Federal agents probing the dealings of Pennsylvania Cyber Charter School founder Nick Trombetta started with two informants, expanded to review interactions among some 20 companies and nonprofit entities and turned up a trove of details about the perks of what they called "a pattern of undisclosed self-dealing."
A 68-page affidavit and search warrant inventories unsealed Thursday indicate that when two former associates of Mr. Trombetta came to the FBI in late 2011 or early 2012, there was little constraint on his private use of funds that flowed from school districts, to the cyber school, and then through a series of nonprofit and for-profit entities, including Avanti Management Group. Mr. Trombetta assigned expenses large and small -- from travel costs to the purchases of a plane, a Florida condominium and two houses -- to Avanti and other indirect recipients of the school's funds.
"During the spring break season of 2012 Trombetta required Avanti to pay for air transportation for Trombetta's daughter and two friends to travel to the [Florida] condo for spring break," wrote the FBI and IRS agents who authored the affidavit, dated July 11, 2012.
On the following day, the two agencies executed search warrants at Mr. Trombetta's office at PA Cyber's Midland headquarters and that of his then-secretary, Brenda Smith; the Koppel office of his accountant, Neal Prence, who was also indicted last month; the homes of his sister, Elaine Trombetta Neill, who faces tax charges, and of their mother; and the East Liverpool, Ohio, office of Avanti.
"They did a very extensive investigation, that's for sure," said attorney J. Alan Johnson, who is representing Mr. Trombetta and is a former U.S. attorney.
He declined to comment on the evidence, except to note that Mr. Trombetta has pleaded not guilty.
He said the evidence includes 2,500 calls caught on the wiretap of Mr. Trombetta's cell phone that started on May 22, 2012. "We're going to be very busy."
PA Cyber, which parted ways with Mr. Trombetta in June 2012, responded to the details by providing a list of accountability improvements made at the school and at its management organization, the National Network of Digital Schools, or NNDS.
The federal investigation began, according to the indictment, when two Avanti executives approached the FBI through their attorneys during the winter of 2011 and 2012. They are not named in the affidavit, but are identified as the CEO and president of Avanti. Records indicate that former PA Cyber executives Brett Geibel and Betty Jane Price held those posts at that time.
Both were granted court-approved immunity on July 5, 2012, according to the affidavit, from which several pages were redacted. Their attorneys declined Thursday to publicly detail their involvement.
The Avanti sources told the agents how Mr. Trombetta controlled not only the cyber school and their company, but also NNDS. The school paid some $50 million to NNDS, which then paid Avanti 13 percent of its revenues.
Prosecutors have also accused Mr. Trombetta of engineering a $50 kickback to Avanti on every computer that PA Cyber bought from Virginia-based NCS Technologies Inc.
"They pay us?" Mr. Trombetta is quoted as saying in the affidavit. When the other party on the call said that the company paid $200,000 the prior year, according to the affidavit, Mr. Trombetta said, "Yeah, we definitely need paid this year."
Once the funds were in Avanti's accounts, according to the affidavit, Mr. Trombetta treated them as his own.
"Trombetta directed Avanti to purchase a plane (which he uses far more than anyone else), to purchase his luxury vacation home in Florida (which he still uses), to purchase his former girlfriend's residence, and to purchase at least one vehicle for his personal use," the agents wrote.
He used the condo to entertain personnel from Franciscan University of Steubenville, from which he was seeking a contract, they wrote.
The university in 2010 partnered with PA Cyber on a new program under which its employees could get master's degrees in the highly specialized area of online instruction.
A Franciscan University spokesman on Thursday was unable to say whether the school cooperated with the investigation, which school executives traveled to Florida and whether the school believed it had contracted with Mr. Trombetta.
Mr. Trombetta used the plane in part to travel with friends to Steelers away games, according to the affidavit. He instructed Avanti to buy a home in Mingo Junction, Ohio, for "his then girlfriend, Kelli Dicarlo," the agents wrote, and even to buy his home from him.
The ownership and future of Avanti was a matter of some discussion, according to the affidavit.
While four former PA Cyber executives ostensibly owned 25 percent of the consulting firm each, Mr. Trombetta suggested in at least one conversation captured on the wiretap that their stakes were for show.
He told one Avanti co-owner that by reporting that she owned 25 percent, it "covers me," according to the affidavit.
Mr. Trombetta promised them when he left the school and officially took over Avanti, they would each have a continuing 5 percent interest and receive a one-time $500,000 payment. In June 2012, according to the affidavit, he reneged on the pledge to make the lump sum payments.
According to the affidavit, Mr. Trombetta intended to bring Midland School District superintendent Sean Tanner into Avanti's fold. The district, which Mr. Trombetta once led, has been closely associated with PA Cyber.
The sources told investigators that Mr. Tanner got $2,000 monthly from Avanti, although they were unaware of any work he did for the firm. They said that Mr. Trombetta had promised Mr. Tanner a 5 percent stake in the firm.
Mr. Tanner did not respond to a call or an email to the school district.
The warrants indicate the agents pursued links from Avanti to nearly 20 other companies, including Palatine Development, Martlin Management and Castlebrook Development Group, which were involved in the Midland building boom spurred by PA Cyber's growth.
Pascal Nardelli, a partner in Castlebrook Development, said he cooperated with the federal probe and did nothing wrong.
"We did those jobs," he said. "We developed them, built them, they were on time and on budget." He said the subcontracts were competitively bid.
The 11-count indictment said that Mr. Trombetta illicitly obtained around $990,000 in funds that flowed to the school.
Mr. Prence has pleaded not guilty to tax conspiracy, and his attorney, Stanton Levenson, said the affidavit does nothing to undermine his case.
"They're claiming that Nick Trombetta filed fraudulent tax returns, and my client was the preparer," said Mr. Levenson. "That doesn't make him guilty. What would make him guilty is if he knew that the tax returns were false."
The school is funded almost entirely through tuition paid by the home districts of more than 10,000 students who have chosen its online education model.
PA Cyber has redoubled efforts to check vendors' backgrounds and perform due diligence on every payment, said the school's spokeswoman, Christina Zarek.
She added that NNDS has replaced most of its board and all of its executive management, tightened internal controls and audited all functions since news of the investigation broke.
Rich Lord: firstname.lastname@example.org or 412-263-1542. Twitter: @richelord. First Published September 19, 2013 2:15 PM