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Execs Get Prison in Record DBE Fraud

Tuesday, August 5, 2014

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The largest Disadvantaged Business Enterprise (DBE) fraud in U.S. history—300 contracts totaling more than $136 million—is sending two more Pennsylvania highway construction executives to prison.

The latest sentences involve the former owners of Schuylkill Products Inc. (SPI) and its wholly owned installation subsidiary, CDS Engineers Inc. (CDS), of Cressona, PA. (The firm was sold in 2009 to Northeast Prestressed Products LLC.)

SPI manufactured, and CDS erected, concrete bridge beams used on highway construction projects in Pennsylvania and surrounding states. For 15 years, authorities say, the companies used a certified DBE firm as a front to gain tens of millions of dollars in public contracts.

Romeo Cruz US District Judge Sylvia H. Rambo
gmanetwork.org (left); official photo

Romeo P. Cruz allowed his company to be used as a front by a white-owned highway contractor that landed more than $136 million in public contracts. Federal Judge Sylvia H. Rambo called DBE fraud "pervasive" in construction.

On July 14, former SPI COO and co-owner Ernest G. Fink, Jr., 68, of Orwigsburg, PA, was sentenced to 51 months in prison and fined $25,100. On June 30, former president, CEO and co-owner Joseph W. Nagle, 53, of Deerfield Beach, FL, was sentenced to 84 months in prison and fined $27,600.

'Pervasive' Construction Fraud

“DBE fraud is pervasive in the construction industry, and persons so inclined to commit the same kind of fraud need to be aware that they face serious consequences from DBE fraud,” Senior U.S. District Court Judge Sylvia H. Rambo said in imposing the latest sentence.

The Justice Department called the SPI case the "largest Disadvantaged Business Enterprise fraud in [the] nation's history."

Fink's and Nagle's prison sentences are the fifth and sixth imposed in the case, in which SPI and CDS used DBE-certified Marikina Construction Corp. of Connecticut as a pass-through to obtain government contracts.

Marikina owner Romeo P. Cruz of West Haven, CT, a naturalized American citizen born in the Philippines, took a fixed-price fee for allowing SPI/CDS to use his firm's name in documents, the FBI said.

Plea, Conviction

Fink pleaded guilty in August 2010 to conspiracy, but his sentencing was deferred pending the resolution of the case against Nagle.

DBE
U.S. DOT

Established in 1983, U.S. DOT's DBE program requires that at least 10 percent of the funds authorized for highway and transit financial assistance programs be spent with certified DBEs.

A federal jury convicted Nagle in April 2012 on 26 counts of consipracy, wire and mail fraud, money laundering and other charges.

From 1993 to 2008, the FBI said, Nagle and the others diverted more than 300 state and Philadelphia-area construction contracts worth $136 million that were reserved for DBEs.

These sentences were imposed earlier in the case:

  • Cruz was sentenced to 33 months in prison and ordered to pay $119 million in restitution;
  • Timothy G. Hubler, of Ashland, PA, former field operations VP for CDS, was sentenced to 33 months in prison and ordered to pay $119 million in restitution; and
  • Dennis F. Campbell, of Orwigsburg, SPI’s former vice president for sales and marketing, was sentenced to serve 24 months’ in prison and pay $119 million in restitution.
SPI Products
University of Delaware

University of Delaware engineering students toured Schuylkill Products Inc. (SPI) in 2003. The fraud case refers exclusively to the former owners and officers of the company, which was sold in 2009.

Each of the three defendants will also serve two years of supervised release after his prison term.

How it Worked

Established in 1983, U.S. DOT's DBE program requires that at least 10 percent of the funds authorized for highway and transit financial assistance programs be spent with certified DBEs.

The DBE program encompasses firms owned by women and by minority-group members. Certified DBE firms must be owned and controlled by socially and economically disadvantaged individuals.

In this case, authorities said, DBE-certified Marikina received DBE contracts on paper but allowed SPI and CDS personnel to perform the work and pocket the profits. SPI then paid Marikina "a small fixed fee," the Justice Department said.

SPI and CDS personnel pretended to be Marikina employees by using Marikina business cards, e-mail addresses, stationery and signature stamps, as well as using magnetic placards and decals bearing the Marikina logo to cover up SPI and CDS logos on SPI and CDS vehicles.

Boggs paving
Boggs Paving

The tactics used to pull off the fraud—bogus DBE decals and paperwork—were the same as those used in the $87 million fraud by Boggs Paving of North Carolina.

A North Carolina paving company used similar tactics in an $87 million fraud case that drew prison sentences last month.

Protecting Taxpayers

“The audacious, long-term scheme perpetrated by Mr. Nagle and his cohorts stole money from taxpayers, and opportunity from legitimate small-business owners,” said FBI Special Agent in Charge Edward J. Hanko.

“This case highlights the FBI’s commitment to fighting DBE fraud, and seeing those responsible brought to justice."

Added Special Agency in Charge John T. Spratley, of the Labor Department's Office of Inspector General: “This case represents our continued commitment to protecting the American workplace by identifying and prosecuting criminals who violate the laws relating to public contracts."

“We will continue to work with our law enforcement partners to combat these types of crimes.”

   

Tagged categories: Certifications and standards; Department of Transportation (DOT); General contractors; Government contracts; Laws and litigation; Roads/Highways; Subcontractors

Comment from Car F., (8/11/2014, 2:41 PM)

"white-owned highway contractor", why is the color pigmentation of the contractor even mentioned? Crime is colorless and crosses all ethnic group or “races” - as most people mistakenly calls it [there is only one race : homo sapiens, dispersed in many ethical branches], by the way, this criminal is getting a stiff penalty and jail time, but irresponsible employers who willfully kill workers by ignoring safety regulations get only mild fines.


Comment from Tom Schwerdt, (8/12/2014, 8:25 AM)

Pigmentation matters in this case, because "DBE money" is a setaside of money specifically for women and non-white males.


Comment from Mike McCloud, (8/12/2014, 8:30 AM)

Aren't the non-white males the minority now? Get rid of this DBE-WBE nonsense.


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