EPISODE #5 THE RINGMASTER Chip DiPaula and a $65,000 Check
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SEASON THREE – Trade Secrets Saga for 2023
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CHIP IS FLEEING MARYLAND; QUITS UMMS
James C. “Chip” DiPaula Jr., the chair of the University of Maryland Medical System Board of Directors, announced Wednesday that he is resigning from the board, effective immediately.
In a letter to Gov. Lawrence J. Hogan Jr. (R), who appoints most of the UMMS board members, DiPaula said that he was resigning because he had “made the decision to permanently change my residency to another state.” SEE STORY
BY KEN ROSSIGNOL
THE CHESAPEAKE TODAY
NEWS AND COMMENTARY
There are two types of resumes that some in public life build. The resume they post on their profile on LinkedIn and other social media career connections type gatherings and then there are the criminal and litigation resumes. Since Maryland is a leading culture of corruption centerpiece of America, often those with convictions and arrests are still warmly embraced by the political and establishment class. After all, the many Maryland criminals in government and politics were still successful as Boss Tweed of Tammany Hall famously stated, “I seen my opportunities and I took ‘em.”
Thus a few minor felonies aren’t necessarily a career-ender, as in the case of Comptroller Peter Franchot accepting and retaining the endorsement of felon former Senator Tom Bromwell of Baltimore County in his quest to be Governor of Maryland. Charles County Commissioner President Rueben Collins reported on his campaign filings for the 2022 election that he accepted donations from developer Mark Vogel, who had his helicopter seized from him by the feds who said he was transporting cocaine to parties for bigwigs in Atlantic City and he later pleaded guilty to a cocaine rap in Virginia.
Rueben Collins Campaign Donaton
When the hit HBO TV show The Wire was filmed in Baltimore, the criminals and a lot of crooked officials have since waxed poetic that the series isn’t still around as that is the Baltimore that they love and are proud.
The federal civil litigation that could soon lead to criminal charges for Maryland Judge Michael White, St. Mary’s States Attorney Dan White, Maryland State Police Lt. George White, and University of Maryland Medical Systems Chairman James C. “Chip” DiPaula Jr. could result in prison for all or some of the men or simply be a career enhancement in their political futures.
In the litigation of Compass Marketing against Flywheel Inc and Related Parties, there are strong parallels between Chip DiPaula’s official resume on LinkedIn and the allegations against him in the lawsuit. Following DiPaula’s stint as the man who made the GOP National Convention in 2000 operate with military precision, as some referred to his abilities in managing the event, he masterminded the successful campaign of GOP Congressman Robert Ehrlich to become Governor of Maryland in 2002 by doing the rarely achieved accomplishment of beating a well-funded Kennedy. Lt. Gov. Kathleen Kennedy Townsend was the Democratic nominee having served eight years as the backup for Gov. Parris Glendening.
The voters had Glendening fatigue after his affair with his deputy chief of staff, who he bedded in her townhouse, on the state yacht, and on overseas trips to South Africa, the Middle East, and to Europe – was first reported in ST. MARY’S TODAY the year before the election. Glendening’s bestowal of tens of thousands of dollars in raises and promotions to his taxpayer-funded mistress including elevations over more qualified women on his staff, who were not sleeping with him, tarnished the job he was doing as governor. Thus, the political landscape left for Townsend was murky and she soon found herself without the support of women as the election neared. In short, Townsend lost.
Eager to take credit for the election of a Republican Governor in Maryland for the first time since the crooked Spiro Agnew in 1966, was Chip DiPaula, Ehrlich’s campaign manager. DiPaula became Ehrlich’s budget director in 2003 and a year later moved up to the top job as Ehrlich’s chief of staff. DiPaula had to weave his way through budget mayhem and shortfalls, cuts to services and staff, and Democrats who were their usual petulant big-spending whack job selves.
In order to appease the liberals, Ehrlich was soon outspending Gov. Parris $pendening, an accomplishment not thought possible.
Ehrlich lost the 2006 election to Baltimore Mayor Martin O’Malley and DiPaula quickly shifted to being a Mall Maven for an operator of shopping malls and retail developments. As malls everywhere were beginning a long slow slide to decline, hastened by the financial meltdown of 2008, DiPaula found himself working with a snazzy young outfit, Compass Marketing, that discovered and digitally sophisticated the matching of customers and sellers in the explosive online marketing that was dealing with a daily death blow to the malls where DiPaula had been hanging out.
