CLEARFIELD – The preliminary hearing for the former Kephart Trucking Co. president, Timothy Lee Kephart, 55, of Morrisdale, who has been accused of stealing funds from employees, was continued one week by Magisterial District Judge Jerome Nevling during Centralized Court on Wednesday at the Clearfield County Jail.
Timothy Kephart requested a continuance of his preliminary hearing, as he still hasn’t been able to secure an attorney to represent him. Because of the “magnitude” of the charges against him and their consequences, Timothy Kephart said he would like to be advised by an attorney.
Clearfield County District Attorney William A. Shaw Jr. indicated that it was “probably not inappropriate” to continue the preliminary hearing for Timothy Kephart with the consequences being so profound. Nevling then granted the continuance, noting he believed Timothy Kephart was really trying to secure an attorney. Nevling re-scheduled the preliminary hearing for 9:30 a.m. Feb. 4.
On Dec. 18, Tpr. Jeffrey Walters of the Pennsylvania State Police, Bureau of Criminal Investigations – Organized Crime Task Force, filed a criminal complaint against Timothy Kephart. Walters charged him with multiple counts of theft by unlawful taking, theft by deception, receiving stolen property and theft by failure to make required disposition of funds received.
On Jan. 12, Walters served an arrest warrant on Timothy Kephart at the Federal Correctional Institution at Loretto and obtained state court custody of him. Walters transported Timothy Kephart to Nevling’s office for his preliminary arraignment, at which point bail was set at $250,000 monetary.
The charges against Timothy Kephart stem from alleged thefts that occurred from June of 2010 until the Kephart Trucking Co. closed down in late 2013. During that timeframe, Timothy Kephart served as the company’s president and handled its day-to-day operations. The Kephart Trucking Co. was comprised of several employees, including the 131 alleged victims.
According to the affidavit of probable cause, Walters discussed the theft from 401K plans and back pay issues with four alleged victims on Nov. 19, 2013. The alleged victims had either taken loans out from their 401K plans or had signed up to have regular contributions made to their 401K accounts.
The alleged victims said that their employer, Timothy Kephart, automatically withheld funds from their paychecks each week to repay their 401K or to contribute to their 401K accounts. After several months, the alleged victims said they realized the company was taking funds from their paychecks but not distributing it to their 401K accounts.
The alleged victims advised Walters that there were other employees who were victimized in the same manner. The U.S. Department of Labor had initiated an investigation, they said, adding there hadn’t been any contact with them for several months and so they wanted to engage the Pennsylvania State Police.
The alleged victims also advised Walters that they were owed back pay/vacation pay. They indicated Timothy Kephart was aware of the shortages and had promised to pay them back. However, the alleged victims advised they hadn’t been reimbursed by Timothy Kephart with regards to 401K, back pay/vacation pay and medical bills, which they have accrued.
On Nov. 19, 2013, Walters contacted Investigator Brandon Pfister of the U.S. Department of Labor regarding the case. Pfister advised that the federal government was conducting both civil and criminal investigations and he was waiting on a prosecution decision from the U.S. Attorney in Johnstown. During a conference call, the Clearfield County District Attorney, the U.S. Attorney in Johnstown and investigators decided that the Pennsylvania State Police would investigate the case.
Upon investigation Walters found the alleged victims were paid for their time and services to the company. Also, he found their paychecks depicted withholdings for items, such as 401K contributions, 401K loan repayments and medical insurance coverage. These withholdings, he found, were to be transferred from the Kephart Trucking Co. checking account to the 401K company and to the insurance company for payment of premiums.
Walters found the funds were instead maintained in the Kephart Trucking Co. checking account and used for other expenses. This, he found, caused a shortage of individual 401K funds and a lapse in payment of insurance premiums. Walters found that Medova subsequently cancelled the insurance coverage retroactively, which in turn caused a number of employees to be responsible for unpaid medical bills.
