The chief financial officer of a New Haven biotech firm who said he thought he could set his own compensation has pleaded guilty to four counts of embezzling about $1 million from that company.
Thomas Malone, former CFO of Artificial Cell Technologies, pleaded guilty in New Haven federal court Tuesday to four counts of theft of a program involving federal funds, an offense that carries a maximum prison term of 10 years on each count. Malone also agreed to pay restitution of $1,031,508. He was released on a $50,000 bond pending a Jan. 18 sentencing.
Artificial Cell Technologies is a Connecticut-based company that manufactures vaccines in portable “cleanrooms” in developing countries. It is working on developing better ways to deliver malaria and Respiratory Syncytial Virus vaccines to affected populations. It receives funding from private investors and about $4.1 million in grants from the National Institute of Health since 2008.
According to court documents and statements made in court, ACT Chief Executive Officer Donald Masters was reviewing the company’s payroll in November 2016 in order to calculate a pay raise for a scientist at the company. The affidavit said Masters would have normally asked the chief financial officer, Malone, for the information, but Malone was out of the office on a personal trip. In reviewing the payroll records himself, the affidavit said Masters discovered Malone had been paying himself an annual salary of about $660,000, when his approved salary at the time was $281,000.
On further review of the records, the affidavit said, Masters discovered Malone had been writing manual checks to himself for several years that were disguised as bonuses. In addition, Malone had been giving himself unauthorized additional salary payments, using the company credit card for personal expenditures, and making unauthorized donations to an organization that Malone personally supported.
Masters spoke to Malone soon after the findings, the affidavit said.
“Malone states that since Masters did not object to his payroll, he decided that he could set his own compensation at whatever level he wanted, whenever he wanted,” the affidavit said.
After the meeting, Masters placed Malone on paid administrative leave and asked him to return all ACT equipment. Malone returned an iPad as well as a company laptop. Soon after, the affidavit said, Masters conducted a forensic audit on the company’s accounting records and found that Malone had embezzled more than $950,000 of company money from at least 2012 to 2016.
The affidavit said Malone also kept a private file on one of the company devices that contained his personal budget and asset chart. The asset chart claimed assets such as electronics, art, jewelry and other items that Masters believed Malone had bought with embezzled money.
In interviews with investigators, Malone claimed that he, as one of ACT’s founders and its CFO, had the authority to set his own salary and increase his salary without consulting with Masters, the investors or board members.
“Malone stated that when he wanted to give himself a pay raise, he just did,” the affidavit said.
Craig Raabe, of West Hartford-based Izard, Kindall & Raabe, represents Malone. He did not respond to a request for comment Wednesday.
The U.S. Department of Health and Human Services, Office of the Inspector General and the FBI investigated the case, which Assistant U.S. Attorney Douglas Morabito prosecuted. Tom Carson, a spokesman for the U.S. attorney for the District of Connecticut, declined to comment beyond the affidavit.