(L-R) John White, Chairman & CEO, Compass Marketing, Inc.; Rajan Bharti Mittal, Managing Director, Bharti Enterprises, Chairman, Bharti Walmart, President, Federation of Indian Chambers of Commerce & Industry; James C. “Chip” DiPaula, Jr., Senior Vice President, International, Compass Marketing, Inc.
Go to the resume of DiPaula at LinkedIn and view his relating the four years, starting in 2010, he spent with Compass Marketing and how it correlates to the outline of crimes and circumstances related in the federal civil litigation.
The lawsuit entitles this career move in 2014 as:
“DiPaula & Miller Secretly Found a Competing eCommerce Marketing Company called Flywheel.” DiPaula and Miller Leave Compass. DiPaula and Miller Poach Compass’s eCommerce Team.”
DiPaula was Bob Ehrlich’s ‘Ringmaster’ and leaving there quickly saw that the brick-and-mortar retail experience would be diminished in the future. His stay at Compass Marketing enabled him to line up new acts in the circus of his own in which he would be an owner and not just an executive.
The complaint against Flywheel and DiPaula states the following:
II. Compass Builds Out Its Operations to Assist Clients on the Amazon Platform
- Compass, due in large part to the early success of its eCommerce Department, secured significant growth from 2005 to 2014. Compass made significant operational investments in its eCommerce Department, including a college intern program specifically set up to recruit and hire students from the University of Maryland.
- On March 1, 2010, Compass hired Chip DiPaula as Executive Vice-President of the International Division. DiPaula accepted and entered into the “Agreement Relating to Employment and Post Employment”) (“the DiPaula Agreement”). The DiPaula Agreement contained the following confidentiality provision:
Employee shall not, during or after termination of employment, directly or indirectly, in any manner utilize or disclose to any person, firm, corporation, association or other entity, except where recognized by law, any Proprietary Information which is not generally known to the public, or has not otherwise been disclosed or recognized as standard practice in the industries in which COMPASS is engaged. Employment Agreement at 1.
- The DiPaula Agreement contained the following Non-Solicitation Agreement:
During the period of Employee’s employment with COMPASS and for a period of two years following the termination of Employee’s employment, regardless of the reason for termination, Employee shall not, directly or indirectly: (i) induce or encourage any employee of COMPASS to leave the employ of COMPASS, (ii) hire any individual who is or was an employee of COMPASS as of the date of employee’s termination of employment or within a one year period prior to such date, or (iii) induce or encourage any customer, client, potential customer, potential client and/or other business relation of COMPASS to not do business or cease or reduce doing business with COMPASS or in any way interfere with the relationship between any such customer, client, potential client, supplier or other business relation and COMPASS. Employment Agreement at 2.
- On January 31, 2011, Compass hired Patrick Miller as Vice President of Digital Strategy for the Compass eCommerce team. Miller also accepted and entered into an “Agreement Relating to Employment and Post Employment,” which contained the same relevant terms and conditions as those contained in the DiPaula Agreement (“the Miller Agreement”).
- As part of routine employee onboarding, Compass gave each of DiPaula and Miller an Employee Handbook (“the Handbook”). The Handbook also prohibited Theft, misappropriation or unauthorized possession or use of property, documents, records or funds belonging to the Company, or any client or employee; removal of same from Company premises without authorization.
Divulging trade secrets or other confidential business information to any unauthorized persons or to others without an official need to know.
Obtaining unauthorized confidential information pertaining to clients or employees. Compass Employee Handbook at 12.
- Miller was especially familiar with the Compass Employee Handbook and the Company’s expectations regarding handling of confidential and trade secret information because in his supervisory role, he was tasked with enforcing Handbook policies with subordinates on the eCommerce team.
- In 2012, DiPaula was promoted to Executive Vice President of the eCommerce team.
Compass Marketing Deck, Slide 92. DiPaula (second from the right) and Miller (far left) with the Compass eCommerce Department in 2013
- Critically, DiPaula and Miller had no prior eCommerce experience. Compass trained DiPaula and Miller on its proprietary marketing protocols it had developed over the prior six years. Compass created these proprietary business methods, processes, and platform communication strategies through years of time, effort, financial investment, and unique access to and analysis of eCommerce data.
