A fake congregation and tax schemes — California rabbi’s years of fraud revealed

The Clarence S. Brooks Foundation is in a nondescript three-story building on Wilshire Boulevard in Los Angeles that also has a Wells Fargo bank branch and an urgent care center among its tenants.

From there, the small charitable foundation established in 2004 that had $5.8 million in assets at the end of 2018 makes grants primarily to Jewish educational organizations. The half-dozen or so annual awards run in the mid-to-low six figures each, records of the charity show.

So it probably was not much of a surprise when in 2013 the foundation received an application for a grant from Chabad of Poway and its leader Rabbi Yisroel Goldstein. The grant application said the money would be used to run one of the several programs at the Poway synagogue, helping to pay for rent, remodeling costs and payroll.

The application was a winner. In early 2013 the foundation made a $600,000 grant to Goldstein, distributing the money in four $150,000 installments from February through November. It was one of the largest grants it made that year.

But the money didn’t go to the synagogue for remodeling, payroll or rent.

Instead, it went to Goldstein. He put some of the money in personal bank accounts and converted much of it to cash after churning the grant funds through several bank accounts he controlled. After the final payment arrived from the foundation, Goldstein handed over the bulk of the money, about $400,000, to another person who had cooked up the scheme with him, and pocketed the balance.

The Brooks Foundation scam is just one of numerous frauds described in detail in court documents related to Goldstein’s shocking plea last week to tax fraud and wire fraud. The 58-year-old rabbi — who gained international notoriety after an April 27, 2019, shooting attack on Chabad of Poway synagogue that killed congregant Lori Gilbert-Kaye and injured three others, including Goldstein — admitted to years of illegal schemes involving taxes, government programs, real estate and public and private grant programs.

The court records illustrate in detail a spectrum of frauds that are staggering in their amount, scope and duration. They also reveal that after federal agents served a search warrant on Goldstein’s offices at Chabad of Poway and at his home in October 2018, the rabbi — now knowing he was under federal scrutiny — tipped off no fewer than five others who had allegedly participated in various schemes over the years.

One of them was an individual identified in the documents only as “M.S.,” who had allegedly participated in the Brooks Foundation fraud with Goldstein and got the lion’s share of the misappropriated funds. In December 2018, five years after divvying up the foundation money and two months after the search, Goldstein warned M.S. about the investigation, the records say.

Goldstein pleaded guilty Tuesday to conspiracy to defraud the government and wire fraud charges. The charges cover a period from 2010-18, but prosecutors said he had been engaged in fraud as far back as the 1980s. The FBI put the total amount of money in play in the scheme at $18 million.

U.S. Atty. Robert Brewer said Tuesday that his office has already decided not to seek a prison term for Goldstein, citing his cooperation with an ongoing investigation that has led to five others pleading guilty and as many as 20 more under investigation, and his conduct in the wake of the attack.

After the shooting, he called for tolerance, love and forgiveness in numerous appearances and speeches. He was invited to the White House, met President Trump, and hosted Vice President Mike Pence at the Poway synagogue.

At the time, however, he was under investigation by the federal government and had agreed to cooperate with a probe into years, perhaps decades, of serial frauds he allegedly had orchestrated. That information became public for the first time Tuesday.

No one from the Brooks Foundation responded to several requests for an interview last week. Neither Goldstein nor his lawyers have responded to numerous requests for comment over the last year from the San Diego Union-Tribune, and they declined to comment after his guilty plea.

Citing exhaustion, Goldstein retired from Chabad of Poway, which he founded in 1986, in November.

But the court records show that he signed the plea agreement that same month. And the world headquarters of Chabad in New York said it learned of his crimes late last year and forced him out.

The court records describe a long-running tax evasion scheme that Brewer called the “90-10 fraud” at a news conference after the guilty plea Tuesday. It involved donors writing large checks to Chabad as “donations” to the tax-exempt organization, and in return getting a receipt on Chabad letterhead that they could use to claim a large tax deduction.

They also got 90% of their money back secretly. Goldstein kept 10%, according to prosecutors and the plea documents he signed.

In the court records, donors in on the scam are identified only by initials. In one case, Goldstein accepted dozens of contributions of $8,000 per month between 2010 and 2018 from “S.W.,” who owned a grocery business. The records say Goldstein kept half and kicked back the balance by regularly hand-delivering cash at the grocer’s business.

Other schemes were more complex. Along with Alex Avergoon, another defendant who pleaded guilty to wire fraud, identity theft and money laundering in connection with a separate real estate Ponzi scheme, Goldstein defrauded the Federal Emergency Management Agency and the state Office of Emergency Services of nearly $250,000 in emergency grants.

To do so Avergoon created a company out of thin air with the perhaps intentionally ironic name “Imagination Construction Co.” Avergoon created false invoices complete with a bogus contractor’s license number for carpet removal, HVAC repairs and other work. Goldstein backdated checks from Chabad accounts to meet reimbursement requirements from the state agency.

The scheme netted about $185,000 in 2011 and $75,000 in 2012, according to the plea agreement.

Goldstein engaged in another scheme involving a fictitious entity — this time a religious congregation.

