Education Firms Charged With Stealing $2.8 Million in Child Care Funds

A man who has operated at least four Brooklyn education companies billed the government for more than $1 million in child care services that he never provided, cashing in on programs meant to aid low-income families, according to a federal indictment unsealed on Wednesday.

The executive, Martin Handler, 48, was arrested Wednesday and charged with theft of government funds and wire fraud conspiracy, among other crimes. Also charged were four of his partners, including his younger brother.

In a yearslong fraud, Mr. Handler and a co-defendant stole at least about $2.8 million through companies, some of them secretly owned, overbilling and using the proceeds to dole out no-show jobs, purchase real estate and buy an array of historical religious artifacts at auctions, prosecutors said.

Mr. Handler runs several companies that primarily serve Orthodox Jewish children, including in the fervently religious Hasidic community. In addition to child care companies, he also operates firms that are among the top-earning providers of special education services in Jewish religious schools, known as yeshivas. In all, his education companies have received tens of millions of dollars in government funding annually.

“The defendants brazenly participated in schemes that stole from programs meant to benefit society’s most vulnerable members,” said Damian Williams, the U.S. attorney for the Southern District of New York, in a statement. “Their schemes used children as currency.”

The case is being handled by the public corruption unit of Mr. Williams’s office.

Mr. Handler pleaded not guilty on Wednesday, as did his co-defendants, said his lawyer, Gedalia M. Stern. “The government has many of the facts in the indictment wrong, and Mr. Handler looks forward to demonstrating that,” he added.

For years, Mr. Handler has also been one of the top-earning special education providers in New York City private schools. His special education companies received about $17 million last year, records show.

The companies were among the organizations described in a New York Times investigation last month that found that special education providers in the Orthodox and Hasidic communities had received a windfall of taxpayer money for services that were sometimes not needed, or even provided.

The Times had reported in September that scores of Hasidic boys’ yeshivas in Brooklyn and the lower Hudson Valley have collected about $1 billion in taxpayer money in recent years while failing to provide a basic secular education.

The alleged fraud involving the child care companies began several years ago, when Mr. Handler, who was then the executive director of a nonprofit day care company that provided services all across the city, secretly acquired the company and then used it to fraudulently bill the government, according to the indictment.

At that day care center, Mr. Handler and some of his partners created a “fake after-school program” that sought reimbursement for caring for children who were not actually enrolled, prosecutors said.

Mr. Handler also opened another company and created a partnership between the two, lying to the government about it, according to the indictment.

Mr. Handler also funneled about $118,050 monthly to pay off a loan that he took from a business partner, a co-defendant in the case, prosecutors said. Mr. Handler gave the partner’s wife and grandson no-show jobs with salaries of $90,000 in total and bought the partner’s wife a luxury sport utility vehicle, prosecutors said.

The indictment said that the government is seeking to have Mr. Handler forfeit seven properties across Brooklyn, Staten Island, the lower Hudson Valley and south Florida, as well as several religious items, including a copy of a book personally inscribed by a prominent Talmudic scholar in the 1700s, along with a booklet dating from nineteenth-century Baghdad and a list of blessings printed by silk-weavers in sixteenth-century Bologna, Italy.

The announcement on Wednesday marked the second time in recent months that federal prosecutors have taken aim at Orthodox and Hasidic education providers. In October, the state’s largest Hasidic boys’ yeshiva, the Central United Talmudical Academy, in Williamsburg, admitted to illegally diverting millions of dollars from government programs as part of a deal to avoid federal prosecution.

At least one of Mr. Handler’s special education companies, Kids Domain, provides services at that school.

Mr. Handler acquired another one of his companies, Special Education Associates, in 2012 after its former owner pleaded guilty to defrauding the government. In recent years, that firm has been sued several times in lawsuits that have accused it of discriminating against women and not paying its rent and other bills.

Kids Domain and Special Education Associates are both run from the same building in Borough Park, Brooklyn, where Mr. Handler’s child care businesses were also located.

While all the companies are supposed to operate independently, two former employees told The Times last month that students attending the preschool programs were sometimes urged to seek services from the special education companies, regardless of whether they needed them.

Julie Tate contributed research.