AURORA, Mo. (Issued Press Release) – A former business owner from Aurora, Missouri, was convicted in federal court Friday of a series of fraud programs totaling more than $ 30 million.
Russell Grundy, 51, of Hilton Head Island, South Carolina, formerly Aurora, was sentenced to eight years without parole in federal prison by US District Judge Stephen R. Bough. The court also ordered Grundy to pay his victims $ 14,847,451 in restitution.
On January 30, 2020, Grundy pleaded guilty to two wire fraud cases, one loan application misrepresentation and one money laundering case. According to court records, Grundy’s multiple plans to defraud financial institutions, a Native American tribe, and its former customers totaled potentially more than $ 30 million and resulted in actual losses of nearly $ 15 million.
“This office thief has maintained his lavish lifestyle by stealing millions of dollars from customers, partners and lenders to build expensive homes, buy luxury cars and take numerous vacations,” said US attorney Tim Garrison. “This theft didn’t happen once or twice, but repeated over a number of years through a number of fraud programs. Even after he was charged, he was outrageously involved in criminal fraud, although he was still free until brought to justice. Today he is held responsible for the significant financial damage his greed has caused his victims. “
“The lavish multi-million dollar fraud programs and misinformation that Mr. Grundy has provided in numerous documents have caused significant damage to his business partner, a major customer, and several financial institutions, all of which violate the public’s trust,” said Adam Steiner. Assistant Special Representative for the IRS Criminal Investigation Division at the St. Louis Field Office. “Today’s verdict shows the government’s determination to restore and maintain that confidence. In addition, the IRS Criminal Investigation, along with law enforcement partners and the U.S. Attorney’s Office, will continue to identify, investigate, and prosecute individuals such as Mr. Grundy. “
Grundy owned several companies that focused on advanced technology, from software development to computer security, to addressing the software and hardware technology needs of its customers. Grundy companies included Innovative Objects, LLC, PILR Technology, LLC, Choice Technologies, LLC, Wyerless, LLC, and Audio Input, LLC.
Land O’Lakes / Nutra Blend Fraud Scheme
Grundy (through his company Innovative Objects) was hired by Land O’Lakes, Inc. and its subsidiary Nutra Blend, LLC from January 2004 through September 27, 2015 to create software to help inventory, track, and coordinate shipping of products. Grundy also hired Land O’Lakes and Nutra Blend to provide equipment and technical support for the use, maintenance and servicing of the software.
Grundy falsely advised Land O’Lakes and Nutra Blend that third-party software programs were built into this proprietary software and are essential to the successful operation of the software. Grundy claimed that some of the payments made to Innovative Objects were remitted to third party license holders. In reality, there were no third party licensees fees. Instead, Grundy kept these payments for his personal or unrelated expenses.
Land O’Lakes and Nutra Blend paid more than $ 1.8 million in fraudulent royalties between 2012 and 2015.
Miami Nations Enterprise Fraud Scheme
Grundy hired Miami Nations Enterprise, a subsidiary of the Miami Nations Tribe, to negotiate loans and acquire a controlling interest in all of Grundy’s technology-based companies.
Grundy falsely informed Miami Nations Enterprise that its companies had received a $ 3.5 million contract from Wal-Mart Stores, Inc. to develop and deliver information technology services. Grundy submitted numerous emails, invoices, conditional award letters, and other documents to support his false claims. Miami Nations Enterprise loaned Grundy the money to cover the cost of software and hardware purchases and training required to earn the $ 3.5 million Wal-Mart contract. Grundy today admitted he used those funds instead for his own personal expenses, including building a new home in Charleston, South Carolina.
On August 24, 2014, Miami Nations Enterprise paid an additional $ 2 million to acquire a 70 percent stake in Grundy’s company.
Miami Nations Enterprise officials later discovered that neither Grundy nor any of its companies had obtained a contract with Wal-Mart and found that the emails, conditional procurement, invoices, and bank deposits Grundy used to support its claims had it been created fraudulently. Miami Nations Enterprise officials said that if they were aware of Grundy’s misrepresentation, they would never have bought any part of Grundy’s business or loaned it millions of dollars to meet the specifications for an information security program that never existed. Based on the financial institution’s records and the defendant’s numerous misrepresentations, Miami Nations Enterprise transferred a total of $ 8,010,000 to Grundy.
Incorrect loan application details
Grundy applied for three loans from UMB Bank on October 17, 2014. Grundy specifically admitted that he had fraudulently obtained a $ 5,440,800 loan by providing false information on the loan application. Grundy also filed a “Terms and Conditions Change Agreement” which effectively enabled him to refinance an existing loan based on the information he provided to the bank. The total amount of loans fraudulently received by Grundy and the terms change agreement was more than $ 12 million. Following the sale of the confiscated land and warehouses built with the fraudulently obtained loans, UMB officials have reported a residual final loss of $ 4,214,126 after the sale of these assets.
Grundy falsely claimed that Land O’Lakes agreed to a 20-year lease for storage space that he was planning to build with the loans the bank requested. Based on leases made available to UMB bank officials, Grundy claimed he would receive $ 18 million in future revenue.
Grundy admitted that he grossly exaggerated the amount of money Land O’Lakes had to pay to receive the UMB loans. Instead of a lease between Grundy and Land O’Lakes to rent the warehouse, there were two leases. A lease had a term of three years and was well below the amount claimed by Grundy. The second lease was a “monthly” lease on an even smaller scale. In reality, the real and accurate leases signed and approved by Land O’Lakes only guaranteed Grundy an income of $ 540,000.
Additional financial fraud cases
After Grundy was indicted by a federal grand jury, he was bailed over government objections. During his pre-trial release, Grundy committed two other known financial fraud cases, according to court records.
Grundy hired someone to create a mobile app for which he received $ 13,230 upfront. The app was never completed, but Grundy denied the victim’s request for a refund. As a result of this incident, the government requested the revocation of his loan. The court decided not to revoke his guarantee but explicitly stated that Grundy had cheated on the victim.
Several months later, Grundy again misrepresented loan records at Palmetto State Bank in South Carolina in an attempt to fraudulently obtain another loan. Grundy grossly overstated his net worth and income in order to get a loan. Without the careful efforts of bank officials, Grundy’s fraud and false documents would have resulted in losses totaling $ 75,000. Grundy gave up his guarantee and was taken into federal custody.
This case was being prosecuted by US assistant attorneys Patrick Carney and Casey Clark. It has been investigated by the FBI, the IRS Criminal Police, the FDIC Office of the Inspector General, and the Small Business Administration – Office of the Inspector General.
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