Federal judge accepts guilty pleas from lawyers in $4M phony billing scheme
Two Michigan lawyers are no longer practicing law at this time after a federal judge accepted their guilty pleas last month in an alleged $4 million phony billing scheme.
Lawyers Scott Hess and Craig Hilborn—former law school classmates at Michigan State in the 1980s—both pleaded guilty to two counts of wire fraud in the scheme. U.S. District Judge J.P. Stadtmueller of Milwaukee accepted the plea agreements on April 26.
Hess received an automatic interim suspension as a result of the guilty plea, while Hilborn resigned his license. The Legal Profession Blog reported on the suspension; BizTimes has a story on the guilty pleas and the Milwaukee Journal Sentinel has a story on the initial charges.
Hess was a tax lawyer at energy-systems company Johnson Controls in Milwaukee and Hilborn was a lawyer with Hilborn & Hilborn in Birmingham, Michigan. According to plea agreements here and here, Hess complained to Hilborn that he was working too hard as an in-house tax lawyer and proposed the phony billing scheme to Hilborn.
It worked this way, according to the plea agreements: Hess created phony invoices for work purportedly completed by Hilborn’s firm but actually done by Hess as an in-house lawyer or by other outside counsel. Hess approved the invoices and his company paid them. When Hilborn received the money, he would return two-thirds of it to Hess at his home in Menominee Falls, Wisconsin.
Hess deposited most of the money in his personal bank account. He used it to invest in the stock market and to buy guns worth tens of thousands of dollars.
Johnson Controls paid Hilborn’s firm at least $4.48 million as a result of the phony invoices, according to the plea agreements. The guilty pleas were based only on two wire transfers, however, that totaled nearly $150,000.
The fraud began in 2000 and continued until Johnson Controls discovered it in late 2015. Hess repaid his company more than $2.3 million and unsuccessfully sought to delay his sentencing to give him time to make full restitution. Sentencing is scheduled for June 15.
Johnson Controls spokesman Fraser Engerman told the Journal Sentinel that the company cooperated in the investigation. “Doing business with integrity is the only way Johnson Controls does business, and we hold all employees accountable to act in an ethical and legal manner,” he said.