A Danville man who formerly worked as an accountant at a South Bay trust management company pleaded guilty in federal court in San Jose Wednesday to a fraud charge and admitted stealing millions of dollars from trust accounts, U.S. Attorney Melinda Haag announced.
Leo Joshua Kennedy, 62, was previously an accountant at Backhouse Fiduciary Services of Campbell and had been the boyfriend of the company's president, Christine Backhouse.
He was indicted on Oct. 31, 2012, on 10 counts of wire fraud related to electronic transfers of funds and pleaded guilty to one of those counts before U.S. District Judge Lucy Koh Wednesday.
First Assistant U.S. Attorney Brian Stretch said prosecution and defense attorneys agreed that the amount of restitution Kennedy owes to victims is $13,787,151.
Haag said in a news release that during the guilty plea, Kennedy admitted that the total amount he stole was between $7 million and $20 million. That range was given for purposes of calculating sentencing guidelines, Stretch said.
Haag said Kennedy used the stolen funds to pay for his personal investments and living expenses.
Kennedy will be sentenced by Koh on Aug. 20. He could face up to 20 years in prison for the fraud conviction as well as an order to pay restitution.
Kennedy is currently free on a $50,000 bond, Haag said. His defense lawyer, Matthew Jacobs, was not available for comment.
Lawyers representing Backhouse and her company in civil lawsuits filed by the victim trusts in Santa Clara County Superior Court also could not be reached for comment.
In July 2012, a former lawyer for Backhouse, Andrew Watters, said that when Backhouse discovered a discrepancy in her records in February of that year, she confronted Kennedy, her then-employee and boyfriend, and immediately ended her professional and personal relationship with him.
The attorney said then that Backhouse was "devastated" by Kennedy's actions and was committed to trying to aid in the recovery of the missing funds.
Philip Gregory, a lawyer for more than a dozen of the victim trusts, said his clients lost $13 million but that he believes the total lost by all of the trusts is more than $17 million. The people who established the trusts include retirees, he said.
Gregory alleged that Kennedy has refused to aid in recovering funds and said "we don't know" how much may be regained.
"He invested the lion's share in startups, as best we can tell," Gregory said.
The civil cases are scheduled for a case management conference in Santa Clara County Superior Court on June 6, Gregory said.
Gregory also alleged his clients "had no role" in discussing the plea terms with the U.S. Attorney's Office, but said he hoped they will be able to make victim statements at the sentencing. Stretch said prosecutors could not comment on their communications with victims.
Backhouse currently faces an administrative proceeding in which the state Professional Fiduciaries Bureau, a division of the Department of Consumer Affairs, is seeking to revoke or suspend her license.
The bureau initiated the proceeding in a document known as an accusation on Dec. 5. It alleges that Backhouse "engaged in an extreme departure from the standard of practice for a professional fiduciary" by failing to review bank statements adequately and by authorizing Kennedy to arrange unilaterally for wire transfers of trust funds.
The accusation document alleges that Kennedy diverted $16.2 million from 37 trust funds managed by Backhouse between 2007 and February 2012.
Consumer Affairs Department spokeswoman Monica Bargas said the licensing case is expected to be heard by an administrative law judge within the next several months.
In the meantime, Backhouse's current license is listed on the Professional Fiduciaries Bureau website as active and valid until Dec. 31 of this year. The website says that as of Nov. 1, 2013, she managed $37 million in trust assets.