NO ONE SOUNDED ALARM - Millions Lost In Mid-Ohio Valley High-Speed Venture

(09/09/2008)

No one sounded alarm as publicly funded venture lost millions

By Andrew Clevenger
Staff writer
www.wvgazette.com

CHARLESTON, W.Va. - In October 2002, West Virginia's Development Office awarded a $600,000 grant to Sequelle Communications Alliance Inc. as part of a multimillion-dollar project to improve broadband Internet access to the largely rural mid-Ohio Valley region.

Six years later, Heidi Laughery, Sequelle's former president and CEO, is under federal indictment, accused of misappropriating more than $2.4 million in government funds. The project fell apart without accomplishing its goals, including the promise to bring 45 high-paying jobs to the area.

The indictment maintains that Laughery and her co-defendants - James Larry Hymer, R. Scott Truslow and MentorGen LLC - conspired to use the public funds to launch a separate business venture in 2004.

But that doesn't explain how an endeavor with so much government involvement and public funds - including the state grant and loans of $3.295 million from the U.S. Department of Agriculture and $160,000 from the Mid-Ohio Valley Regional Council - was allowed to founder without any alarms being sounded.>P> Quarterly updates were required as part of the state Development Office grant, which was awarded through the Wood County Commission and the Mid-Ohio Valley Regional Council.

Although the grant application specified that 17 employees would be hired by the end of the first year, the quarterly reports show that Sequelle did not hire its second employee until the final quarter of 2003.

By the end of the first year, Sequelle had five employees. Six months later, just three more had been added.

"The equipment has not yet been procured. Once equipment is in place, job creation projections should be on schedule," the third report, dated July 7, 2003, states.

Of the six reports in the Development Office's files, that is the only one with any kind of comment in the "narrative" section.

No staff ever conducted an on-site visit, the reports state. No Sequelle employees were ever listed as having been interviewed.

None of the reports have any indication, such as a signature in the "reviewed by" section, that any Development Office personnel ever examined them.

"I don't know why [a Development Office employee] didn't sign them," said Bobby Lewis, the agency's director of community development. Lewis said he believed the reports were reviewed, despite the lack of signatures. He said the employee who supervised the Sequelle project is no longer with the WVDO.

"[Those] report[s] should have been signed. It never came to my attention that [they weren't] signed," he said. "That kind of record keeping without signatures just wouldn't happen today." James Mylott, executive director of the Mid-Ohio Valley Regional Council, declined to comment on his agency's role in monitoring the project's progress before hanging up on the reporter.

"I understand from the assistant U.S. attorney that I will probably be a witness in this case, and I was advised to be very circumspect," he said. "That's about all I can say."

Mountain State College President A. Michael McPeek, who was Sequelle's board chairman, did not return repeated calls for this story.

Broadband project launched to fanfare

Sequelle Inc., a Marietta, Ohio-based nonprofit group, incorporated in August 2000. Its purpose was "the implementation and operation of a wide wireless broadband network for Washington County, Ohio, and surrounding areas in order to advance and promote industrial, economic, commercial and civic development."

In September 2001, Sequelle Communications Alliance Inc. incorporated as a for-profit company in West Virginia. The following year, the company secured a $3.295 million loan from the USDA's Rural Utilities Service for its broadband project, with its network operations center to be located in Wood County.

From the outset, local politicians supported the project.

In March 2002, Rep. Alan B. Mollohan, D-W.Va., and then-Rep. Ted Strickland, D-Ohio, jointly announced the federal loan.

"I am very pleased that Sequelle's hard work and devotion to bridging the digital divide within this regional rural area has already begun to pay off," Strickland, now Ohio's governor, said at the time. "[T]his loan will allow Sequelle to make high-speed broadband access more available in our part of Ohio and neighboring areas in West Virginia."

In a 2002 news release, then-Gov. Bob Wise touted Sequelle's promise to bring as many as 50 jobs with annual salaries of at least $45,000.

"West Virginia will be at the forefront of wireless technology, lending support to a type of communications remarkably suited to the state's rural nature," Wise said. "A vibrant, reliable digital network will attract the kinds of companies West Virginia wants."

Laughery, who had joined Sequelle in September 2001, is quoted in the same release.

"It is exciting to create a dynamic communications system in this region," Laughery said. "It provides a critical tool for sustained community and economic growth."

A criminal history and a bankruptcy

According to the indictment, Laughery, 46, was hiding something from the agencies that were funding Sequelle's broadband project.

