PROVO — Prosecutors say that a former BYU finance officer and his wife used a defunct corporation as a shell to steal hundreds of thousands of dollars in collection fees from the university over several years.
In a preliminary hearing Friday in 4th District Court, deputy Utah County Attorney David Wayment charged that John Davis and his wife, Carol, used an expired corporate name as a front to skim thousands in inflated student fees that were supposed to go to collection agencies.
By the end of the four-hour hearing, Judge James Taylor found probable cause to bind John Davis over on seven counts of theft and one count of racketeering, all second-degree felonies. Taylor, however, found the state lacked enough evidence to prove that Carol Davis knew that potential criminal activity was going on, despite having her name on several bank accounts related to the crime.
Taylor ordered that four counts of theft and one count of racketeering be dropped against Carol Davis.
During the hearing, finance officials with Brigham Young University testified finding strange financial activity involving John Davis, who worked as BYU's supervisor of collections.
Mark Madsen, assistant treasurer over student financial services at BYU, testified of finding several checks requested by John Davis made payable to a company called RCM (Regional Credit Management). Madsen assumed that the company was a collection agency contracted with BYU to collect on outstanding debts from students who had failed to pay their tuition, library fees or parking tickets.
Further investigation, Madsen said, showed that the checks, most made out over $5,000 to RCM, were ultimately endorsed by John Davis and deposited into an RCM bank account belonging to John and Carol Davis.
An internal audit by BYU showed more than $306,000 had been funneled to RCM bank accounts between May 1995 to May 2001.
Mark Gotberg, assistant director of internal auditing for BYU, testified that over 70 checks were requested by John Davis, payable to RCM.
Utah County investigator Toby O'Bryant testified that shortly after BYU officials contacted them, he looked into the corporate history of RCM. O'Bryant said he found that RCM had been incorporated through the Utah Department of Commerce by Carol Davis in 1994. Two years later, RCM was involuntarily dissolved by the state after Carol Davis failed to file an annual financial report with the state. There was no evidence that RCM ever did any official business as a corporation.
But despite RCM being officially dissolved, O'Bryant said, John Davis continued to use the company name without disclosing his relationship to BYU officials.
Gotberg said as part of his job, Davis was asked to contract with outside collection agencies on the more difficult student accounts. As part of the agreement, the collection agency was allowed to charge a 30 percent fee. BYU would collect its money and the collection agency would pocket the difference. An audit showed, Gotberg said, that Davis was inflating what students owed and pocketing the difference.
Defense attorney Craig Snyder argued that although Davis' activity may have violated BYU's conflict of interest policy, it hardly constitutes a crime. Snyder pointed out in court that although Davis took a cut of the collection fee, BYU still got all of its money owed to them on many student accounts.
Gotberg, however, pointed out that BYU's audit showed that more than $260,000 is not properly accounted for.
Since discovering the activity, Gotberg said all BYU students have been refunded the difference pocketed by Davis.
Wayment said Carol Davis knew of the pattern of activity and on one occasion funneled $66,000 from an RCM bank account at Zions Bank to her own personal account.
Judge Taylor questioned whether Carol Davis fully knew what her husband was doing and found there was no evidence that she was fully aware of what was happening.
Taylor ordered charges dropped against Carol Davis without prejudice, leaving the door open for prosecutors to file charges again in the future.
John Davis pleaded not guilty to the charges Friday. A three-day trial has been scheduled to begin April 28.
Wayment said he has no plans to refile charges against Carol Davis.
E-MAIL: gfattah@desnews.com