BLAINE, Minn. — KARE 11 Investigates has learned the City of Blaine fell for an online billing scam last August that cost taxpayers more than $1.5 million dollars.
Sources tell KARE 11 that Blaine is believed to be one of the victims of an international wire fraud scam operating out of Maryland that targeted businesses, school districts and local governments.
Asked for comment, a Blaine spokesperson issued a statement Monday saying, “The city is not able to comment at this time. It is the subject of an active federal investigation, and we are unable to speak publicly about this matter.”
Mysterious Agenda item
KARE 11 began investigating the missing money in March when reporter A. J. Lagoe attended a Blaine City Council workshop hoping to ask Mayor Tim Sanders about an entirely different fraud investigation.
At the time, KARE 11 was investigating allegations of improper Medicaid billing by a for-profit company called Kyros and its nonprofit partner Refocus Recovery. Mayor Sanders had served as executive director of the nonprofit.
Both organizations were – and still are – under state and federal investigation.
Approached by KARE 11 as he arrived at the city council meeting, Sanders declined to be interviewed – and the council quickly went into a closed session.
But a line item on the agenda for that closed meeting caught our eye: “Active Fraud Investigation.”
Uncovering the investigation
Curious about the focus of the fraud investigation, KARE 11 Investigates began checking the list of routine invoices being paid by the city.
During the week of Aug. 25, 2023, we found a large payment – totaling $1,577,186.58 – to New Look Contracting of Rogers for work on a large construction project at 89th and Davenport in Blaine.
We got suspicious when we noticed another payment to New Look in the same amount – down to the penny – issued one month later.
When KARE 11 contacted New Look’s management, they said they never got the original electronic payment in August and started asking Blaine why they hadn’t gotten their money on time.
That’s apparently when the fraud was discovered.
Federal indictments
In February, federal authorities announced multiple indictments charging a sophisticated network of alleged fraudsters operating out of Maryland.
The indictments and a press release issued by Homeland Security Investigations (HIS) describe how the defendants used “confusingly similar email addresses and company names” to steal money – and launder it through shell companies before wiring much of it overseas.
Keeping it quiet
Although nearly a year has passed since the fraud was discovered – and since Blaine made the second $1.5 million payment to the real New Look Contracting – the city hasn’t told its citizens about the loss.
The only public reference to the missing money KARE 11 found was a cryptic comment by Blaine City Council Member Lori Saroya at a public meeting on June 3.
During a discussion of a proposed raise for the city manager, Soroya said, “Under this city manager our city lost $1.5 million dollars. People do not know this in our community, and I have not been allowed to speak on this publicly, but we need to be transparent.”
It is not the first time a Twin Cities area community has fallen victim to an online billing scam.
In the summer of 2021, court records show the city of Cottage Grove lost more than $1.2 million when an official mistakenly wired a payment to someone posing as a legitimate contractor on a sewer project.
Since Blaine declined KARE 11’s interview request, it’s not known what if any safeguards the city has enacted to avoid falling for another scam.