Prosecutors say he gave the money to the Lehigh Valley Community Foundation but then steered it to a church that kicked most of it back to him.
They say Karoly spent about $30,000 of it on catering and funeral costs after his brother's 2007 death.
A foundation official testified Monday that Karoly talked of building a camp in the Poconos for disadvantaged youth, but never nailed down his plans. Prosecutors say he instead planned to build a retirement home.
The 59-year-old Karoly is well-known in the Lehigh Valley for taking on police-abuse cases.