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FEGS Faces Federal Criminal Probe Over Fiscal Collapse

Federal prosecutors are investigating the collapse of the bankrupt Jewish charity FEGS Health & Human Services, the charity revealed in an October 2 court filing.

The nature of the investigation by a U.S. Attorney’s office is unknown, and spokespeople for the U.S. Attorneys for the Eastern and Southern District of New York would not confirm or deny its existence.

Investigations into the FEGS collapse by the New York State Attorney General and the Manhattan District Attorney were first reported by the New York Daily News in February.

FEGS’s bankruptcy attorney, Burton Weston, did not respond to a request for comment.

“This would be an investigation of something that could potentially [be] criminal conduct,” said Daniel Kurtz, a partner at Davis Wright Tremain and former head of the Charities Bureau of the New York State Attorney General’s office. Kurtz said it was not immediately obvious what federal prosecutor’s interest would be in the FEGS case, though said it could be related to alleged misuse of federal funds.

FEGS declared bankruptcy in March, after uncovering massive financial losses in its 2014 fiscal year. The Forward reported in late September that a top FEGS executive received a $90,000 bonus one month before the charity revealed its financial crisis to donors.

Mention of the U.S. Attorney’s investigation came in an early October filing by FEGS’s lawyers for the charity’s bankruptcy case. In the filing, FEGS asks permission from the bankruptcy judge to use payments from a FEGS insurance policy to reimburse current and former FEGS officers and directors for costs “associated with the defense of” investigations by the Attorney General, the District Attorney and the U.S. Attorney.

According to the filing, FEGS and a number of its former officers began receiving subpoenas related to the investigations in January. The filing does not distinguish between the three investigations, and it’s not clear how active each agency has been. FEGS itself has turned over a million pages of internal documents to investigators so far, the charity said, and both current and former employees have been asked by one or more of the investigating agencies for documents, interviews, or depositions.

In its filing, FEGS said that at least five current or former unnamed officers or directors of the charity have asked for funds out of the insurance policy to reimburse for expenses related to the investigation. FEGS argues that they should be reimbursed for attorney’s fees, in part, because their having competent lawyers “might well lead Investigating Agencies to conclude that no further action be taken.”

Parties to the bankruptcy suit have until October 13 to object to the motion.

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