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Two water districts lose $1 million in alleged embezzlement; ex-con is suspect 

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Up the pass, word has quickly spread that Terry Malcom, an ex-con from Nebraska, is at the heart of a story about the fleecing of two mountain water districts reporting cumulative losses of $1 million.

Why was a convicted criminal dealing with ratepayer money, even as he was supposed to have been under the supervision of the federal probation system? At least part of that answer lies in Malcom's ebullient personality and his ties to an old law-school buddy.

Malcom's outgoing nature served him well for years in McCook, Neb., where he served as an attorney and was appointed by the governor to chair the state Highway Commission in 1987.

But in 1997, Malcom lost his law license and was convicted in state and federal courts of swindling clients out of $2.7 million. He served prison time before being released to the federal probation office in Denver for five years of supervised release, which ended in 2007.

By then, he was already three years into running the Cascade Metropolitan Water District for law school pal P.J. Anderson, a longtime lawyer and developer who owns Cascade Public Service Company. Anderson says he'd been unaware of the depth of Malcom's past crimes; now, though, he says an audit shows money began to slip away from Cascade almost immediately after Malcom arrived. That audit has not been released.

Despite Cascade being home to just 350 customers, Anderson says the district has lost $840,000. Meanwhile, Arabian Acres Metropolitan District, in Teller County, for which Malcom also worked, sets its loss due to suspected embezzlement at $206,000.

Both are facing big water problems, and both are cooperating with the Fourth Judicial District Attorney's Office.

"The Attorney General's Office is assisting us in this investigation," DA's spokeswoman Lee Richards says via email, "but we are not allowed to comment on open investigations."

In the meantime, Malcom, 65, remains free, saying little to the media but promising there's more to the story.

Life of the party

Malcom grew up in a small Nebraska town and attended Washburn University School of Law in Topeka, where, Anderson says, he was the life of the party. "If you were going to have a roast of somebody," Anderson says, "he would be the emcee."

From there, Malcom moved to McCook, where he spoke at the local community college's commencement, chaired the hospital's fundraising campaign and was a member of the board of a local bank, according to law.com.

But in 1996 things went south in a scheme that saw him stealing from one client to replace the missing funds of another. In 1997, the Nebraska State Bar Association disbarred Malcom based on 10 counts of mishandling clients' money. The following year, he took a deal in which he pled guilty to one count of theft by deception and one count of forgery, for which he was given state sentences of two to six years and one to three years, respectively.

In July 1998, Malcom was convicted in federal court on four counts of mail fraud and one count of wire fraud. He was sentenced to 51 months on each count, to run concurrently, plus five years of supervised release, and was ordered to pay $2,729,950 in restitution, federal court records show. (He's paid $145,808.70 so far, the federal court in Lincoln, Neb., reports.)

He served the federal term concurrently with the state sentence, which had begun in March 1998. In September 2001, he was released to the U.S. Marshal and taken to a minimum-security federal prison camp in Yankton, S.D. He was released in March 2002, having earned 200 days of "good conduct time," says Chris Burke, spokesman for the Bureau of Prisons in Washington, D.C.

From there, Malcom headed for Colorado, according to Met Gallagher, with Lincoln's federal probation office. "He was supervised in the state of Colorado," Gallagher says.

Elizabeth Oppenheimer with the federal probation office in Denver says records concerning his supervision are confidential, so it's not publicly known what type of supervision was exercised, or how often Malcom checked in.

Anderson, however, had been in touch with Malcom sporadically through the years. While he'd heard Malcom "had taken money out of a trust account," he says in an interview, "I didn't understand the seriousness of what he'd done. I always thought it was because of other people."

So Anderson offered Malcom a chance to start over, hiring him under a contract of about $3,000 per month to manage the Cascade district, for which Anderson served as president. To this day, Anderson — a lawyer, developer and former El Paso County administrator — says he's never Googled Malcom, or discussed with him the disappearance of all that money.

Manager for hire

After hooking up with Anderson, Malcom called himself a management consultant. In fall 2005, he applied to handle accounting, billing and management for the Arabian Acres Metro District, an enclave of 145 homes between Florissant and Divide. There were two bidders, according to board minutes.

Malcom promised use of the Cascade Metro District offices with "state of the art computer programs," the minutes say. He also offered to provide "accounting, auditing duties ... consumer confidence reports, check registers and customer service," and bid $1,000 a month, $5,000 per year less than the other bidder. He was hired in a unanimous vote.