In 1987, while known as Heidi Ditchendorf, she pleaded guilty in federal court to embezzling more than $133,000 from clients' accounts when she worked for Merrill Lynch in San Francisco. One of the clients was her roommate, professional tennis player Heather Ludloff.

Ludloff told investigators that Laughery was her financial manager, and that she did not know that Laughery had made a series of unauthorized transactions in her account, according to an FBI affidavit.

As a result of her conviction, the Securities and Exchange Commission barred Laughery from being a broker in 1988.

Laughery was sentenced to 18 months in prison. After her release in 1988, she married William Kevin Laughery and settled in Marietta, where the couple owned a series of investment properties.

In April 2001, the couple filed for bankruptcy, listing assets of $1.38 million and liabilities of $1.98 million.

One of the Laugherys' tenants, in a building at 216 Front St. in Marietta, was Sequelle Inc.

According to the indictment, Laughery falsely certified on application documents in 2002 that no Sequelle officer had been convicted of a crime or been involved in bankruptcy proceedings.

A new business plan

In 2003, Laughery and Mentor-Gen LLC, an Ohio start-up software development company that had been subcontracted to do much of Sequelle's work, plotted together to form a new firm, Sequelle Systems LLC, the indictment alleges.

Laughery, together with Hymer and Truslow, funneled as much as $2 million to MentorGen and $500,000 to Truslow for the new business endeavor, according to the indictment.

Throughout 2004, Laughery allegedly devoted significant amounts of her time to the new company instead of the broadband project. She eventually resigned from Sequelle, recommended that the company file for bankruptcy and became MentorGen's chief executive officer, according to the indictment.

In August 2005, Sequelle's board of directors filed a $10 million lawsuit against Laughery in Wood Circuit Court. The case was transferred to federal court, but the company collapsed before it could go to trial.

On March 2, 2007, the board's attorney, Richard Hayhurst, sent a letter to U.S. Attorney Charles Miller, asking him to take on the case in a criminal venue.

Pending charges

At their arraignment on Aug. 20, Laughery and Hymer both pleaded not guilty. They are scheduled to go to trial on Oct. 28.

Lawyers for Truslow and MentorGen told Stanley that they have plea deals in place. Both defendants have plea hearings scheduled for Sept. 22.

Mike Callaghan, Laughery's attorney, said Friday that his client denies the government's allegations and intends to fight them vigorously at trial.

Laughery secured the government funding for the project in good faith, and disputes that there was any misappropriation of funds, he said.

"The project did not work for a host of reasons, none of which were the result of fraud," he said.

"Heidi believed in the project. She worked hard for the project. What's not in the indictment is that she worked for a significant period of time without being paid because she believed in the project," he said.

At their arraignment, Laughery and Hymer told U.S. Magistrate Mary Stanley that they worked for BPL Global, a Pittsburgh-based company that develops software to make energy distribution more efficient.

Laughery, who was senior vice president of strategic technologies, has since resigned from the company, Steve Jennings, BPL's chief marketing officer, wrote in a recent e-mail.

The company was aware of her felony conviction when it hired her in 2006, he said. "The incident occurred more than 20 years ago in a different industry and in a role very different than the position she held at our company," he said.

Hymer still serves as the company's vice president of software development, he said.

Aftermath

Because the state grant was used to purchase computer equipment that was then leased to Sequelle, the state was able to recover almost all of its $600,000 investment, said Lewis of the Development Office.

With approval from the federal government, the computer equipment was given to West Virginia University at Parkersburg, he said.

Most Internet users in the Parkersburg area now have broadband access, but it took longer because of setbacks in the Sequelle project, said Keith Burdette, president of the Wood County Development Authority.

"We're not where we should be," particularly in the areas of speed and capacity, he said.

"Sequelle never really got up and running, at least not to any substantial level ... I don't think they ever got accomplished anything of what they set out to do. They inched along insignificantly before the wheels came off."

Under Gov. Joe Manchin, the Development Office has focused almost exclusively on funding water and sewer projects, and no longer funds economic development, Lewis said.

"In economic development, you tend to take a lot of chances," he said. "We did then, but we don't now."

Reach Andrew Clevenger at aclevenger@wvgazette.com or 348-1723.

By Andrew Clevenger
Staff writer
www.wvgazette.com


Hur Herald ®from Sunny Cal
The information on these pages, to the extent the law allows, remains the exclusive property of Bob Weaver and The Hur Herald. information cannot be not be used in any type of commercial endeavor, or used on a web site without the express permission of the owner. ©Hur Herald Publishing, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017