MARLBORO — The principal figure in an educational nonprofit's acquisition of the former Marlboro College campus in 2019 was arrested early Tuesday morning in New York City on three charges of financial fraud.
Seth Andrew has been removed as president of Democracy Builders Fund, the owner of the campus on South Street, and from the board of directors of Degrees of Freedom, the program emerging on Potash Hill.
He has entered a plea of not guilty to federal charges of wire fraud, money laundering, and making false statements to a bank, and he faces a preliminary hearing in U.S. District Court for the Southern District of New York on May 27.
Andrew, 42, a former White House advisor, is accused of stealing $218,005 from three escrow accounts of Democracy Prep schools he had founded, according to an April 27 press release from the U.S. Department of Justice.
The crimes for which he was arrested carry a combined maximum sentence of 70 years in prison.
According to Audrey Strauss, the U.S. attorney for the Southern District of New York, and William F. Sweeney, Jr., assistant director-in-charge of the New York Field Office of the Federal Bureau of Investigation (FBI), Andrew withdrew $218,005 from the escrow accounts in 2019, years after he was legally associated with the three charter schools.
The indictment documents argue that Andrew deposited the funds in personal bank accounts to secure a low-interest rate on a mortgage to purchase an apartment in Manhattan. Prosecutors say he later rolled this money in with additional funds and deposited it to an account belonging to Democracy Builders, a separate nonprofit under his control.
According to the DOJ's press release, Andrew was arrested Tuesday morning.
He appeared that afternoon in a teleconference before U.S. Magistrate Judge Gabriel W. Gorenstein.
The judge ordered Andrew to stay in Vermont, leaving only for meetings with attorneys or court appearances. Andrew and his wife, Lana Zak, surrendered their passports.
Zak, an anchor for CBSN, CBS News' 24-hour digital streaming network, is not named in the DOJ's complaint.
The case is being handled by the Office's Complex Frauds and Cybercrime Unit. Assistant United States Attorney Ryan B. Finkel is in charge of the prosecution.
“The charges in the Complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty,” wrote the DOJ in its announcement.
Degrees of Freedom 'beyond the scope of this matter'
Last year, Democracy Builders, purchased the Marlboro College campus after the assets of the liberal arts college were absorbed into Emerson College in Boston.
It announced it would launch Degrees of Freedom, a program that would offer low-cost, hybrid higher education programs with a focus on creating an anti-oppression environment.
Though Andrew said on taking possession of the campus in July of 2019 that the program would be up and running by that September, an initial class of student “fellows” have worked over the past months to design programs that would meet the needs of traditionally disenfranchised students.
Democracy Builders' takeover of the Marlboro campus was met with skepticism and, in some cases, outright hostility, by some southern Vermont community members who clashed with Andrew on multiple occasions.
Last summer, Black N Brown at DP, a collective of former Democracy Prep students and staff, published experiences of racism and harm as a result of Andrew's actions in his leadership of Democracy Prep.
Chief Executive Officer and Cofounder Chandell Stone commented on the allegations against Andrew.
“We have learned of the investigation into Seth Andrew, and he has been removed from the board of Degrees of Freedom, effective immediately, pending the outcome of the investigation,” she said.
“The alleged actions precede Degrees of Freedom's inception, and our program is beyond the scope of this matter,” she said.
Stone said Degrees of Freedom “remains focused on a successful launch in September, which will expand college access for low-income and first-generation college students.
Noting that the program is currently in the process “of establishing itself as a separate [IRS-recognized tax-exempt, tax-deductible nonprofit] entity from Democracy Builders,” she said Degrees of Freedom will “conduct an internal review to ensure all proceeds designated for the DoF project have been appropriately managed.”
Escrow accounts, and a yellow hat
“As alleged, Seth Andrew abused his position as a founder of a charter school network to steal from the very same schools he helped create,” Strauss said. “Andrew is not only alleged to have stolen the schools' money but also to have used the stolen funds to obtain savings on a mortgage for a multimillion-dollar Manhattan apartment.”
Timothy C. Doherty Jr., an attorney with Downs Rachlin Martin in Burlington, told The Commons that Andrew entered a plea of not guilty Tuesday. Identifying himself as a colleague, Doherty responded to an inquiry from The Commons to Andrew's attorney, Michael Lloyd Yaeger of Carlton Fields P.A., a New York City–based law firm.
“We're currently reviewing the papers that were just unsealed this morning,” Doherty said.
