U.S. charges Fattah son in fraud scheme

Chaka Fattah Jr. worked for years to cultivate an image as a mover and shaker in city politics with close business ties to Philadelphia's well-heeled elite.

Federal prosecutors aimed to puncture that reputation Tuesday, unveiling an indictment that portrayed the 31-year-old son of U.S. Rep. Chaka Fattah (D., Pa.) as drowning in debt and tripping over his own lies to banks and the IRS.

According to the indictment, the younger Fattah, known as "Chip," stole hundreds of thousands of dollars intended for city schools, fraudulently obtained nearly $200,000 in business loans, and spent the money to cover his gambling debts and other personal expenses.

Calling the allegations "politically motivated" and a "waste of time," he turned himself in to federal authorities Tuesday in anticipation of an arrest he said he saw coming for years.

The younger Fattah has fought back against the suggestion that he did anything wrong ever since agents with the FBI and U.S. Treasury Department raided his Ritz-Carlton apartment and office at a Center City law firm in 2012. Last year, he took the unusual step of suing the investigators handling his case.

"I have been successful in my business," he said Tuesday. "I've earned every dollar legitimately and I don't think this is the way an investigation is typically handled. They've spent millions of dollars working on this for 21/2 years."

His father, who has also drawn scrutiny by federal investigators, said in a statement Tuesday that he was confident his son would be cleared. The 10-term congressman questioned the involvement in his son's case of a prosecutor and FBI agent who have worked on investigations tied to his congressional office.

The elder Fattah notified House Speaker John A. Boehner earlier this year that federal prosecutors had subpoenaed documents from his congressional offices. Sources interviewed by law enforcement have said in recent years that investigators have focused on a number of earmarks the congressman sponsored for nonprofit organizations run by his former staffers.

In his statement Tuesday, the congressman said: "I have full confidence in my son. I love him and stand by him today and every day."

The 23-count indictment unsealed Wednesday charges the younger Fattah with counts of bank, tax, and wire fraud, theft, and making false statements to obtain and settle loans.

Prosecutors said he held himself out as the owner of several successful businesses. Among them are 259 Strategies, an education consulting firm; Chaka Fattah Jr. & Associates, a consulting firm for the development of computer centers; American Royalty, a high-end concierge service; and Legal Marketing Strategies L.L.C., a marketing firm targeting legal clients.

In 2005, Fattah Jr. took out business loans on behalf of 259 and Chaka Fattah Jr. & Associates with seven area banks using a fabricated tax return on his loan applications, according to the indictment. Those returns pegged the companies' annual revenue for 2004 at $140,000 each when they had not made a dime that year, Assistant U.S. Attorney Paul Gray said.

Matthew Amato, Fattah's former roommate and cofounder of American Royalty, was also charged Tuesday with lying to three banks on loan applications on behalf of Chaka Fattah Jr. & Associates.

"Fattah continued to tell banks he was a successful businessman to continue to persuade them to give him loans," Gray said.

But as he was overstating his income to secure lines of credit, prosecutors say, Fattah was downplaying his earnings to the government on his annual tax returns and in applications for help paying off his mounting debts.

For instance, Fattah told the U.S. Small Business Administration and two local banks in 2010 that he earned $2,500 a month and that 259 Strategies had folded four years earlier, in hope of negotiating a reduced payoff sum on some of his loans. Prosecutors contend Fattah was actually earning from $6,250 to $37,500 a month at the time.

On his tax returns between 2005 and 2010, Fattah purportedly lowballed his income by as much as $50,000 a year - in one year claiming he made only $196. Despite earning a six-figure income in 2011, he declined to pay taxes altogether, federal prosecutors said.

His income that year largely came from his work as a consultant for Delaware Valley High School, a for-profit education firm for which he worked at various points between 2009 and 2012.

During the 2011-12 school year, the Philadelphia School District paid the company $4.1 million to run a disciplinary school on Kelly Drive in East Falls and an accelerated high school program in Southwest Philadelphia for dropouts to obtain diplomas. In turn, the company gave 10 percent of the contract sum to Fattah's 259 Strategies for his work with the schools.

But prosecutors said Tuesday that Fattah and Delaware Valley president David T. Shulick inflated salaries, made up benefit costs, and reported nonexistent employees to exaggerate the sum the district owed Delaware Valley.

Though they said the fraud cost the district hundreds of thousands of dollars, Shulick was not charged or mentioned by name in the indictment.

He did not return calls for comment Tuesday. Previously, he told The Inquirer, "We have nothing to hide."

The School Reform Commission severed its ties with Delaware Valley six months after the 2012 FBI raid.

The younger Fattah has cited the canceled contract as just one example of how the highly publicized investigation has hindered his ability to make a living.

In a lawsuit he filed against the FBI, the IRS, and the U.S. Justice Department in March, Fattah said the publicity surrounding the years-long probe had crippled his consulting business, forced him to give up his apartment, and prompted additional liens and lawsuits from creditors. He reiterated those contentions during his initial appearance Tuesday in federal court.

Handcuffed and dressed in a checked business shirt and vest, Fattah told U.S. Magistrate Judge Elizabeth T. Hey that he had been unemployed for years and had next to no income.

He asked the court to appoint a federal public defender to represent him.

"This entire investigation has been politically motivated," he said as he left the courthouse Tuesday. "If my dad wasn't the congressman, nobody would be going after me."

Should he be convicted, Fattah could face a substantial prison term and up to $13 million in fines.