- By 2014, Compass had more than 60 employees in 15 cities in the United States and abroad. Compass also expanded its eCommerce services to support its clients’ businesses internationally. It launched services in Canada, the United Kingdom, France, Germany, and Japan. On behalf of Compass, Miller visited Amazon’s United Kingdom headquarters. DiPaula and John White visited India with client Proctor & Gamble (“P&G”) to explore eCommerce opportunities in India. DiPaula oversaw Compass’s efforts to hire a team in and expand into China, including by directing Compass employees to visit Alibaba in China.
III.Compass Develops Valuable Trade Secrets and Proprietary Business Know How that Position it for Success
- Before DiPaula and Miller took the helm, the Compass eCommerce team forged relationships with the biggest CPG manufacturers in the world. Compass stood out as a resource for CPG manufacturers because while eCommerce remained a nascent field, access to consumer sales data was extremely limited. It therefore required substantial effort to gain access and unpack the consumer sales data that was instrumental to successfully marketing and selling products on eCommerce platforms.
- Access to the Amazon.com platform remains scarce. In its early years, Amazon further limited access to its data. Compass was one of very few companies with a close enough relationship to Amazon suppliers to have been recognized as a certified Amazon partner and to therefore have access to receive real time Amazon consumer search, sales, and supply chain data. Because of Compass’s unique and diverse client portfolio, Compass was granted access to Amazon vendor sales data beginning in 2011.
- As an Amazon vendor partner, Compass manually pulled Amazon data on behalf of its clients, by logging in with authorization to a restricted Amazon portal known as Amazon Vendor Central. From the inception of Compass’s access to Amazon sales data in 2011 until around 2016, software tools were not available to automate review of the data. Compass had to manually download and review client sales information provided in Amazon reports by custom building proprietary formulas into excel spreadsheets.
- For more than a decade, Compass exerted significant time, resources, investment, and employee effort to analyze the Amazon sales data and eCommerce algorithms in order to build its proprietary formulas and platform. Its diversified client portfolio allowed Compass to study a high enough volume of client sales reports provided by Amazon to permit Compass the unique ability to understand and discern what pricing, promotions, and search strategies optimized sales and profitability for its clients. Over a long period of time, Compass compiled enough information to understand how Amazon interacted with consumers through promotional tactics to increase or drive those consumers’ purchases on Amazon. Compass was specifically able to determine which Amazon promotional vehicles deliver the most value and under what circumstances.
- These determinations and data-driven insights enabled Compass to effectively advise clients on the entire Amazon process. Compass understood all aspects of the sales/marketing strategy for CPGs selling to consumers on Amazon, including when products were likely to sell, how to stock inventory by season, how to forecast for upcoming quarters, and how to interact with Amazon on critical supply chain details.
- Compass’s intricate understanding and years of dedicated research and investment allowed it to build out work product that described the proprietary business methods, processes, and platform communication strategies that were protected as trade secrets.
- By 2014, Compass’s services to clients were informed by a scientific approach to achieving success for CPGs on the Amazon platform. Compass had dissected the Amazon sales data to look “under the hood” of each Compass client’s vendor account at Amazon, as Amazon’s algorithms affected all vendor sales dramatically. This unique line of sight into platform minutia allowed Compass to develop and offer clients unparalleled advice and services in the core areas such as search optimization, merchandizing, pricing, content, graphic design, and supply chain operations. Each area of service was optimized with Compass’s proprietary system.
- Compass converted its unique line of sight into the Amazon platform into a significant business opportunity. Prior to the tortious conduct that launched Flywheel, Compass was dominant in the eCommerce marketing space.
- The opportunities available to Compass changed drastically, however, when Flywheel arrived on the scene. Flywheel offered and continues to offer identical services as Compass and is Compass’s main competitor.
- Flywheel’s success is no accident. Flywheel offers identical services as Compass to the same market because Flywheel misappropriated the foundational information that Compass compiled for more than a decade to assist clients in navigating eCommerce platforms, especially the Amazon platform.
IV.The eCommerce Guide Teaches the Compass Trade Secrets and Compass Implements Reasonable Measures to Protect These Valuable Assets
- In November 2013, at John White’s direction and after DiPaula and Miller joined the eCommerce Department, the eCommerce team created the Compass eCommerce Guide (“the eCommerce Guide”). The eCommerce Guide compiled Compass’s trade secret, proprietary and confidential Amazon protocols into a step-by-step guide used to train the Compass eCommerce team and execute on Compass’s business strategy. The eCommerce Guide memorialized years of research and work that Compass invested to develop its proprietary processes designed to increase and maximize its clients’ sales on Amazon and other platforms.