Arabian Acres' board discovered "embezzlement of funds" last June, the district's attorney, Joan Fritsche of Denver, said in a media statement issued Nov. 19.

That discovery was triggered by "questionable transfers" between the Arabian Acres and Cascade districts, "as well as checks written to a suspicious consulting firm," the media statement says. A forensic audit confirmed $206,000 was missing, including $100,000 the district had borrowed to drill new wells, Fritsche wrote. While not accusing him directly, she noted the district had "dismissed contract administrator Terry Malcom from his responsibilities."

Arabian Acres' water tanks had nearly run dry due to drought in recent years, and the subdivision was already paying to truck water in. In an October letter to ratepayers, the district said a new fee was needed "to meet our financial obligations" and cover a shortfall that was "largely due to the embezzlement that we have suffered." That fee — a whopping $100 per month per home — was adopted in November, according to meeting minutes.

Fritsche's statement says the district won't comment further until the DA's investigation is completed.

One big leak

Cascade's water problems date to 1990, when the Cascade Public Service Company, then owned by Charles Cusack, came under pressure from the Environmental Protection Agency to upgrade its system to filtered water, says 30-year Cascade resident Chris Reimer. According to Anderson, the company either refused or was financially unable to build its own treatment plant at that time.

So Cascade bought Colorado Springs Utilities water at 150 percent of normal charges, the going rate for those outside the city's service area, and forfeited some of its water rights.

Anderson bought the Cascade company in 2003 and formed the water district in 2004. He conveyed the water system to the district in 2005. In late 2005 or early 2006, the district secured a $480,000 grant and borrowed another $520,000 to repair the system. But soon, recession hit and the district got tangled in a lawsuit over the 1990 water rights.

That suit is ongoing. If the district prevails, it could borrow money to build a treatment plant and deliver water for less than what it now pays Colorado Springs, Anderson says. The outcome hinges in part on alleged chronic over-billing of the district, which is where Malcom again enters the story.

Last spring, Anderson decided to verify how much Utilities had been overbilling the district. An exhaustive comparison of billings with Cascade's master meter, Anderson says, suggested it had — but not by as much as Malcom had claimed. "I was being told by Terry that the city had overbilled by more than $400,000," Anderson says. The actual overbilling, he says, was about $105,000.

"The overbilling from the city gave him [Malcom] cover," Anderson says, adding that Malcom paid Utilities nothing from December 2011 to spring 2013 "under the theory there was a credit" due to Cascade.

Anderson locked Malcom out of his office last April, seized his computer, called a special meeting of the board, hired a forensic auditor and gave data from Malcom's computer to the DA. He says the audit shows money being siphoned "from the beginning" of Malcom's time there.

Dick Tegtmeier, a well-known criminal defense attorney specializing in white-collar crime, who Anderson says is representing Malcom, did not respond to two phone calls seeking comment.

'Beyond belief'

Although Malcom was not a signatory on Cascade Water District bank accounts, Anderson says hundreds of district checks were forged and moved among local banks. Park State Bank of Woodland Park in particular was implicated earlier in the November media statement issued by Arabian Acres lawyer Fritsche.

But bank president Tony Perry tells the Independent, "As soon as we were informed, we jumped in and did everything we were supposed to do. We've put [in] 150 hours trying to help them resolve their issues. Our role right now is to help them make sure they have good internal controls in place. They didn't have them before."

For now, Cascade Water District has imposed a $25-per-month charge on its customers to pay the money it still owes Utilities. Those customers packed a Feb. 25 board meeting at the Cascade fire station to ask questions and gossip about Malcom. "It's like quicksand, the more you get into it," one man said.

The district, Anderson says, might take a swing at suing the accounting firm that audited the books annually and always delivered a clean bill of health, despite the missing money. But if Malcom is eventually prosecuted and found guilty, Anderson says he'd like to recover the funds from him, if possible — though he says his college pal might first have to satisfy restitution owed in Nebraska.

Of the whole ordeal, Anderson shakes his head.

"It's beyond belief," he says. "I'm stupid. I've got egg all over my face. It's horrible on so many levels. I can't believe I didn't see it."

As for Malcom himself? When the tall, balding man answers the door of the two-story, $338,000 home where he lives in Colorado Springs, he's courteous but reticent on the topic of what happened in the water districts. He says his lawyer's "head would explode" if he commented.

But he does add, "Don't do a story like that yet. The whole thing will change a lot over the next month or two. Give me a break."

zubeck@csindy.com

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