Texas couple defrauded military up to $11M, Army investigators say

The subsidies from the couple’s alleged scheme gave the couple an income of more than $200,000 in some months, according to court documents 

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Federal agents are investigating a U.S. Army couple in Texas for allegedly defrauding the military out of as much as $11 million, according to an affidavit unsealed last week.

The affidavit, filed in court before a raid on Kevin Pelayo and Cristine Fredericks' home near Fort Hood, accuses the couple of using a transportation reimbursement program for federal employees to swindle the Army out of $2.3 million to $11.3 million. The raid by federal agents yielded more than 20 vehicles and the money from 10 bank accounts belonging to married U.S. Army veterans in Texas, according to the affidavit.

Army investigators obtained warrants last month to confiscate the funds and property and to collect evidence of the alleged fraud during their search of the home of the retired sergeants, recently unsealed federal court records say.

FILE: Members of the media wait outside of the Bernie Beck Gate, an entrance to the Fort Hood military base in Fort Hood, Texas.

FILE: Members of the media wait outside of the Bernie Beck Gate, an entrance to the Fort Hood military base in Fort Hood, Texas. (AP)

Investigators told the court there was probable cause to believe the couple committed crimes including wire fraud, identity theft and money laundering. There is no record that either of them has been criminally charged.

During the search of the couple's home, investigators seized documents, computer hard drives, cellphones and more than 100 designer items, according to a list of what was collected. It also lists 23 cars, trucks, SUVs and other vehicles, and a box containing more than 60 license plates from "various states."

After arriving at Fort Hood in 2010, Pelayo set up a van company to give employees rides to and from the base under a federal program that subsidizes government workers using mass transit in an effort to reduce traffic and pollution. Military investigators allege that it turned into a highly lucrative fraud.


As a platoon sergeant, Pelayo had access to the personnel records of soldiers under his command, and Fredericks had worked for Army human resources, according to the affidavit. Investigators said Pelayo used this access to sign soldiers up for the mass transportation subsidy without their knowledge and then routed the payments to his business' bank accounts.

The affidavit alleges that, starting around 2014, Pelayo registered soldiers around the country for subsidies of $255 or $265 a month. Several enrolled soldiers said they had never ridden in the van pool, and investigators found that many were not even at Fort Hood.

This scheme allegedly continued for years, even while Pelayo was stationed in South Korea before his retirement last August. Pelayo and Fredericks moved the money into an array of bank accounts, investigators wrote in the court filing, saying they own more than 20 properties in Texas, New York, Washington, and Hawaii.


It was not immediately clear if the couple has a lawyer who could speak on their behalves.

The Associated Press contributed to this report.