LOWER MANHATTAN — A marketing consultant used his connection to the Puerto Rican Day Parade to line his own pockets, scamming more than $1 million in donations to fund his trips and personal expenses — while the board stood by and did nothing — Attorney General Eric Schneiderman said on Thursday.
Carlos Velasquez, president of the Galos Corporation, the board's long-time marketing agent, allegedly misappropriated $1.4 million in funds from the board between 2008 to 2012, Schneiderman revealed following a months-long probe.
In addition, Schneiderman found, the parade board allowed the fraud to snowball by failing to monitor Velasquez' accounts, renewing his contract even as they were $675,000 in debt.
"The findings of this investigation are very disturbing," Schneiderman said at a press conference at his offices downtown on Thursday.
The Attorney General's office launched their investigation last year after a controversial ad about a Puerto Rican flag wrapped around a Coors beer cans revealed a sponsorship arrangement between the duo and a purported scholarship fund that MillerCoors said it had donated to.
As a result of the findings, Schneiderman forced out half of the parade's board, including its Chairwoman Madelyn Lugo. Velasquez has not been criminally charged but was ordered by Schneiderman to repay the group $100,000 and forgive a bogus $1 million debt he claimed the parade board owed him, the AG's office said.
Ten new board members have been installed to oversee this year's parade in June.
Among the "slush fund" tactics Schneiderman found that Velasquez was using included convincing banks and colleges to donate thousands of dollars to the parade — and then only reporting a fraction of that cash to the board.
For example, investigators found that Velasquez only reported $15,000 of the $68,000 donated to the parade by an academic institution. The same thing happened when a bank donated $75,000, but Velasquez reported just $20,000.
A separate nonprofit founded by Velasquez which claimed to give out $41,500 in scholarships in 2012 only gave out $9,500, Schneiderman found.
In addition, the probe found that Velasquez failed to report $275,000 in airplane vouchers donated to the parade and instead used them to obtain trips for himself and family members.
In her resignation letter, longtime chair of the Puerto Rican Day Parade Madelyn Lugo, said that she was "disappointed and betrayed" by Velasquez.
Lugo said in a statement that she felt "betrayed" by Velasquez.
"I trusted him as a friend and as the marketing agent for the Parade for almost 30 years. I relied on that trust to my and the organization's detriment," she wrote. "It is now apparent, based on the Attorney General's findings, that he betrayed me, betrayed the Board, he betrayed the organization, and most importantly he betrayed the Puerto Rican Community by repeatedly stealing from the cultural icon that is the Parade."
But Schneiderman's investigation showed that Lugo and her board violated their fiduciary responsibility to the parade by failing to perform "basic duties" of oversight on Velasquez, never even asking for back-up documentation for his summary reports.
In addition, even though the board had $675,000 of debt in 2010, they renewed Velasquez' contract for a decade without so much as a review of his work or soliciting any outside bids, the probe found.
The report did not discover any misappropriation of funds by the board, but said their lax oversight made the fraud possible.
In addition to Lugo, her husband and general coordinator Luis Rivera and treasurer Shirley Cox were also forced to resign from the board.
The new board members include Lorraine Cortes-Vazquez, Anthony Diaz, Maria Elena Girone, Rosa Gutierrez, Luis Maldonado, Ululy Rafael Martinez, Carmen Pacheo, Orlando Plaza and Lorraine Rodriguez-Reyes.
Ramon Jimenez of Boricuas For a Positive Image applauded the changes.
"We want a transparent board that controls its marketing agent not a marketing agent that controls the board," Jimenez said, calling Velasquez' actions a "complex scheme" to "take money from this parade."
Community members agreed.
"He robbed the poor and he robbed the Puerto Rican people," said Lucky Rivera, president of Boricuas For a Positive Image.
Ruben Diaz Sr., a state senator from The Bronx, questioned the timing of the announcement of the investigation, and said he feared that removing most of the board just a few months from the parade could mean doom for this year's parade.
"What does the interim board know about putting together a parade as big as this? Why didn't he do this last year?" asked Diaz.
Schneiderman said this year's parade was taken into consideration.
"We know we have the time," said Schneiderman. "We rushed this investigation through very quickly, devoting extra resources to it because we know we needed the time to have the parade succeed this year."
With a new board in place, City Council Speaker Melissa Mark-Viverito, who is also Puerto Rican, said she feels good about the parade's future.
"The National Puerto Rican Day new board can move forward in planning this beloved New York City tradition," said Mark-Viverito.