas Katona raised two girls, played adult-league baseball and also coached boys track. He is divorced.
He was elected treasurer in 1993. It's a full-time post and most recently, Katona made about $37,000 a year. Friends and acquaintances said he turned to tax-return work and accounting on the side.
That got him into trouble in 1998, when he pleaded guilty to two felonies, according to court records in Harrisville. He was charged with mishandling incorporation papers for area businesses. His sentence was delayed for a year, and records show a judge dismissed both felony convictions in 1999.
Around town, people overlooked the blemish, re-electing him twice. Kevin Boyat, the county commission chair, conceded Tuesday that he always thought Katona's crime was just a misdemeanor.
Warnings ignored
Last summer, according to friends, Katona began telling people he had found an excellent investment opportunity overseas. He said he dreamed of retiring and traveling to see his daughters, who now live in Texas and Georgia. Finally, he told friends then, his "train had come in."
"I told him it was too good to be true," said one of the friends, who requested anonymity for fear of being ostracized.
It wasn't Katona's only warning. Repeatedly, as he was sending tens of thousands of dollars to the Central Bank of Nigeria, the bank that handled his personal account warned him they suspected he was caught up in a Nigerian scam, police documents show.
Katona ignored all the warnings. Police said their initial investigation showed he sent money first from his personal account in June, then from county accounts in August and September. In November, employees of a different bank notified Alcona commissioners they suspected fraud, and commissioners asked State Police to investigate. Authorities closed his office during his trip to London.
Boyat said the commission, which only recently learned it had the authority to fire the treasurer, did just that when Katona returned home. The county now requires two signatures on investment funds.
People often duped
People fall for such schemes because they want to think something good has finally happened to them, said a Detroit agent for the Secret Service who has investigated such scams.
Police records show Katona received an $81,600 check in June from a company called Global Asset Management, most of which he then wired overseas.
In so-called Nigerian frauds, the victim receives an unsolicited e-mail saying a relative of a corrupt official needs help to transfer millions of dollars out of the country and, in exchange, the helper will get a chunk of the cash. Next come requests for funds to bribe officials, pay customs or attorney fees, or to buy chemicals to wash currency that has been blackened to disguise it.
State officials and local leaders in Alcona County declined to discuss exactly what kind of scam seduced Katona.
They also said the losses attributed to him could be higher. The financial audits are expected to be finished in March.
Sheriff Doug Ellinger said he already has cut his budget by 20% this year, and that was when the county thought the losses were much smaller. "Overtime is one of the areas where we took a major cut," he said. "It makes me fearful."
Boyat said it is unclear how long it might take to recover, because the money Katona allegedly lost came from $7 million in investment funds, not the general operating fund.
"We live in a small community," he said Tuesday. "You trust people. And I guess maybe you shouldn't."