Along with an individual identified as “Z.B.,” Goldstein submitted bogus invoices totaling $76,750 to be reimbursed by FEMA and Cal OES from a program making grants specifically for upgrades to security.

Goldstein claimed that the upgrades were to be made to something called “Congregation Bnei Yisroel,” according to the court records. That was not a real congregation, but instead Goldstein’s own residence. Working with Avergoon and Z.B., the rabbi secured $75,000 in government grants in 2017 and 2018 and kept an unspecified portion for himself.

It is unclear from the records if any of the money was spent on security upgrades. However, the lawyer who filed a lawsuit on behalf of a congregant injured in the attack said there was very little security such as gates or locked doors at Chabad of Poway.

Federal agents began to investigate Goldstein in late 2016 in the course of the probe into Avergoon, who collaborated with Goldstein on some of the grant frauds and recruited donors for the tax fraud, prosecutors said. The investigation began to close in on the rabbi in May 2018, when an undercover FBI agent met with Goldstein at Lake Poway Park and, later, in his office at Chabad of Poway. The agent posed as someone who wanted to lower his tax liability and launder proceeds from what the agent said was an insurance scam.

Goldstein agreed to both, according to the plea records, taking $50,000 and providing documents of a donation of that size to the synagogue, while wiring back half to a bank account provided by the undercover agent and keeping the other half. Then in June he accepted $50,000 in cash in five stacks of crisp $100 bills at his office, and returned 31 gold coins with a value of about $40,000 to the agent.

Four months later, on Oct. 17, 2018, agents from the FBI and Internal Revenue Service descended on Chabad of Poway and Goldstein’s nearby home. They told him he was under investigation and had been for nearly two years, and that the person he met with at Lake Poway and his office was an undercover agent.

Prosecutors said Goldstein agreed to cooperate and is being rewarded for that in his plea deal. The documents show that soon after the raid he warned others who had engaged in the tax scheme that he was a target of federal investigators.

In one case, he warned Yousef Shemirani, 58, of Poway, who pleaded guilty last week to filing a false tax return and admitted claiming fake donations of $137,650 to Goldstein and Chabad of Poway from 2011-16.

Shemirani’s plea said Goldstein knocked on his door the night of Oct. 20, 2018, and told him about the raid, then warned him the next time they met he might be “wearing a wire.” Days later Shemirani tried to sign up for an IRS voluntary disclosure program that allows people to avoid some penalties — if they voluntarily admit erroneous tax reporting.

Another defendant, Bijan Moosazadeh, 63, of San Diego, tried to enter the same program after learning of the investigation. Another individual identified as “V.R.” met Goldstein in December 2018 with $10,000 he wanted to disguise as a donation under the tax scheme. Goldstein instead warned him of the investigation and, according to the plea records, told V.R. he was “out of business.”

At some point after the raid, Goldstein cooperated with investigators and was actively doing so when the attack on Chabad of Poway occurred — and catapulted Goldstein into the public spotlight.

Since then Chabad has been sued by Almog Peretz, a victim who was wounded in the attack. The suit contends the synagogue did nothing to improve security despite getting a $150,000 grant to upgrade security just before the shooting.

Yoni Weinberg, the lawyer for Peretz, said those accusations now carry more weight because of Goldstein’s admissions to diverting grant funds. “Money that was supposed to be coming in to help the congregation obviously was not going to help the congregants,” he said.

Weinberg was also critical that Goldstein will not go to prison.

“One problem I have is they are taking it easy on him,” he said. “He’s not going to do jail time and will get probation. They say that is because of the leadership he displayed in the days following the attack. To me, it’s not leadership when you stand in front of congregants you have been stealing from and make them believe you are doing all this for them.”

In a statement, Brewer said every sentence had to take into consideration both the seriousness of the crime and the circumstances of the defendant. He again noted Goldstein’s post-shooting cooperation and conduct.

“His work to bring people together in the aftermath of the shooting is part of who he is,” Brewer said. “A fair and just sentence has to account for that, as well as his lifetime of service and his significant cooperation. We made this decision solely based on the facts and circumstances of this case and this defendant.”

Goldstein’s appearances with Trump and Pence did not weigh in the sentence, according to a Department of Justice official in San Diego. “We have not conferred with the White House about any prosecution decision or outcome in this or any other case,” the official said. “The DOJ in Washington supported our handling of this case.”

Jason Forge, a former federal prosecutor who earned convictions in the Randy “Duke” Cunningham case and later in private practice was a key member in a team of lawyers that got a $25-million settlement in a lawsuit against Trump University, said it was unlikely Goldstein would go to prison given his age and the lighter treatment white-collar crimes get.

Forge said that while defendants are often rewarded for cooperating with prosecutors, he was less convinced that Goldstein should be given so much credit for his actions after the shooting. Still, he said Brewer should be acknowledged for not dropping the case after the shooting and the notoriety.

“You have to give Bob Brewer credit,” Forge said. “I guarantee you there are a significant number of U.S. attorneys who would not have the stomach for it.”

Goldstein is set to be sentenced in October.

Sources have told the San Diego Union-Tribune that the pleas were supposed to take place in the spring, before the coronavirus outbreak ground much court business to a halt. Indeed, several of the plea agreements from co-defendants were signed in February.

Moran writes for the San Diego Union-Tribune.