- A sampling of representative trade secret categories disclosed or referred to in the eCommerce Guide include:
Methods Compass has used and on which it continues to rely to interact with the back end of Amazon.com, known as vendorcentral.amazom.com, through its ASIN;
Processes and communication strategies Compass has used and on which it continues to rely to interact with the back end of Amazon.com to enhance the visibility of its CPG clients’ brands on the Amazon platform, including product positioning in response to user searches;
Methods and communication strategies Compass has used and on which it continues to rely to interact with the back end of Amazon.com to implement strategic pricing;
Processes and communication strategies Compass has used and on which it continues to rely to optimize efficiencies for clients in navigating the Amazon supply chain, including processes to ensure on time arrival of products purchased on the Amazon platform;
Methods Compass has used and on which it continues to rely to generate a “vendor score card” for its CPG clients that positions the products on the Amazon platform for maximum user visibility;
Methods, protocols, and communication strategies Compass has used and on which it continues to rely to generate pricing values for its CPG clients offering products on the Amazon platform that incorporate past sales activity, cost of goods sold, supply chain costs, and packaging costs into the recommended user-facing pricing values;
Compilation of protocols to assist CPG clients navigating the competitive eCommerce landscape (e.g., implementing target marketing, predicting user purchasing behavior, pricing products relative to competitors, increasing the rate of conversion, and improving supply chain efficiency);
Methods and protocols Compass has used and on which it continues to rely to dissect Amazon sales data to generate pricing and forecasting recommendations for its CPG clients;
Methods and formulas Compass has used and on which it continues to rely to generate a proprietary “Master Client Sheet” for each CPG client to optimize its positioning and sales offerings on the Amazon platform; and
Formulas Compass has used and on which it continues to rely, including the “base equation,” that automatically update data inputs in a client’s “Master Client Sheet.”
- At the time of DiPaula and Miller’s original trade secret theft, the representative trade secret categories disclosed or referred to in the eCommerce Guide were maintained in a PowerPoint format that was descriptive of data stored, analyzed, and manipulated in corresponding spreadsheets.
- Today, the representative trade secret categories disclosed or referred to in the eCommerce Guide have migrated to an open-source software tool known as the Compass Digital Analytics Program (“CDAP”). CDAP is an application platform for building and managing data applications and training videos in hybrid and multi-cloud environments.
- Compass adapted its CDAP to automate the same processes that Compass was undertaking manually at the time of the original trade secret theft by DiPaula and Miller in 2014.
- Given the value of the trade secrets within the eCommerce Guide, Compass implemented safeguards to ensure that the information was protected. For example, Compass limited access to only the employees working in Compass’s Amazon Division of the eCommerce Department. The Amazon Division never consisted of more than 25 employees. The Amazon Division was housed in a single physical location in Annapolis, Maryland.
- During new employee training for the eCommerce Department, Compass informed each individual that its processes were highly confidential and not to be shared with employees outside the eCommerce Department. New employees were required to complete a course to learn the confidential, proprietary, and trade secret information. Once the new employee completed their training, Compass instructed them that they would be working in a separate branch of Compass. This ensured that the confidential, proprietary, and trade secret information never left the domain of the eCommerce team.
DiPaula and Miller Leave Compass.
75. On September 4, 2014, DiPaula and Miller each sent resignation emails at the same time to John White. In Miller’s email, he stated “[t]hank you for the opportunity to start and grow the Compass eCommerce business. I’m proud of what we have built and have lots of great memories of shared success. Like you, I’ve long wanted to own my own company. To do so, I’m giving you my two weeks’ notice and resigning from Compass.”
76. Although Compass did not know it at the time, DiPaula and Miller’s departure was part of a calculated plan, with surreptitious support by Daniel and Michael White, to start a rival eCommerce company by stealing virtually all of Compass’s trade secrets and proprietary business know how and employing it in their new, competing eCommerce company. Thereafter, DiPaula and Miller planned to poach Compass employees who were knowledgeable in these unique eCommerce processes, and pursue virtually all of Compass’s clients, which included many of the largest companies in the CPG industry.