Walters also reviewed information gathered by Pfister. On July 12, 2012, Pfister interviewed both Ada and Ryan O’Conner, the president and operations manager for Turning Point Associates Inc. Their company had served as the record keeper for Kephart Trucking Co.’s 401K plan since 2007 or 2008. They reported that funds remained short from late 2011 through early 2012. On July 18, 2012, Pfister interviewed Homer Neeper, Kephart Trucking Co.’s controller. Neeper reported that funds for the 401K plan were behind and hadn’t been funded from Nov. 29, 2011 through February of 2012.
On July 19, 2012, Pfister interviewed Brandon Zlupko, who started auditing the Kephart Trucking Co. 401K plan in 2003 or 2004. Zlupko reported that for the first couple of years, the plan typically fell short in making timely employee deposits, but there weren’t any “blatant” shortages. Zlupko indicated though that things started to go “bad” with participant deferrals and increased exposure in 2008. Zlupko expressed frustration and considered Kephart Trucking Co. to be a “problematic” client.
Walters also conducted several interviews as part of his investigation. On Jan. 17, 2014, he interviewed alleged Victim No. 27, an employee who assisted with the accounting. She handled payroll, W-2s and quarterly reports; she was also tasked with compiling a list of 401K contributions/payments and updating them weekly.
According to her, when an amount was withheld from an employee’s paycheck for 401K contribution/repayment, there would be a report generated and submitted to Turning Point Associates. It would notify Turning Point Associates of the exact amount of funds that would later be wired to them for distribution to individual accounts. She said the withheld funds would stay in the company’s checking account until Timothy Kephart approved the transfer to Turning Point Associates.
She said employees became concerned about their withheld funds not making it to their 401K accounts and started to question Timothy Kephart. Employees, she said, eventually became frustrated because they were assured by Timothy Kephart that they would receive their funds. She said although more time passed and more employees started to complain, Timothy Kephart still failed to return the funds to their accounts.
As a result, she said employees informed Timothy Kephart’s brother, David, about their concerns. She said David Kephart tried everything to convince Timothy Kephart to reimburse the accounts but was unable to do so. She said that some weeks only partial transfers were made to Turning Point Associates and both Neeper and Turning Point Associates maintained records of these shortages.
Additionally, she indicated that medical/dental payroll deductions were determined by a percentage of each individual’s pay check and enrollment plan. The company, she said, would pay $80,000-$90,000 per month, as employees paid 10 percent and the company the other 90 percent. However, she said that the premiums were not being paid by the company and on July 1, 2013, the insurance company cancelled coverage retroactively.
On Jan. 17, 2014, Walters interviewed Neeper. He said in recent years, his duties dwindled with Timothy Kephart giving “more and more responsibility” to Mark Michael. Neeper said he first noticed things going “the wrong way” in 1999-2000 when Timothy Kephart took over the company as president.
As things digressed, Neeper said the company was in need of funds and started to use an investor’s group from Lancaster in the spring of 2012. The investor’s group, he said, provided funds to the company for operating costs, etc., but a specific amount in order to bring the 401K and IRS shortages up to date. Neeper said that the IRS received payment; however, the 401k funds were never transferred to Turning Point Associates.
Neeper indicated that as the controller, he was aware of the 401K shortages and brought it to Timothy Kephart’s attention on occasion. He said that Timothy Kephart always acknowledged the shortages and stated intentions to get them caught up.
According to Neeper, Timothy Kephart never did get the shortages caught up. He said that Timothy Kephart’s brother, David, advised a group of investors that Timothy Kephart would not bring the 401K accounts up to date with the funds that they had specifically earmarked for that purpose. David Kephart, he said, also advised the investors that authorization to wire the funds to Turning Point Associates either had to come from Timothy Kephart or Michael.
Neeper said after bringing up the shortages many times to Timothy Kephart, he “gave up.” Neeper said he suspected that at least one of the company’s checks was used to pay a contractor for work at Timothy Kephart’s residence.
