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Originally published Thursday, September 26, 2013 at 8:34 PM

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Ex-city of Seattle worker pleads guilty in $1M theft

A former Seattle Public Utilities employee plead guilty on Thursday to 67 counts of theft for stealing more than $1.1 million from the city.

Seattle Times staff reporters

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A former employee of Seattle Public Utilities pleaded guilty Thursday to 67 counts of theft for stealing more than $1 million from the utility in what is believed to be the largest embezzlement of public funds in modern King County history.

Joseph Phan, 46, admitted he deposited checks paid to Seattle Public Utilities (SPU) into his own personal account and used the money to buy real estate and a car and pay credit-card bills.

As part of a plea agreement, Phan acknowledged his crimes were “significant economic offenses” and accepted the possibility that he could net a prison term longer than the standard sentencing range of 3 ½ to 4 ¾ years.

King County prosecutors said they will be recommending that Phan be given a 7 ½-year prison term when he is sentenced Nov. 15.

Phan, who was unable to post his $750,000 bail, has been on work release since April 2012. Court records indicate he is a laborer with a Seattle company that vacuums and cleans out industrial and marine tanks and that he returns to detention each night.

His wife, with whom he has two school-aged daughters, filed for divorce earlier this year, court documents show.

Phan kept his head down and turned away from cameras during most of the court hearing. Neither he nor his attorney commented after Thursday’s plea hearing.

According to police and prosecutors, Phan was a trusted employee who had worked his way up through the utility company after being hired in1995.

City records show that Phan was making $81,000 a year as an associate civil engineer in 2010. At that time, he was responsible for researching and issuing water-availability certifications to property owners and developers for water-main extension projects and water-meter installations.

He was trusted to issue invoices and accept payments, prosecutors said in charging documents.

Over the years, prosecutors said Phan diverted nearly $1.1 million from SPU into a private bank account he set up with himself and the “City of Sea” named as account holders.

His schemes began to unravel in 2010 when audits of the utility’s financial controls were conducted and Phan and five other employees were discovered to have improperly accessed and credited their own utility accounts. The six were fired.

But it wasn’t until a developer called Phan’s former supervisor at SPU to ask whether a previously paid deposit on a defunct development could be applied to a new development that the depth of Phan’s deception was uncovered.

The developer provided a copy of the check he’d given Phan, but the manager could not find any record that the check had been deposited in the city’s accounts, according to prosecutors.

SPU investigators eventually found copies of dozens of checks in Phan’s project files, and police ultimately established that all the checks had been deposited in Phan’s account, according to prosecutors.

After Phan was arrested and charged with 70 counts of first- and second-degree theft in 2012, police seized $220,000 from his bank account, according to court documents.

At the time, King County Prosecutor Dan Satterberg said the theft was the largest embezzlement of public funds in modern King County history.

After the discovery of Phan’s theft, SPU implemented changes in how invoicing and payments are made, according to Guillemette Regan, the director of risk and quality assurance.

She said, “No employees, except cashiers, can accept payments, and accounting now does all the invoicing.”

Kimberly Mills, a spokeswoman for the City Attorney’s Office, said the city has been repaid in full through restitution and seizures from Phan and by the city’s insurance provider.

In order to pay back the city, Phan was forced to sell at a loss his Beacon Hill home and three of the four properties that were purchased with the stolen money, court records show.”

Among the properties:

• An undeveloped lot at South Snoqualmie Street and 47th Avenue South that was purchased in April 2009 for $95,000, according to property records. It was sold in August for $50,000, well below its $128,000 value, the records show.

• A rental house in Holly Park purchased in January 2010 for $299,950. When it sold in June, the new owner paid $50 less than Phan did, according to property records.

• A vacant lot in West Seattle purchased for $49,500, which sold in September 2012 for $36,000. The property is now valued at $115,000, property-records show.

• Still for sale is a 2,500-square-foot undeveloped lot on the southwest corner of Southwest Charlestown Street and 21st Avenue Southwest, property-records show.

At the time Phan purchased the lot in April 2009 for $57,000, it was valued at $30,000 — and is now valued at $28,000, records show.

In addition, Phan and his wife sold their family home on Martin Luther King Jr. Way South at South Massachusetts Street in December 2012.

Purchased in 1998 and sold for $242,000 — for a modest profit of about $78,000 — it is unclear from the court records whether any of the proceeds of that sale went to the city.

Christine Clarridge can be reached at 206-464-8983 or cclarridgde@seattletimes.com

Information from Seattle Times archives is included in this report.

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