77. On September 3, 2014, the day before they resigned from Compass, DiPaula and Miller formed Flywheel Digital LLC (“Flywheel”) with the Maryland Secretary of State in furtherance of this plan.
78. On October 1, 2014, less than one month after their resignation from Compass, DiPaula emailed John White to ask if DiPaula and Miller could purchase the eCommerce Department: “Patrick and I remain interested in the spin-off concept, as we feel vested in our colleagues we recruited and trained, and the clients we have nurtured these past few years.”
79. In the October 1 email, DiPaula misrepresented the true projected value of Compass’s Amazon eCommerce business by stating it would be a “break-even year for the division.” DiPaula also failed to include or even note a revenue projection compiled by Miller in November 2013 that forecasted more than $1 billion in sales revenue from Compass’s eCommerce customers by 2023.
80. DiPaula again emailed John White on October 8, 2014, expressing his “disappointment with the pace of [Compass’s] response” and “the urgency of completing an agreement quickly,” reiterating his and Miller’s desire to purchase and own Compass’s eCommerce business and all of its associated trade secrets and proprietary information and know how which, unbeknownst to John White and Compass, DiPaula and Miller had already stolen and were using for Flywheel’s benefit to Compass’s detriment.
81. With respect solely to the question concerning whether Compass should seek to enforce the non-competition provisions in the DiPaula Agreement and the Miller Agreement, and with no corresponding knowledge or suspicion that DiPaula and Miller had stolen Compass’s trade secrets and proprietary information and know how, John presented the emails to Daniel White, Compass’s acting General Counsel, and sought legal advice regarding how the Company should proceed. Daniel advised John White that Compass should not pursue legal action against Flywheel, DiPaula, and/or Miller, and should instead compete with Flywheel in the marketplace, where Compass’s trade secrets and proprietary information and know how provided Compass with such a substantial competitive advantage in comparison to a newly formed business like Flywheel without such information. At that time, John White had no reason to question Daniel White’s duty of loyalty to Compass, and John followed Daniel’s advice.
SECRET CHECK TO CHIP DIPAULA
II. DiPaula and Miller Poach Compass’s eCommerce Team
82. Following’s Daniel’s advice, Compass did not bring any legal action against DiPaula, Miller, or Flywheel for the breaches of DiPaula’s and Miller’s Agreements, and instead worked to compete against Flywheel in the marketplace, leveraging its status as a fixture in the eCommerce industry with over a decade of established client relationships and a dedicated eCommerce department with long-developed and incredibly valuable and protectable intellectual property, whereas Flywheel was a newcomer to the industry with no established clients or personnel or intellectual property of its own.
83. In October 2016, two years and one month after DiPaula and Miller resigned, there was a mass exodus of Compass’s eCommerce Department employees. On October 19, 2016, Justin Liu (eCommerce Account Manager), Andrew Fox (eCommerce Account Manager), and Mike O’Donnell (eCommerce Strategist) resigned. The next day, on October 20, 2016, Alex McCord (Vice President and Accounts Manager of eCommerce) resigned. Several days later, on October 21, Dayna Acevedo (formerly Dana Bernard) (Chief of Staff) and Mike Menefee (eCommerce Account Executive) resigned. All of these former Compass employees now work at Flywheel.
84. DiPaula and Miller recruited the Compass eCommerce team to Flywheel with the specific objective of using former Compass employees to unlawfully compete with Compass using Compass’s trade secrets and proprietary information and know how, of which each of the outgoing Compass employees had detailed knowledge. On information and belief, DiPaula and Miller recruited these individuals specifically because of their deep knowledge of Compass’s trade secrets and proprietary business know how.
85. The departing Compass employees not only took with them nearly a decade of specialized training in Compass’s proprietary eCommerce methods and processes, but, on information and belief, left with electronic or hard copy files that memorialized Compass’s trade secret, proprietary, and confidential information regarding maximizing sales on Amazon—the crowning achievement of Compass’s eCommerce business.
86. Rather than compete fairly, DiPaula and Miller have leveraged the collective knowledge of this group of former Compass employees and the trade secrets and proprietary business know how stolen during this exodus to build out Flywheel as a successful enterprise that interferes with Compass business opportunities and poaches its clients.
