The King County Prosecutor has declined to move forward with charges against a former employee of former Kirkland City Councilmember Bob Sternoff, who accused the man of embezzling money from him personally and his construction business.

The allegations came to light after Reporter published a story in March 2013 regarding a Kirkland couple who filed a civil lawsuit against Sternoff in November 2012 in King County Superior Court. The complaint, which Sternoff denied, alleges that he defrauded them out of $70,000.

He in turn claimed a former employee had embezzled him out of thousands of dollars. Soon after the couple filed their lawsuit, Sternoff filed a police report with the Kirkland Police Department against the former employee.

The former employee, who is not being named because he wasn’t charged with a crime, said that he had not been informed about the prosecutor’s decision until he was contacted by the Reporter. He has also denied all the allegations against him.

“I am pleased to hear that after 36 months of having to worry about a criminal investigation that no charges against me will be filed,” he wrote in an email statement. “Sternoff and his lawyers have used this previously open investigation numerous times to trash my name in court through declarations in his receivership and ongoing civil cases against him and his companies. To this day Sternoff takes responsibility for nothing and attempts to use me as a patsy on a regular basis.”

He also stated that the prolonged investigation and potential charges have had a detrimental effect on his life.

“Knowing a detective had been trying to charge me with multiple felonies for the last three years has had a significant impact on my life,” he wrote. “Not knowing if I was going to have to defend myself against the government has made life extremely difficult to plan and made it difficult to take natural steps one would make for their family. So far I have survived Sternoff trying to use the Kirkland police, his receivership, and his insurance company lawyers to come after me – I would like to say this is over but knowing his tactics and love for a good story – more will ensue.”

Sternoff, who resigned from the council in March 2013, declined to comment on the prosecutor’s decision, other than to say, “It’s an interesting story, and you guys know about one one-hundredth of what the real story is. It’s much, much, larger.”

The King County Prosecutor’s Office Spokesperson Dan Danohoe declined to give details as to why they decided not to file charges. However, Kirkland Police Department (KPD) spokesperson Mike Murray told the Reporter that the statute of limitations for most of the potential charges had run out by the time the prosecutor was considering the case, with only one charge related to a $32,850 check remaining. That last charge was not pursued by the prosecutor’s office.

The lawsuit involving the Kirkland couple is still ongoing. In a 2013 letter to the city, the couple’s attorney expressed concerns over Sternoff allegedly using his position as city councilman “inappropriately” by requesting that the KPD conduct an investigation into alleged business fraud.

Then Kirkland police Chief Eric Olsen wrote to the attorney that Sternoff “has never inappropriately used his position as council member to request, control, or pursue an investigation.”

The Kirkland Police first became aware of the matter in November 2012 after Sternoff filed a report, alleging that his former employee had embezzled a significant amount of money from him personally, along with his two businesses, Sternoff Custom Homes LLC and Sternoff Development Inc.

According to police investigative documents obtained by the Reporter, Sternoff had first hired the then 20-year-old man (23 at the time of the investigation) in 2008 as an operations manager for his company. Although Sternoff was very involved initially with the business, the documents say that he gave the employee, who worked out of an office in the lower section of Sternoff’s house, more and more responsibilities without oversight. Eventually the man was running the day-to-day operations while Sternoff’s time was spent attending to Kirkland City Council duties. Among these responsibilities were invoicing and accounts receivable, as Sternoff provided the man with access to his business bank accounts and personal bank account, albeit all checks issued required Sternoff’s signature. Although the employee was not authorized to have a credit card or debit card from those accounts, Sternoff admitted he would sign blank checks for the employee in order to pay for business transactions, according to the police documents.

According to the investigation, Sternoff claimed that over time his employee allegedly became very secretive about the company’s finances, avoiding direct conversations or details or claiming he was too busy to discuss it. Sternoff also alleged that the employee set up passwords and security questions without providing them to anyone else, and that when suppliers or subcontractors came to the house, the employee would talk to them privately.

Finally, in October 2012, Sternoff allegedly found that his employee had authorized a $32,850 check from his business account with Washington Federal Bank issued to one of Sternoff’s clients out of a joint construction loan account between the client and Sternoff to cover the costs of the home he was constructing for them. Allegedly, the employee had first emailed the bank to see if they would issue the check to the client alone, and only then did he have it issued to Sternoff and the client. The check was then deposited at a Wells Fargo bank with the employee’s signature instead of Sternoff’s. Sternoff told police that the funds should not have been drawn out of the account because his authorization was required.

