UNITED STATES ATTORNEYS OFFICE

District of Minnesota

FOR IMMEDIATE RELEASE CONTACT: Tasha Zerna

September 27, 2017 (612) 664-5743

FORMER MAYOR OF STILLWATER SENTENCED TO A YEAR AND A DAY IN

PRISON FOR TAX FRAUD CONSPIRACY

Acting United States Attorney Gregory G. Brooker today announced the sentencing of KENNETH
FRANK HARYCKI, 54, to a year and a day in prison for his involvement in a tax conspiracy.
HARYCKI, who pleaded guilty to one count of conspiracy to defraud the United States in the
ascertainment and collection of taxes on January 15, 2015, was sentenced today before U.S.
District Judge Ann D. Montgomery in Minneapolis, Minn.

Mr. Harycki, a former elected official and certified public accountant, consciously chose to assist
a criminal conspiracy, said Assistant U.S. Attorney Robert Lewis. He later made the right choice
to plead guilty and assist in the investigation. Todays sentencing should serve as a reminder that
anyone who attempts to cheat the tax system, regardless of their position or status, will be held
accountable for their actions.

According to his guilty plea and documents filed in court, during the course of the conspiracy,
HARYCKI owned and operated two businesses that provided bookkeeping, payroll, and
accounting services, including tax-related services, to clients. In mid-2007, the defendant began
providing payroll services for Model Health Care (Model). HARYCKI quickly learned that while
payroll taxes were being withheld from the wages of employees, those taxes were not being paid
over to the government. HARYCKI learned, in fact, there was a standing order that the payroll
withholdings not be paid to the government but instead be used for other purposes, including
compensating the co-conspirators and their family members and funding other businesses operated
by the co-conspirators.

According to the defendants guilty plea and documents filed in court, in February 2010,
HARYCKI formed a company of his own, MKH Holdings, to assume control over bank accounts
receiving Medicare and Medicaid funds the government paid for claims submitted by his co-
conspirators companies. MKH Holdings furthered the conspiracy by causing funds falsely
reported on income tax returns to be funneled to the co-conspirators and others. During the course
of the conspiracy, HARYCKI used his business and accounting skills for the conspiracy as well,
incorporating businesses and obtaining employer identification numbers and new bank accounts,
in order to avoid payment of all taxes due and owing on income. In total, HARYCKIS offense
led to a criminal tax loss of more than $2 million.

On September 14, 2017, the operator of Model, THURLEE BELFREY, pleaded guilty in a related
case to conspiracy to defraud the federal-state Medicaid program and failing to withhold and pay
over payroll taxes for his employees. On the same day, ROYLEE BELFREY pleaded guilty to
failing to withhold and pay over payroll taxes for employees at related companies.

This case is the result of an investigation conducted by the Internal Revenue Service Criminal
Investigation Division, Federal Bureau of Investigation, and Department of Health and Human
Services Office of the Inspector General.

This case was prosecuted by Assistant U.S. Attorney Robert Lewis.

Defendant Information:

KENNETH FRANK HARYCKI, 54

Stillwater, Minn.

Convicted:
Conspiracy to defraud the United States, 1 count

Sentenced:
12 months and one day in prison
Three years of supervised release
$2,176,126.86 in restitution to the IRS

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United States Attorneys Office, District of Minnesota: (612) 664-5600