87. Flywheel used Compass’s trade secrets to specifically target Compass clients that worked with the former Compass employees and has been successful in converting them to Flywheel clients because, by basing Flywheel’s services on Compass’s stolen trade secrets and proprietary business know how, Flywheel offered and continues to offer identical services as Compass to Compass’s former clients. Moreover, by relying on Compass’s trade secrets that it misappropriated, Flywheel was able to rapidly accelerate, or avoid altogether, any research and development required to provide these services.
88. Flywheel’s achievements are not a business success story, but rather are attributable to DiPaula and Miller’s long-secret scheme to steal Compass’s trade secrets and proprietary business know how to unfairly compete with Compass.
89. Again, John White brought his concerns to Daniel White and asked for legal advice concerning whether Compass could pursue DiPaula, Miller, and Flywheel for non-solicitation issues associated with the 2016 gutting of the eCommerce Department. Once again, Daniel advised Compass against from pursuing legal action, advising that any legal action would require Compass clients to get involved and likely needlessly involve them in litigation. In fact, Daniel told John that Daniel would not participate in any legal action against the former employees, DiPaula, Miller, or Flywheel, and if Compass wished to pursue the claims, it would need to hire outside counsel to do so.
90. At the time, Compass was unaware of Daniel’s involvement in Flywheel, his conflict of interest, or the real reasons (as set forth below) why his legal advice was to not have the Company pursue non-solicitation litigation. As a result, Compass accepted Daniel’s legal advice and decided not to pursue non-solicitation legal remedies at that time.
C. Compass Opens an Internal Investigation into Michael and Daniel White
91. Within days of Compass learning that Flywheel had been sold to Ascential for an amount up to $400 million, a storm began brewing inside the Company that involved Michael and Daniel White.
92. Compass was organized such that John, Daniel, and Michael chose to oversee separate aspects of Compass. As depicted in the below organizational chart from 2013, John managed sales and ran the Company as CEO. As the only attorney and Certified Public Accountant (“CPA”) in the family, Daniel oversaw legal and accounting, and Michael directed operations and finances. Each brother ran their unit of the business largely independent from one another. While John served as Compass CEO for the longest period, he did not supervise the day-to-day operations that he entrusted to and that fell under Daniel’s and Michael’s purviews.
93. As Vice President of Operations and Comptroller of Compass, Michael was the sole administrator of Compass’s payroll and served as the sole trustee of the company’s 401(k) plan. His responsibilities included overseeing the bookkeeping and financial accounts. Michael also worked with Daniel and an outside CPA to prepare and file Compass’s annual income tax returns. Accordingly, Daniel and Michael each owed a fiduciary duty to Compass.
94. On October 25, 2018, only five days before the November 1, 2018, publicly announced the sale of Flywheel to Ascential, Michael White sent out a company-wide e-mail disparaging John White and suggesting that the Compass Board of Directors and others would be meeting soon to address issues. On November 20 and 21, 2018, Michael White and DiPaula exchanged phone calls with one another. On November 23, 2018, John White fired Daniel and Michael, though each remained on the Compass Board of Directors and each maintained a minority ownership interest in Compass.
95. On February 14, 2019, the Compass Board of Directors held a special meeting and removed Daniel and Michael from the Board. They were replaced by Jerry Cain and Todd Mitchell.
96. After the termination and removal, Compass hired criminal investigator Ron Bateman (“Bateman”) to investigate Daniel’s and Michael’s conduct as Compass officers. Compass also hired Luis Fernandez (“Fernandez”), a certified forensic fraud examiner as its new Controller. As part of his onboarding, Fernandez examined Compass’s books and records.
The investigation and examination uncovered 14 years of substantial mail and wire fraud, money laundering, embezzlement, and attempted extortion perpetrated by Daniel and Michael.
97. The investigation and examination uncovered 14 years of substantial mail and wire fraud, money laundering, embezzlement, and attempted extortion perpetrated by Daniel and Michael.
98. It is clear from the schemes discovered and detailed below that Daniel and Michael exploited Compass and used Company funds to finance a life of luxury for themselves and their immediate family members. Daniel and Michael repeatedly violated their fiduciary duties to Compass and elevated their own wants and conveniences above what was in the best interest of Compass, its clients, and its many employees. After Compass removed Daniel and Michael as directors and employees, Daniel and Michael orchestrated a far-reaching cover-up of their wrongdoing, and they set out on a revenge campaign intended to destroy the Company and punish their brother John for removing them from Compass.