The day after the check was issued, the documents continue, the man allegedly sent Sternoff an email implying that the then councilman probably could not afford to keep him as an employee, breaking all contact at that point. When he left the business, Sternoff told police the employee had completely cleared out his desk, took the construction books with him and wiped his computer clean, as well as removed five additional hard drives from Sternoff’s computers.

The investigation found the employee had obtained a contractor’s license that same month under his own limited liability company and was actually scheduled to start work on a separate project for a client, for whom Sternoff was currently building a house. The contractor’s license was obtained with another individual, who Sternoff said had provided him with construction-related services, though he alleged that many of the payments authorized and issued by the employee lacked the supporting invoices. It was the combination of the email and the check made out with the employee’s signature that had Sternoff allegedly look back into his records, leading him to conclude that his employee had embezzled money from him. Sternoff alleged the employee did so by obtaining a Visa debit card issued for Sternoff’s personal bank account without his knowledge, along with a Visa debit card linked to Sternoff’s business account.

“[The suspect] proceeded to make hundreds of transactions using these Visa cards,” the documents allege.

Between April 2011 and September 2012, a period Sternoff described to police as a time of “distress” for the business in terms of profitability, the employee made almost daily ATM withdrawals from machines in various locations throughout the region, totaling $155,000 from Sternoff’s Washington Federal account, the police documents continue. Although Sternoff admitted that some of these ATM withdrawals could have had legitimate connections to his business, he alleged that the employee never provided any invoicing and was not supposed to have an ATM card issued to him on that particular bank account.

The alleged fraudulent activity included the employee ordering a $1,400 refrigerator using a credit card linked to Sternoff’s Washington Federal account and having it shipped to “Sternoff Development Inc.” but delivered to the employee’s home. The employee also allegedly transferred $3,000 from Sternoff’s Wells Fargo account into a Complete Advantage account and used $6,000 to pay for his auto insurance. And while Sternoff told police he wasn’t even drawing a paycheck, the investigation allegedly found that the employee overpaid himself by nearly $20,000.

Hired on at an annual salary of $42,000 with no other compensation, his pay stubs allegedly showed that he actually received $87,585.02 in roughly 17 months, a $61,824.72 annual salary. Sternoff told police that the employee paid himself as part of his duties with the business, but there had never been an approved pay raise or even a discussion.

During the investigation into the alleged financial embezzlement, Sternoff told police the man who had obtained the business license with Sternoff’s employee had called him, yelling and threatening him. Sternoff claimed that the man told him regarding his employee, “You hired a guy that didn’t know what he was doing and he took your money.”

The Kirkland Police Department investigation concluded that the employee had committed forgery, theft and embezzlement and forwarded the case to the prosecutor’s office. However, after the case reached the prosecutor’s office, they concluded “there was very little evidence to support a majority of the theft allegations because there are no business records,” according to a September 2015 KPD supplemental report.

For example, the lack of record keeping made it difficult for Sternoff to say which of the $100,000 in cash withdrawals made by the employee were acts of theft, as he commonly paid day laborers using cash.

Additionally, Sternoff had also told police during a joint interview with the prosecutor’s office that he had planned on giving the business to the employee at some point, which prosecutors felt would be used against him in trial, even if it didn’t “negate the theft.”

According to the supplemental report, Sternoff had also told the prosecutor’s office that he did not believe the employee had endorsed the $32,850 check, but still wanted the prosecutor’s office to file criminal charges against him because it would “put pressure” on him to testify against the client and claim she had forged his signature on the check.

Sternoff is currently in the midst of a civil lawsuit with the client over construction defects and repairs to the custom home his company built for them, and “criminal charges against (the client) could discredit her, thereby providing him with a solid defense,” according to the supplemental report.

Other issues concerning the $32,850 check included the fact that the bank had allowed the employee to sign checks on his behalf whether or not Sternoff was legally entitled to draw the check at all and thus had legal claim to the money, and that his general contractor’s licenses had expired at the time the check was issued.

Murray told the Reporter the employee’s heavy involvement in running the business, particularly the financial aspect of it, would have presented a significant hurdle for the prosecution to overcome in order to secure a conviction, which opened up possible criminal liabilities.

“A lot of it has to do with (the fact that) he (the employee) had such free reign, it looks almost impossible to prove,” he said. “This is one convoluted case, to say the least.”