CEO RUBEN GALLEGOS JR.: TWO OTHERS, INCLUDING GALLEGOS SR., INDICTED FOR MORE THAN $17 MILLION IN "DISALLOWED" PAYMENTS THROUGH I.E.S.

By Juan Montoya
Various Sources

Before the fall, Dr. Ruben Gallegos, his son Ruben Gallegos Jr., and the Chief Financial Officer Juan J. Gonzalez were the highest paid officials of the International Educational Services (IES), each respectively earning $677,242, $663,240, and $546,877 in salaries and benefits.

Today, they have been named in federal unsealed indictments for what prosecutors say amounted to massive self-dealing and personally profiting when IES leased properties they owned and that executives paid themselves salaries that were hundreds of thousands of dollars more than what was allowed under federal guidelines.

On Thursday, just before noon, his neighbors reported that FBI agents had descended upon Gallegos Jr.'s home and then, they said, arrested him. Sources say the indictments will be unsealed Friday. Gallegos Jr. will appear before a federal magistrate today (Friday). It is unknown whether Gallegos Sr. is under arrest. The other person named in the IES indictment – former CFO Gonzalez – will be allowed to turn himself in early next week. 

A local broadcaster, KVEO, reported that the FBI arrested Gallegos Jr. on charges of conspiracy and theft concerning programs receiving federal funds, as stated on the partially opened federal indictment. Count one of the indictment charges Gallegos with conspiracy, and count two charges him with theft concerning programs receiving federal funds. The federal government is seeking to seize multiple properties on Maverick Road that are owned by Gallegos, the indictment reads. Gallegos was taken to the Brownsville City Jail late Thursday morning and was to remain there until Friday when he will appear before a federal magistrate.

The IES contracted with the Unaccompanied Alien Children Program and provided temporary shelter care and other related services to unaccompanied alien children, according to the federal indictment. IES received almost all of its funding in the form of federal grants, and for each fiscal year from 2014 through 2018, it received millions of dollars in federal grant funds.

MyRGV.com states that according to the Aug. 30, partially unsealed federal indictment, from 2014 through 2018, Gallegos did knowingly conspire with another unnamed person to commit an offense against the United States, to “embezzle, steal, obtain by fraud knowingly convert without authority, and intentionally misapply property that is valued at $5,000 U.S. dollars or more, and is owned by, or is under the care, custody, or control of, an organization that receives more than $10,000 U.S. dollars in federal assistance in any one year period.”

Over time, according to the  Appellate Division of the Department of Health and Human Services Departmental Appeals Board, the total amount of IES expenditures of federal funds to house migrant children "disallowed" amounted to $17,673,785.40.  (DAB 3055, Docket Nos. A-18-46 and A-18-47 from Dec 30, 2021.)

Sources close to the case say that all three have been named in the sealed indictments and that they have all lawyered up.

For the elder Gallegos, IES provided wealth to top off his reputation and respectability as an educator, for Gallegos Jr., it was an opportunity for self-enrichment, flaunting his wealth, hobnobbing with politicians, and for gambling binges in Las Vegas as he manipulated federal monies, and for Gonzalez, it was a chance to get his beak wet like the two others were doing. 

It was good, while it lasted.

The nonprofit, which was formed in 1985, aimed to provide physical and educational care for unaccompanied migrant children entrusted to its care by immigration officials who detained the children.

IES closed on March 31, 2018 and terminated the jobs of hundreds of employees. No one with IES or the Office of Refugee Resettlement, the agency in charge of the Administration for Children & Families (ACF), said at the time why the nonprofit closed.

A seven-page letter sent on Feb. 21 to the nonprofit from E. Scott Lloyd, director of the ORR, ACF, informing IES that it would no longer receive nine grants to provide services for unaccompanied immigrant children.

That letter – originally published by the Brownsville Herald's Mark Regan – revealed a series of failures at IES identified during an audit conducted by the Office of Inspector General (OIG) that began in June 2016.

“In September 2017, the OIG identified to ACF findings that included less than arms-length agreements related to property leases, violation of executive compensation levels, non-compliance with conflict of interest requirements and procurement procedures, and numerous examples of substantial failures of IES failing to comply with regulations governing allowable costs under (Health and Human Services) awards,” the letter states.

Starting on Nov. 2, 2017, the federal government placed IES on costs reimbursement restrictions due to concerns about the organization’s lack of effective control over, and accountability for federal funds, property and other federal assets, according to the letter.

The OIG audited IES for the Fiscal Year 2015, which began Oct. 1, 2014, and ended Sept. 30, 2015.

EXECUTIVE COMPENSATION

The letter reveals that five employees at IES earned more than the $183,300 salary limit set by the grant, with the two highest paid individuals earning $300,000 more than that amount.

Based on an OIG review of W-2s, the five individuals were paid $506,003.22, $492,001.62, $377,060.96, $208,190.49 and $185,000.06.

