State Rep. LaRoque indicted over nonprofit loans

cjarvis@newsobserver.comJuly 17, 2012 

Stephen A. LaRoque


— State Rep. Stephen LaRoque, chairman of the powerful House Rules Committee, was indicted Tuesday by a federal grand jury in Raleigh on charges of theft and money-laundering stemming from his enterprise that makes federal loans to struggling businesses.

LaRoque, 48, a Republican from Kinston, is accused of using hundreds of thousands of dollars in federal funds to enrich himself and benefit his wife and close associates over a 15-year period.

Federal investigators say they followed a series of financial transactions in which federal loan money was transferred through various accounts to pay for thousands of dollars of Faberge eggs and other jewelry for his wife’s birthday and anniversary presents, the purchase of an ice rink in Greenville for his wife – along with a new ice resurfacing machine – and buying a home to rent to a stepdaughter.

LaRoque also failed to fully report his income to the Internal Revenue Service, including a $150,000 loan he said was owed him as deferred compensation, according to the indictment. The indictment tracks a steady rise in compensation from the $47,000 he was making in 1999 as a loan administrator for the Neuse River Council of Governments to the $317,800 he made in 2009 from his re-lending business.

LaRoque declined to comment Tuesday and referred questions to his attorney, Joseph B. Cheshire V, who issued a written statement saying LaRoque had cooperated with federal investigators and was disappointed in the charges.

“Representative LaRoque is proud of what he has accomplished with his non-profit corporations,” Cheshire said. “The corporations’ work provided monies that led to new business, and led to hundreds of jobs for North Carolinians who would, otherwise, have been unemployed.”

Cheshire added that LaRoque believes he will be vindicated in court.

How inquiry started

LaRoque’s troubles became public in August 2011 when the liberal government watchdog group N.C. Policy Watch began a series of online articles questioning his management of two nonprofit entities and a for-profit firm that made federal loans to businesses in rural areas that had not been able to secure traditional bank loans.

By September, a team of federal investigators were looking into LaRoque’s finances, including the IRS, FBI, N.C. State Bureau of Investigation and the U.S. Department of Agriculture, where the loan funds originated. A grand jury subpoenaed LaRoque’s financial records soon after, according to the indictment.

LaRoque held a news conference in August to defend himself, and dismissed Policy Watch as “a liberal propaganda tabloid.” At the time, he said a board of directors approved his contract and all loans. But the indictment says LaRoque repeatedly made loans and only sought board approval afterward. Also, the board for several years at a time for all practical purposes was only comprised of LaRoque, his wife and his brother, the indictment says.

LaRoque in August wouldn’t tell reporters how much money he paid himself. “This is America, and I don’t think profit is a crime,” he said.

Tuesday’s indictment goes much further than the Policy Watch stories, as agents had access to tax and bank records not publicly available. For instance, the indictment says that in 2009 and 2010, LaRoque was receiving $291,000 compensation, while his main nonprofit enterprise made fewer than 10 loans.

Where the loans went

The indictment doesn’t identify two of LaRoque’s beneficiaries, referring only to them as members of the General Assembly. They are former Sen. Debbie Clary, R-Cherryville, a close ally of LaRoque’s in the General Assembly who runs a marketing firm, and Rep. Mark Hilton, R-Conover, who owns a mobile home park. Both received federal loans for their businesses.

Neither is accused of any wrongdoing. But the indictment discloses for the first time that $185,00 was loaned to a construction company that leased the land to Hilton, at a 6 percent interest rate in 2007.

The charges say LaRoque also gave favorable interest rates to some of his associates. LaRoque’s interest rates typically ranged from 8 percent to 9.5 percent. But in 2007, he made a $150,000 loan to his future wife’s carpeting company at a 4.3 percent rate.

The indictment says LaRoque was “stockpiling cash” illegally by applying for additional federal funds before he had loaned the money that had already been given him.

LaRoque served in the General Assembly from 2002 to 2006 but lost his re-election bid. He was re-elected in 2010, and House Speaker Thom Tillis made him chairman of the Rules Committee, which exerts considerable control over which bills survive or are buried. In May, LaRoque lost in the Republican primary. His term ends at the end of this year.

Jarvis: 919-829-4576

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