According to the DOJ's announcement, charter schools are required to hold escrow accounts in the event the school folds.
The DOJ said that Andrew, positioning himself as a representative of the Democracy Prep schools, deposited funds from three such escrow accounts associated with three of the charter schools to open a new bank account under the charter school's name with him as a signatory.
Andrew then allegedly used this money to secure a favorable interest rate on a mortgage.
The bank Andrew opened the account at, according to the DOJ, ran a promotion that offered a better interest rate for account holders who maintained a certain bottom line. The DOJ said that for balances starting at $250,000 up to $1 million, the bank would lower the accountholder's interest rate.
The DOJ alleges that, in April 2019, Andrew deposited more than $1 million into the fake Democracy Prep account and, by representing himself as a “key executive” with “control” over the funds, received the most favorable interest rate deduction of 0.5 percent. That deposit, however, included $142,524 in “stolen” funds from the charter school escrow accounts, the indictment said.
Four months later, Andrew purchased a $2.4 million residential property in New York City.
In October 2019, according to the DOJ, Andrew closed a third escrow account totaling $75,481.10. Eventually, Andrew bundled these funds with the money used to obtain the mortgage interest rate into another account.
In 2020, the money was transferred to “a particular civic organization,” of Andrew's, presumably Democracy Builders.
The investigators' complaint included bank surveillance photos of Andrew wearing a bright yellow “Democracy Prep” baseball cap.
FBI Special Agent Melody Shen wrote in the complaint, “Based on my involvement in this investigation, I have learned that the Yellow Hat is essentially Andrew's 'calling card.'”
In the complaint, Shen noted that Andrew's wearing the yellow hat reinforced his affiliation with Democracy Prep, and she alleged that he used his charter school email account - which remained active but forwarding to his Democracy Builders email - to send a message to persuade a bank employee that he was affiliated with a school when he was not.
“Locking into the lowest interest rate when applying for a loan is certainly the objective of every home buyer, but when you don't have the necessary funds to put down, and you steal the money from your former employer to make up the difference, saving money in interest is likely to be the least of your concerns,” FBI Assistant Director William F. Sweeney Jr. said in the news release.
“We allege today that Andrew did just that, and since the employer he stole from was a charter school organization, the money he took belonged to an institution serving school-aged children. Today, Andrew himself is learning one of life's most basic lessons - what doesn't belong to you is not yours for the taking,” Sweeney continued.
Andrew founded Democracy Prep charter school network in 2005. The organization educates 6,500 students at schools in New York, New Jersey, Baton Rouge, Las Vegas, and San Antonio. He stepped down as Democracy Prep's superintendent in 2013.
He worked as an advisor for the White House and the Department of Education, with Democracy Prep continuing to pay his salary through an Intergovernmental Personnel Act Agreement, “which allowed individuals to work in Government service while receiving pay and benefits from another employer,” according to the DOJ's complaint.
The DOJ then said that Andrew continued to work with the organization's alumni network and then-sister organization Democracy Builders, and he left his work in the Department of Education's Office of Educational Technology in 2016.
In 2017, Andrew ended his indirect relationship with Democracy Prep.
In a letter on Tuesday to Democracy Prep families, current Chief Executive Officer Natasha Trivers said that financial safeguards established in 2019 “led directly to the discovery of Seth's unauthorized withdrawals.”
Trivers, who became CEO that year, explained that Democracy Prep alerted the authorities to withdrawals and continues to cooperate in the investigation.
“Seth left our network in 2013,” Trivers explained. “His alleged actions are a profound betrayal of all that we stand for and to you and your children, the scholars and families that we serve. To be clear, at no time did the alleged crimes pose any risk to our students, staff, or operations in any way.”
Trivers added that Democracy Prep's finances are solid and that Andrew's alleged activities - which involved money that was designed not to be used actively - never jeopardized the organization.
Late Tuesday, Democracy Builders' board of directors said it had removed Andrew as board chair. The board also took measures to “restrict his access to all financial accounts and resources effective immediately.”
In its statement, the board said the decision was made during an emergency meeting.
“The Board of Directors takes its fiduciary role and responsibilities seriously and will ensure that contributions made to Democracy Builders Fund are used for the mission and intended purposes of Democracy Builders and its various projects and programs,” wrote the board.
“Democracy Builders remains steadfast in its mission of expanding innovative civic education, advocacy, infrastructure, and technology,” the members added.