Dan's Papers - March 28, 2008

I've heard a lot of real estate stories, but I've never heard of the selling price of a house affecting how much time a person spends in jail. Yet, on May 18, that is exactly what is going to happen in the case of a Montauk woman who embezzled $539,000 from the Montauk Fire Department.

The woman is Terri Gaines, and between 1999 and 2005 as the bookkeeper for the Montauk Fire Department she diverted $539,000 in funds from the checkbook of that Department for personal use. How she got away with it for that long is hard to imagine, but she did. I guess when you're the bookkeeper your job is to keep an honest set of books. But nobody was watching the bookkeeper.

What might have also been a factor here was that, in addition to being the bookkeeper, she was also one of six elected Fire Department Commissioners during that period. So she was apparently trusted to run the place.

In any case, early last spring she was brought up on these incredible charges of grand larceny, which, if proven, would have gotten her a prison term of five to fifteen years. The complaint said she charged $330,000 for vacations and gambling debts on her credit card, and then reimbursed herself from the fire department account. She also wrote checks directly from the fire department checkbook for $110,000 of personal goods and services, and in addition to that, she wrote another $66,000 to herself so she could pay, among other things, her son's private school tuition.

At first, the town was just shocked at this. Was it true? Well, Gaines hired a lawyer to defend her and the result was, after looking at the evidence and considering everything, a plea bargain. She would plead guilty to the charge. But she would also sell a house in Montauk she bought with some of this money, and she would turn over the funds to the District Attorney. This house sale would reimburse the fire department for the entire $539,000. It would be full restitution. In return, she would serve a prison term of just one to three years.

Well, in the early summer of 2007 when this deal was struck, there was a pretty good likelihood that the house would sell for that amount. The real estate market was fine. What might have cost $250,000 in 2000 would surely fetch $539,000 in 2007. So it would be a win-win situation. Indeed, she had spent the money so the cash part was practically all gone. Thank goodness the roaring real estate market would make it all right.

Of course, it came up during the signing of this plea bargain that it might take six months or more to sell the house. That was fine. They'd allow ten months for the sale to happen. But there could be no hanky panky. The sentencing would take place after the money came in. If the house was sold and the money turned over, the jail time would be one to three years. But if no money appeared, then the jail time would triple. She'd serve three to nine years. Gaines, after noting that three to nine was still less than five to fifteen, signed.

Well, guess what? You know all that stuff about sub-prime mortgages and a tanking real estate market?

Offers were made. And hints of offers were made. But none would net $539,000. So Gaines turned them away. Soon, the sentencing deadline was upon them, and her lawyer filed papers asking for an extension. It was granted. Then after another month they filed for another extension and it was granted again.

This third date for her sentencing was March 14. And just before it, Gaines asked for still another extension, this time of two months.

The real issue is that no provision was made for what might happen if Gaines only was able to sell the house for less than $539,000. What if she sold it as a fire sale, for $350,000? In the absence of any agreement, the fair thing to do would be to have a sliding scale. So if she turns in just $350,000, she would have to serve 3.2 to 9.6 years, rather than the one to three she would serve if she paid the whole thing.

Or to put it another way, for every $1,073 under the $539,000 she fails to present the judge, her jail term would increase by one week. I've got to say this is a very stressful bargaining position to be in, giving a little ground in a negotiation and knowing that as a result, it will increase your jail time.

Well, she's the one who stole the money.

District Attorney Spota said that this is to be the last extension that will be granted. On May 18, one way or another, Gaines will be off to the County jail for subsequent transfer to a prison upstate.

How long she stays there, of course, could be shortened if the real estate market makes an upward turn. You never know.