Federal law enforcement agents are investigating an e-mail fraud scheme that bilked the city of Cottage Grove out of more than $1.2 million last year, according to court documents made public this week.
According to five seizure warrant applications signed off on by a federal magistrate judge this month, the fraud involved someone posing as a legitimate company that the city contracted for a sewer project. The fake account convinced the city's accounting specialist to wire money to them and not the real contracted company before the scam was discovered late last year. By the time the fraud was uncovered, the money had been spread to multiple other bank accounts.
In a signed application and affidavit for five seizure warrants this month, a Homeland Security Investigations special agent described how an unknown person posed as the president of a company hired to perform a $3.5 million sewage construction project and convinced the city to send more than a third of those dollars to a fraudulent account.
In response to a request for comment from the city, Cottage Grove Police Chief Peter Koerner said he could not comment as the "case is still considered an active investigation."
A spokesperson for the U.S. Attorney's Office meanwhile said Thursday that "the government will be seeking forfeiture of the funds."
U.S. Magistrate Judge John Docherty approved five seizure warrants this month involving $852,337.55 allegedly tied to the fraud.
The affidavits described the case as an investigation into a "business e-mail compromise and electronic funds transfer wire fraud scheme" that victimized the city.
Cottage Grove had entered into a $3.5 million contract in June 2021 for a sewage construction project with Watkins, Minn.-based Geislinger & Sons. The agent wrote that the fraud started in October when someone contacted the city's accounting specialist using an e-mail account posing as the company's president.
The initial correspondence with a Geislinger & Sons office manager was through a legitimate e-mail address that ended in "geislingerandsons.com." On Oct. 13, the accounting specialist sent a $489,746.61 payment to the company. Days later, an unknown person e-mailed the accounting specialist from an e-mail account that ended with "geislingerandsonsinc.com" — impersonating Jeff Geislinger, president and CEO of the company. The agent noted that the "inc" was unlike the original, legitimate address.
According to the affidavit, the fake account told the city employee that Geislinger & Sons "have made some company financial changes and moved all its banking to a new bank," and asked her to "kindly update our vendor profile in your payment system immediately to ensure timely payment of invoices."
The account then sent an electronic funds transfer form listing the new banking information, to which the city later sent payments of $813,250 and $462,810 by the end of November.
"The city of Cottage Grove would not have sent either of these payments to the First JPMC Account had they not believed it to be a legitimate business account of Geislinger & Sons," the affidavit said.
The affidavit added that city staff discovered the fraud when Geislinger & Sons contacted Cottage Grove's finance director on Dec. 22 to ask about nonpayment of two outstanding bills — the payments that were sent to the fraudulent bank account.
The finance director told the company's office manager that the accounting specialist had been corresponding with Jeff, the president of the company, via e-mail. But the office manager replied that Jeff had been in Florida for the past several weeks.
That same day, a Cottage Grove detective and federal task force applied for and received a state search warrant under seal for the account that received the fraudulent funds. Bank records linked the account to being held in the name of a Delaware-based limited liability corporation of which two men were members. The Star Tribune is not naming the two because they have not been formally charged.
By the time the officer asked the bank to freeze the account to prevent loss and transfer of the stolen funds, just $538 remained in the account. After the funds were deposited, according to records, the money was transferred to "various other bank accounts and individuals."
Those accounts including one associated with an Idaho attorney representing one of the two men. The attorney reported that he is a real estate attorney representing the man and that the money was for "legitimate business purposes" and held in his lawyer trust account.
Other bank accounts included accounts owned by the other man named in the affidavit, as well as his relative.
The FBI in May warned that business e-mail compromise scams — which are defined as targeting both businesses and those who perform "legitimate transfer-of-funds requests" — have led to more than $43 billion in losses both in the U.S. and abroad between June 2016 and December 2021.