A state-appointed receiver is investigating a phishing scam that drained $400K from Chester’s coffers

A phishing scam siphoned more than $400,000 from Chester in June, and the state-appointed receiver who is handling the beleaguered city’s finances wants to know why his office wasn’t notified until two weeks ago.

In a memo sent to Mayor Thaddeus Kirkland and Chester’s city council on Monday, Michael T. Doweary said “the entire incident is extremely troubling,” and noted that his office only learned of the fraud on Oct. 21 when the city publicly announced the loss.

The theft occurred on June 6, when City Councilman William Morgan, the city’s director of accounts and finance, received an email that he believed came from Connor, Strong & Buckelew, the firm that provides the city’s workers’ comp insurance, asking for the city’s monthly payment. Morgan paid the bill, he later told police, only to eventually discover that the request for payment had been sent by a thief who created a false email address that closely resembled the insurance firm’s email.

Chester police investigated, according to Police Commissioner Steven Gretsky, and referred the case to the cyber crimes unit of the Delaware County District Attorney’s Office in October, after learning how much money had been stolen.

A spokesperson for District Attorney Jack Stollsteimer declined to comment Wednesday, citing the ongoing investigation.

As of this week, the funds have not been recovered, according to Morgan.

The phishing scam is the second to strike a government agency in Chester in recent months, authorities said. Last year, the Chester Upland School District lost $13 million to cybercriminals who used a fake email address to divert state funding into a private account.

» READ MORE: A hacked email and a ‘romance scam’ helped thieves siphon $13 million from Chester Upland schools, officials say

State employees overseeing the district’s finances noticed the payments and were able to “claw back” most of the stolen money, officials said in August. That scheme does not appear to be related to the latest theft of Chester government funds, authorities said.

Doweary’s chief of staff, Vijay Kapoor, said Wednesday that the Chester receiver was “dumbfounded” when he learned that Morgan waited three months before telling his office about the theft.

“Chester is a city that is on the verge of bankruptcy and was during the time of this incident,” Kapoor said. “The receiver has been tasked with addressing the city’s financial and operational problems, and in order for the receiver to do his job he needs to have information like this provided to him immediately.”

Morgan, in an interview Wednesday, said he launched an internal investigation as soon as he discovered the fraud, notifying police, the insurance broker, and the bank holding the city’s account.

“I wanted to do an investigation first, so we could get all proper information together,” he said. “We wanted to make sure we had all of those things in place before we came to the receiver with new internal controls and the next steps.”

State officials appointed Doweary in 2020 to help oversee Chester’s finances as it teetered on the brink of insolvency. The Delaware County city is only the second municipality in state history, after Harrisburg, to receive such state-level intervention.

As receiver, Doweary, whose appointment ends in December 2023, has waged public battles to undo lucrative contracts he characterized as unfair to the financially struggling city, including one with a parking-meter vendor. More recently, he has warned that the city is close to bankruptcy.

In March, he asked a Commonwealth Court judge to strip Morgan of his financial oversight of a variety of city matters, including incorrectly inflated payments to police officers and other employees, and IRS filings that contained errors that resulted in $750,000 in penalties.

The court denied Doweary’s request but ordered Morgan to share all correspondence about the city’s finances with the receiver’s office.

“The receiver went to court in March to try and prevent a situation exactly like the one that just occurred,” Kapoor said. “The court ordered that city officials immediately inform the receiver about financial matters such as this one. That wasn’t done here, and the matter wasn’t referred to an organization who specializes in investigating these types of matters.”