On Jan. 21, 2014, Walter’s interviewed David Kephart, vice president of Kephart Trucking Co. David Kephart said although he was vice president his brother, Timothy Kephart, and Michael “made the final decisions” with the day-to-day operations of the trucking company.
David Kephart said that in late 2011 or early 2012, he was approached by an employee who informed that his 401K account had funds missing from it. When he reviewed his own account, David Kephart found he had funds missing, as well. During 2011-12, David Kephart said he started to “question things,” including his own relationship with his brother, Timothy Kephart.
According to him, the company was in need of funds and able to finalize terms with an investor’s group in Lancaster in May of 2012. Part of the provisions, he said, included the company paying off all equipment, delinquent taxes and employee 401K accounts. After that he said the company established a board of directors, which was comprised of him, Timothy Kephart, Michael and four members from the investor’s group.
Once the agreement was finalized with the investor’s group, David Kephart said his brother, Timothy Kephart, “completely discontinued contact/communication” with him. David Kephart said he didn’t feel as though he had much input at that point.
During a board meeting in June of 2012, David Kephart said his brother was asked about the amount of funds needed to catch up all of the employee 401K accounts. He said that Timothy Kephart indicated that $100,000 would make everyone whole and then the board agreed to wire that amount the next day to catch up the employee 401K accounts immediately.
According to David Kephart, the $100,000 was wired the next day and the board “assumed” the 401K accounts were caught up. He said he advised employees that the funds would be in hand with regards to the 401K accounts. David Kephart said he later discovered that the funds were received but never wired to Turning Point Associates as ensured by Timothy Kephart.
David Kephart added that Timothy Kephart met with drivers in March or April of 2012 and advised that the funds were coming and their 401K accounts would be made whole.
David Kephart said that despite Timothy Kephart’s promises and the investor’s group wiring $100,000 for the 401K accounts, the employees were never reimbursed. In October of 2012, he said he attended a board meeting and advised that employees had neither received their 401K funds nor their workman’s compensation. As of that meeting, David Kephart said the board wasn’t aware that Timothy Kephart had refused to make the 401K accounts whole.
On Nov. 13, 2013, David Kephart said he arranged a meeting with a board member in Hazelton. He said that he disclosed “everything” with regard to the funds not going to the 401K accounts, as well as the fact that tax payments had not been paid and there wasn’t any workman’s compensation insurance in place. After that meeting, David Kephart said he arranged a meeting with Timothy Kephart and advised what he’d disclosed to the board.
David Kephart said he was subsequently fired. He confirmed for Walters that Timothy Kephart was aware that funds were not only owed to the alleged victims’ 401K accounts, but also that they were under the impression they had medical insurance. David Kephart also confirmed that several of the alleged victims were still owed back pay and vacation pay.
On April 3, 2014, Walters interviewed Michael, who acknowledged that there were shortages to the 401K plans and taxes. He blamed the lack of cash flow for the day-to-day operations. Michael also acknowledged that medical insurance premiums went unpaid, but the company refunded the withheld funds to the employees once it was discovered that the insurance coverage had been cancelled.
As of September of 2013, Michael said almost everyone was paid for actual days worked with exception to administrators. He said there was a “considerable” amount of employees who were shorted vacation days that haven’t yet been paid. This, Michael concluded, was attributed to the lack of cash flow.
Michael said that the company purchased two airplanes that were “business expenses.” Also, he said that Timothy Kephart paid a contractor to build a barn for his horses, indicating there “might” be a check from the company’s checking account to the contractor for the barn’s construction. He said that there wasn’t anything “maliciously” done and firmly indicated that he was “not responsible.” Michael said funds were shorted based upon a cash flow worksheet they followed at the company.
On April 3, 2014, Walters interviewed Timothy Kephart, who started by saying, “the records speak for themselves” and repeated the same statement again later on. He explained that First Capital Bank was used for cash flow for the day-to-day operations from 2006-2013.
