Forensic Accountant: Morris’ Spending More Like That of a Struggling Business Owner

JEFFREY MORRIS

WHEELING — A forensic accountant’s analysis of Roxby Development head Jeffrey Morris’ spending showed spending habits more akin to a struggling business owner rather than someone trying to defraud investors, and that 92 cents of every dollar Roxby received was spent on the business.

Those findings, the forensic accountant said, should be taken into consideration during the sentencing of Morris, who pleaded guilty in February to one count of wire fraud and one count of willful failure to pay over tax. Morris could face up to 6½ years in prison.

Morris originally was indicted on 28 federal counts — 18 counts of wire fraud and 10 counts of failure to pay taxes.

In the plea to the two counts, Morris admitted that he used false and misleading information to induce investments in Wheeling’s Scottish Rite Cathedral and also caused Roxby Development to collect payroll taxes on behalf of its employees but willfully failed to pay over those funds to the Internal Revenue Service.

The plea agreement includes Morris paying $5,129,113.32 in restitution to investors and another $526,476.58 in taxes, penalties, and interest to the IRS.

In his analysis of Morris’ spending, WayPoint Inc. CEO Josiah Lamb said that, while it appeared that some personal expenses were made using Roxby corporate funds, they were not made at a rate normally equated with a fraud scheme. Lamb, who was brought in by the Federal Defender’s Office to research the matter, said that while Morris made false representations to investors, at least 92% of total funds received were spent on business expenditures.

In his research, Lamb found that around $14 million was deposited into the accounts he analyzed. Excluding transfers between entities and returned items, about $13.6 million was spent from those accounts and $12.5 million was spent on business-related items.

“These funds were used for purchasing property, utilities, taxes, debt service, investor returns, payroll, renovations, and other legitimate business operations,” Lamb wrote.

About $853,000 from those accounts was spent on what could be deemed personal expenses – fuel, restaurants, vehicle expenses, personal insurance, and travel related expenses – and of that, $177,000 relates to personal expenses from an account Morris shared with his parents. So, Lamb said, about $675,000 in personal spending could be attributed to Morris.

“In normal fraud cases, the perpetrator will usually spend more on themselves or take more than 5% of the total amount of funds from a project,” Lamb wrote. Compared to investment advisors, fund managers, or hedge funds who take 2-4% in management fees, the 5%, while still slightly higher than the average, isn’t too egregious.”

There were several examples of Roxby’s struggles as what Lamb called an “undercapitalized” business. There was approximately $7 million transferred into and out of various accounts under Morris’ control, Lamb said, which included sending investor funds into various accounts where expenditures occurred and moving funds to cover negative balances in individual accounts.

Morris incurred more than $27,000 of bank fees for service fees, overdraft, non-sufficient funds, returned items, ATM withdrawals and wire fees, Lamb said. There were 620 unique instances where bank fees were charged.

“It appears the organization was struggling to maintain adequate deposits in relation to business expenses,” Lamb wrote. “Additionally, there were approximately $3.2 million of expenditure transactions that were returned due to suspicious activities or insufficient funds in the bank accounts. This appeared to be a continuous problem with employee payroll, contractor payments and credit card payments being the most returned items.

“Roxby was undercapitalized throughout its short life,” Lamb also wrote. “The business was not generating enough revenue to be self-sustaining. Additionally, the large amounts of payroll and renovation costs seemed to be underlying Roxby’s cash flow problems.”

The U.S. Attorney’s Office for the Northern District of West Virginia declined comment on the matter, but did say that no sentencing date has been scheduled.