I. The Secret Compass Bank Account Scheme (Money Laundering, Embezzlement, Mail Fraud & Wire Fraud)
99. On or about December 1, 2008, Michael and Daniel opened a checking account in Compass’s name at Community Bank of the Chesapeake (formerly County First Bank) (“Community Bank”). Michael and Daniel were and remain the only authorized signatories on the checking account.
FRAUD: Secret Compass account set up by Dan White and Mike White at County First (Now Community Bank of The Chesapeake) with Michael White’s home listed as the company address instead of corporate office in Annapolis
100. On or about June 15, 2009, Michael opened a savings account in Compass’s name at Community Bank. Michael White was the only authorized signatory on the savings account.
Compass company funds being syphoned off by Michael White into secret account
101. The address associated with both Community Bank accounts (“the Secret Bank Accounts”) is Michael’s home address.
102. These Secret Bank Accounts were created without Compass’s knowledge or approval.
103. Daniel and Michael White improperly deposited Compass client checks into the Secret Bank Accounts and then used the funds for personal gain.
104. From 2008 to 2020, Michael and Daniel White used these Secret Bank Accounts to financially benefit themselves, their wives Debra White (“Debra”) and Kelly White (“Kelly”), and corporations they owned or operated, including W-7 Enterprises LLC, Woodville Pines LLC, Leonardtown Investments LLC, Compass Limousines LLC, Spinnaker Group LLC, and Compass Foundation LLC.
105. For example, the Secret Bank Accounts were used to make monthly payments on life insurance policies held by Michael and Daniel; pay money to Michael’s unrelated gambling business; and initiate a $200,000 wire transfer to the Washington Football Team (now the Washington Commanders).
106. To date, disbursements from the Secret Bank Accounts show that more than $3.4 million was disbursed to Michael, and more than $632,000 was disbursed to Daniel. In just the four months between January and April of 2019, Daniel and Michael withdrew at least $370,000 from the Secret Bank Accounts via checks written to themselves.
107. Upon information and belief, around the time that Compass terminated Michael and Daniel’s employment, they drained the Secret Bank Accounts. Each of these actions also were a breach of fiduciary duty to Compass.
II. The Ghost Employee Scheme (Embezzlement)
108. Daniel and Michael added their family members Debra, Kelly, and Emile White (“Emile”) to the Compass payroll and benefits programs even though Debra, Kelly, and Emile were never Compass employees.
109. In or around 1998, Daniel and Michael added Debra (Michael’s wife) to the payroll without Compass’s knowledge or approval.
110. Prior to April 1, 2010, Daniel and Michael added Kelly (Daniel’s wife) to the payroll without Compass’s knowledge or approval.
111. In August of 2017, Daniel and Michael added Emile (Daniel’s daughter) to the Compass payroll without Compass’s knowledge or approval.
112. In or around 2015, Daniel and Michael added Julie White (Daniel’s colleague with no familial relation) as an employee without Compass’s knowledge or approval.
113. From 2010 to 2019, Kelly received biweekly direct deposits from Compass into an account she maintained at Capital One.
114. From 2013 to 2019, Debra received biweekly payroll direct deposits from Compass into an account she maintained at M&T Bank.
115. From 2017 to 2019, Emile received biweekly payroll direct deposits from Compass.
116. From 2014 to 2016, Julie received more than $3,600 in gifts and compensation from Compass.
117. Michael and Daniel also caused Kelly and Debra to enroll in the company’s 401(k) retirement plan, whereby portions of Kelly and Debra’s “salaries” and matching contributions from Compass were deposited into accounts in each of their names.
118. From 1998 to 2019, Michael intentionally covered up these ghost employees in the Compass payroll system by creating fictitious spreadsheets and reports to provide to corporate leadership instead of running payroll reports through Compass’s third-party payroll provider portal Paychex. Michael’s falsified records prevented Compass from discovering the ghost employee scheme until Compass later initiated an investigation following the removal of Daniel and Michael from their roles at Compass.
JUDGE AND PROSECUTOR LAUNDERED MONEY THROUGH THE IRS!
III. The IRS Tax Check Scheme (Embezzlement)
119. Michael created a tax check scheme that allowed him and Daniel to have money embezzled from Compass be rebated back from and through the Internal Revenue Service (“IRS”) (“IRS Tax Check Scheme”).