Medova, he said, was used for employee medical insurance until cancelled on them in June of 2013 and retroactive to May of 2013. However, he said that the company refunded all insurance premiums withheld to the employees in September of 2013.
Walters noted that throughout the interview, Timothy Kephart commented that “ultimately the president of the company has the final say.”
Timothy Kephart confirmed that several employees notified him of 401K shortages, but he couldn’t remember exactly when. When asked if he used company funds for his own expenses, Timothy Kephart said nothing was used for “personal” purchases.
According to him, the shortages and the failure of the company were caused by the downturn in the economy, cash flow, banking problems and the daily borrowing for company operations. He also confirmed that an investor’s group from Lancaster had earmarked funds to pay back the 401K plans, and he claimed some of it was paid into the funds.
However, Timothy Kephart later indicated that he wasn’t’ sure why Michael or Neeper didn’t pay to the 401K fund.
When asked about the “stable” he had constructed for his horses at his residence, Timothy Kephart said it “was only a barn.” He said it was “possible” that a company check may have been written to the contractor for “some of it.”
On May 2, 2014, Walters interviewed Robert Ayerle from the investor’s group in Lancaster regarding his interactions and dealings with Kephart Trucking Co. He indicated that Timothy Kephart was in charge and deals required his approval. He said there were specific funds earmarked for payment of employee 401K accounts, which had been shorted. Also, Ayerle added that his firm had invested more than $6 million in Kephart Trucking Co. and were trying to recover as much of their investment as possible through liquidation of assets.
On May 2, 2014, Walters interviewed the contractor of Timothy’s Kephart’s barn. He said he’d been contracted several times by Timothy Kephart to construct structures for both his business and private residence. The contractor shared documents for the most recent structure, which was a $300,000 stable, constructed behind Timothy Kephart’s residence to house his three horses.
The contractor explained that Timothy Kephart would make out a personal check to him for each billing cycle. However, he said there was an occasional check that would bounce. The contractor said that Timothy Kephart would arrange to have funds wired directly to his account, but he wasn’t sure if they came from a personal or business account.
On May 8, 2014, Walter’s re-interviewed Timothy Kephart at his request. Timothy Kephart explained that he bounced a few checks to his contractor and wired funds directly from the Kephart Trucking Co.’s account to cover the bill. Timothy Kephart said he then “back flowed” funds from his company in Ohio into the Kephart Trucking Co.’s account to cover the construction costs.
Timothy Kephart confirmed that he’d borrowed $6 million from the investor’s group, and part of the loan was $200,000 to be divided up in the following manner: $100,000 to Dart Trucking in Ohio and $100,000 to bring Kephart Trucking Co.’s employees’ 401K accounts up to date. Timothy Kephart said he wasn’t sure why the 401K designated funds were never wired to Turning Point Associates.
He also confirmed that medical insurance premiums were withheld from employees’ paychecks, but the premiums weren’t paid. He said that the withheld amount was returned to each employee and acknowledged that several outstanding medical bills still remained. Additionally, he said there was still some people owed back pay for two to three weeks of vacation and he tried to repay them but just ran out of funds.
On June 9, 2014, the Clearfield County District Attorney retained the services of a certified fraud accountant, Bob Gunderson, to further investigate and to confirm all of the financial findings in the case. Gunderson concluded and confirmed that many of the transactions of question and the transfer of funds from the Kephart Trucking Co. to a contractor for a barn at Timothy Kephart’s residence.
Gunderson also determined the amount of funds that Timothy Kephart owed to each of the alleged victims with regards to their 401K accounts. He included detailed reports from Medova depicting the exact funds owed for medical bills, which accrued during the timeframe the alleged victims believed they had medical coverage. In his report, Gunderson also included several pages of financial paperwork seized during this investigation.
Timothy Kephart is currently serving a 46-month, federal sentence for his involvement in a $3.6 million check-kiting scheme against a bank in Huntingdon, Ohio.