The two people at the center of what's believed to be the biggest fare-evasion scheme in Massachusetts Bay Transportation Authority history have pleaded not guilty to larceny and conspiracy charges in Salem District Court.
Judge Michael Lauranzano set bail Friday for Townes and Escobar at $250,000 and $100,000, respectively.
Townes — who was a supervisor at Cubic Transportation Systems Inc., the Beverly company contracted to produce and distribute monthly MBTA transit passes — allegedly printed upwards of 20,000 fraudulent passes worth an estimated $4 million and sold them directly to MBTA passengers, pocketing the proceeds, according to assistant Attorney General Gina Masotta.
Escobar, who is listed at the same Revere address as Townes but recently moved out, was not an employee at Cubic, but allegedly helped Townes sell the so-called "ghost passes" after he printed them, the prosecutor said.
Townes began printing the fraudulent transit passes in November 2007, and a warrant search of his Revere home "recovered multiple boxes filled with thousands of MBTA tickets," Masotta said.
There were also two large bags filled with shredded passes, which Masotta said was an attempt to "destroy evidence" once the couple caught wind that police were onto their alleged scheme.
By January 2010, police believe Townes was printing more than 500 of the fraudulent passes per month.
Deals through Craigslist
The passes were real MBTA transit tickets, printed using the same machine at Cubic's Beverly office that's used to print legitimate monthly commuter rail and subway passes. There was, however, one important catch.
Normally, when a pass is printed, it's automatically logged into an MBTA database that keeps track of the number of passes produced and the revenue generated for the MBTA. Townes, however, allegedly figured out a way to manipulate the machine so that he could print fare passes and activate them without it being logged into the database, Masotta said.
He and Escobar then allegedly sold the "ghost passes" by setting up deals with MBTA passengers on Craigslist and other websites, under the pseudonyms Lisa and Rich Rohan.
The passes, worth anywhere from $59 to $265 depending on the distance the pass allowed the passenger to travel, were sold at small discounts.
Townes and Escobar made transactions with customers in person, and through the mail by money order, prosecutors said. At least two passengers who had purchased the fraudulent passes in person identified Escobar in a police lineup.
It is unclear how many, if any, of the passes made their way to MBTA rail commuters in Gloucester or elsewhere on Cape Ann.
From December 2009 through March 2011, about 225 money orders totalling approximately $48,000 were mailed to a Beverly post-office box rented to both Townes and Escobar, police said.
The couple had 45 different bank accounts to stash their proceeds; 23 of those accounts remain open with total assets of about $50,000, the prosecutor said. That leaves quite a bit of money unaccounted for, she said.
'Significant amount of cash'
"We believe they have access to a significant amount of cash, and pose a serious flight risk," Masotta said in making the case Friday for Judge Lauranzano to impose a substantial bail amount.
Asked after the arraignment if Townes would be able to post the $250,000 bail, his attorney William O'Hare said it's unlikely. He is being held at Middleton Jail, while Escobar is being held at a women's prison in Framingham.
Masotta said both Townes and Escobar were living well with the proceeds they made from the alleged scheme. Townes paid off a property in Lawrence with the money and also used it to help him buy property in Revere, she said.
"There were also multiple cars, trips and jewelry, all paid for from the proceeds of the illegal sales," Masotta said.
In interviews with police, Townes estimated his earnings from the alleged plot at $800,000. Escobar was said to have made between $20,000 and $25,000 per month from the scheme, but Masotta did not say how much in total she allegedly made.
Others likely involved?
The scheme was so large, lawyers on both sides said Escobar and Townes likely didn't act alone.
"This is a young woman who was caught up in something much bigger than herself," said James Craig, Escobar's court-appointed attorney. "It certainly appears there are others involved in this alleged scheme."
"A number of additional employees (at Cubic) had access to the (MBTA pass printing) machine," O'Hare said. "Interviews with multiple pass riders revealed that they never spoke to either of the two individuals before you here in court."
During interviews with police, Townes named several other people he alleges were involved in the scheme, Masotta said.
No other arrests in the case have been made yet, but the attorney general's office said the case remains under investigation.
In response to the arrest, the MBTA announced last week that it would terminate its contract with Cubic and has moved the transit pass operations "in-house for the time being to MBTA offices," according to Joe Pesaturo, an MBTA spokesman.
"Cubic employees, under the supervision of MBTA staff, continue to handle orders for fare passes, but the machines used for printing CharlieTickets have been removed from the Beverly facility," Pesaturo said.
MBTA seeks compensation
The MBTA sent a letter to Cubic Vice President James Edwards on Thursday, alleging "a material breach of its obligations" under the contract. Cubic has 30 days to try and rectify the problem, however, due to the serious nature of the offense, the MBTA "reserves the right to deem any offer to cure futile," the letter says. The contract, held since 2009, paid Cubic $2.3 million this fiscal year, which ends June 30, Pesaturo said.
MBTA officials, including General Manager Richard Davey, have said they expect Cubic to fully compensate MBTA for the millions of dollars it lost in the alleged scheme.
Cubic Transportation Systems moved into its Beverly office in 2009, taking over the space from the company that had previously held the MBTA contract. The facility includes a call center to handle customer inquiries and a fulfillment center that produces and mails MBTA passes ordered online or over the phone. About a dozen employees work at the office, according to Diana Pisciotta, a spokesperson for the company.
Jesse Roman can be reached at email@example.com.