120. Michael created the IRS Tax Check Scheme whereby he would issue additional electronic payroll payments to himself and various employees that he coded as “tax checks.” These payments were in addition to normal payroll payments but were very large, were designated as 100% tax withholding, and would go to the IRS and to the state of Maryland.
121. Michael exclusively controlled on whose behalf the IRS received additional payments, as well as the payment frequency and magnitude.
122. For example, in 2015, Michael processed $520,000 in 100% tax withholding payments to himself and $530,000 to Daniel.
123. In 2018, Michael processed $270,000 in 100% tax withholding payments to himself, and $230,000 to Daniel.
124. Daniel and Michael also used the IRS Tax Check Scheme to benefit their families. In 2017, Michael processed $20,000 in 100% tax withholding payments for Debra and another $20,000 for Kelly, although neither was ever employed by Compass.
125. As a result of the IRS Tax Check Scheme, Michael and Daniel knowingly funneled money through the IRS through payroll disbursements that far exceeded their normal federal payroll tax withholdings to obtain large refunds, thereby embezzling millions of dollars from Compass.
IV. The Shareholder Loan Scheme (Embezzlement)
126. Michael caused Compass to issue payments to himself and Daniel purportedly as reimbursement for personal loans that were never made to the company. Michael then caused Compass to issue payments to himself and Daniel purporting to be principal and interest payments against the fake loans (“the Shareholder Loan Scheme”), in violation of their fiduciary duties to Compass.
127. On or about June 7, 2015, Daniel received a check from Compass for $100,000 with “LTC” written on the memo line. Upon information and belief, “LTC” stands for loan to company.
128. On or about May 19, 2016, Daniel received a check from Compass for $70,000 with “LTC” written on the memo line.
129. On or about January 24, 2019, Daniel received a check from Compass for $50,000 with “LTC” written on the memo line.
130. On or about June 5, 2015, Michael received a check for $200,000 with “LTC” written on the memo line.
131. On or about October 15, 2015, Michael received two checks for $100,000 each with “LTC” written on the memo line.
132. On or about February 9, 2016, Michael received a check for $450,000 with “LTC” written on the memo line.
133. On or about March 1, 2016, Michael received a check for $450,000 with “LTC” written on the memo line.
134. On or about June 17, 2016, Michael received a check for $50,000 with “LTC” written on the memo line.
135. On or about June 29, 2016, Michael received a check for $100,000 with “LTC” written on the memo line.
136. On or about November 12, 2016, Michael received a check for $300,000 with “LTC” written on the memo line.
137. On or about June 14, 2018, Michael received a check for $100,000 with “LTC” written on the memo line.
138. On or about February 12, 2019, Michael received a check for $200,000 with “LTC” written on the memo line.
139. On or about April 2, 2014, Daniel received a check for $62,451.87 with “2013 loan to company interest” in the memo line.
140. On or about February 18, 2015, Michael received a check for $90,235.89 with “2014 Interest on K1 Loans to Company 9%” in the memo line and Daniel received a check for $91,107 with “state taxes 2014 interest on K1 loans to company” in the memo line.
141. On or about April 11, 2016, Daniel received a check for $55,459.48 with “2015 Interest Payment” in the memo line and Michael received a check for $71,865.89 with “2015 Interest Payment” in the memo line.
142. In an e-mail dated August 21, 2017, that Compass recently discovered in connection with its internal investigation into this wrongdoing, Daniel White wrote the following to Michael White regarding setting up Emile White as a ghost employee: “Anything she makes can come out of my BS loan.”
143. Michael and Daniel continued to use Compass funds from the secret Compass bank account they controlled to repay their fake loans even after they were fired and removed as Compass directors. Each of these actions also were a breach of fiduciary duty to Compass.
V. Information Technology Lockout of Compass Business Records and Accounts (Attempted Extortion)
144. George White (“George”) is Michael’s son. Prior to May 2019, George was the IT Administrator at Compass while at the same time working full time as a Maryland State Trooper. In this role at Compass, George had administrator access to Compass’s GSuite email, Microsoft, and QuickBooks accounts.
145. Specifically, George controlled the Compass domain, including credentials and access to Compass Networking Administrator Credential login password and user ID; Compass servers, switches, and wireless access points; NAS (Synology, etc.); Firewall-Cisco ASA; Compass Marketing Routers; all Compass printers; all Compass phone systems; and Network Solutions Account for Compass’s Domain Name Registrar. George had the ability to change all of the above business records and accounts via his administrator access.