The nonprofit’s 2015 tax filings show that IES President Ruben Gallegos earned $519,200; Chief Operating Officer Ruben Gallegos Jr., the president’s son, made $505,202; Chief Financial Officer Juan J. Gonzalez earned $390,273; Vice President of Business Affairs Norberto Perez made $201,601; and grant writer Nelly Weaver earned $194,414. All of those figures include benefits.
(However, subsequent salary schedules for I.E.S. show that the salaries increased tremendously – by more than $100,000 for Gallegos Sr. and Jr. – the following year. See graphic. Click to enlarge.)

(Eduardo Andres Lucio is Texas State Rep. Eddie Lucio III, and is listed as receiving $125,000 a year as I.E.S. legal counsel. But there is talk that the actual total approached $400,000. Since the story was published, they have erased all the pictures together on their Facebook page, especially when Ruben calls Eddie his business partner. Shouldn't the state rep have known better?And is that the reason that Sen. Eddie Lucio Jr. and Lucio III decided not to run for re-election?)

“IES did not comply with the award terms and conditions regarding the Federal Financial Accountability and Transparency Act of 2006 (FFATA), executive reporting requirements which requires large grantees to report the compensation of its top five paid employees,” the letter states.

Ruben Gallegos Jr. told The Brownsville Herald then he wished he could give an interview about IES’ closure, but due to negotiations with the federal government regarding the nonprofit that he was unable to comment.

“Right now, we are in the middle of negotiating with the federal government. There is nothing that I can say on the record right now,” Ruben Gallegos Jr. said.

IES LEASES

According to the letter, “recipients are required to establish safeguards to prevent employees, consultants, members of governing bodies and others who may be involved in grant supported activities from using their positions for purposes that are, or give the appearance of being, motivated by desire for private financial gain for themselves or others, such as those with whom they have family, business, or other ties.”

The letter states that someone doing business as Ideal Realty maintained more than a dozen less than-arms-length leases with IES of either land or buildings.

Another person also maintained a number of less than arms-length leases either by doing business as ILT Enterprizes – Texas Comptroller records indicate that Gallegos Jr. is the director of ILT Enterprize – or through a limited Partnership of GaCris, LP.

IES tax filings from 2015 show that GaCris received a $42,200 deposit from the nonprofit. (GaCris was owned by Gallegos Jr. and Luigi Cristiano, a former Brownsville Navigation District commissioner. A list of other "contractors" on the IRS report is below. But as far as anyone knows, they are not named in the indictment.Click on graphic to enlarge.)

An independent audit conducted for Fiscal Year 2016, the same year the OIG initiated its audit, provides insight into some of those leases.

The audit stated  that Ruben Gallegos owns ILT Enterprise, which owns the Los Fresnos Corporate Office, two portable buildings in Driscoll, the Arroyo City Recreational Area and the Los Fresnos Shelter. IES paid ILT Enterprise thousands of dollars during the Fiscal Year 2016 to lease those properties, including $259,800 annually for the Los Fresnos Shelter.

The Texas Comptroller’s Office does not list an ILT Enterprise, though it does list ILT Enterprize, Regan's article in the Herald revealed.

That same audit states that IES leased a portable building for the Los Fresnos Shelter from Gonzalez, the finance director, for $26,400 a year. The 2016 audit also notes that IES leased another portable building from a “related party” at the Los Fresnos Shelter for a total of $26,400.

Finally, that audit states that IES held a total of 12 leases for buildings, land, parking lots, recreational areas and portable buildings from its president, Ruben Gallegos, for a total of $855,660.

The Gallegos appealed the ORR, ACF decisions to the Appellate Division of the Department of Health and Human Services Departmental Appeals Board to no avail.

The DHHS decision stated that: "We issue one decision for both appeals consistent with our prior order consolidating the appeals under lead docket number A-18-46. For the reasons and bases set out below, we uphold a total disallowance of $17,673,785.40. This amount accounts for disallowances of $851,756.35 in excess executive compensation, $217,500 in depreciation costs on related-party leases, $8,111,360.35 (of $10,070,736 disallowed) for related-party lease costs, and $8,493,168.70 for the San Benito shelter costs. We also uphold ACF’s decision to withhold a non-competing continuation award."

This audit states that all related-party lease agreements were approved by IES’ board of directors and by the ORR, ACF.

The OIG audit, however, states that more than a dozen leases with IES violated federal standards that establish safeguards to prohibit employees from using their positions for a purpose that constitutes or presents the appearance of personal or organizational conflict, interest or personal gain.

“In addition, IES appears to have entered into more than a dozen leases with Ideal Realty, which the leases show was a corporation controlled by [redacted] (the leases are actually between IES and [redacted] “dba Ideal Realty.”) (The redactions are the government's.)

IES also charged full rental for these leases, rather than following the regulations that would govern less than-arms-length transactions,” the letter to IES states. “Yet another lease shows that IES knowingly entered into lease agreements with [redacted] and, apparently, [redacted] relative [redacted] for portable structures. [Redacted] is the [redacted] of IES.”

Throughout tax filings between 2013 and 2015, IES admitted that an officer, director or key employee had family or business relationships with another officer, director, trustee or key employee.

However, in each of those years, on those same tax filings, IES fraudulently stated that it was not a party to a business transaction with a current or former officer, director, trustee or key employee; any family member of the same list; and any entity which a current or former officer, director or key employee, or family member thereof, was an officer, director, trustee or direct or indirect owner.