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Suspended Firm Seeks Alternate Route

Monday, April 27, 2015

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NEW HAVEN, CT—Doctored payrolls on several federally funded projects have made a Connecticut construction company ineligible for future work, but the fines proposed have prompted a proposal for an unusual alternative.

Cherry Hill Construction Company Inc., of North Branford, CT, pleaded guilty to two charges Jan. 13 in federal court after an investigation determined that the company had submitted falsified certified payrolls on federal projects.

The contracts, from the Federal Highway Administration and Federal Transit Administration, included three funded by the American Recovery and Reinvestment (Stimulus) Act.

After the guilty plea, the FHWA suspended the company and its president, Ivan Sachs; vice president, Rita Sachs; and treasurer, Robert Sachs, from doing business with the government indefinitely as of April 9.

However, the final disposition of the case now hinges on a defense pitch for a novel punishment—instead of paying fines, the company says, let it renovate city parks or build low-income housing.

Underfunded Retirement

Owned and operated by the Sachs family since 1957, Cherry Hill offers site development, on-site crushing, trucking, demolition, roll-off dumpsters, top soil, aggregates and landscaping.

Cherry Hill Construction

The FHWA has suspended Cherry Hill Construction Company after it admitted submitting falsified payrolls on federally funded projects, including the New Haven Line Catenary project (pictured).

The company landed in hot water after falsifying certified payrolls on prevailing-wage construction projects.

In pleading guilty, the company admitted underfunding its profit-sharing 401(k) plan by about $950,000 in 2010 and 2011. Cherry Hill also admitted filing a 2010 corporate tax return that inflated its contribution to the plan, resulting in an increased employee benefit deduction.

When a company is awarded a prevailing-wage project, it must submit certified payrolls that list the hours, prevailing-wage rate and benefits paid to each employee. The federal, state or municipal government then reimburses the company.

A review of Connecticut Department of Transportation records found that the company had certified falsified payrolls that overstated its pension plan contributions on the $101 million FHWA/FTA-funded New Haven Line Catenary and Fives Bridges projects, according to the OIG.

The company since has fully funded its retirement plan and paid $193,000 in back taxes, interest and penalties, authorities said.

Alternative Plan

Sentencing in the case had been set for April 7, when the company was to face up to 10 years of probation and a $750,000 fine for one count of filing a false tax return and one count of making a false statement in relation to documents required by the Employee Retirement Income Security Act of 1974 (ERISA).

According to the Hartford Courant, sentencing guidelines called for a fine of $1.2 million to $2.4 million; the $750,000 figure reflected a plea bargain between the company and the federal government. 

At the hearing April 7, however, the company's attorney, Robert Casale, pitched an alternative to U.S. District Judge Janet Bond Arterton, the new outlet reported.

Why not have the company renovate city parks, which "are a wreck, your honor," said Casale, who touts his office as a "boutique criminal defense firm" that "sub-specializes" in the defense of federal capital prosecutions.

Robert Sachs chimed in with an additional suggestion: The company could renovate or build housing for a nonprofit group.

Instead of a fine, Cherry Hill's lawyer proposed the company clean up city parks or build housing for a non-profit. The judge rescheduled sentencing for May 5 to consider the proposal.

Arterton and prosecutor Douglas Morabito both expressed interest in the idea and agreed to defer sentencing until May 5 to give the parties time to develop a proposal, the newspaper reported.

"It's an interesting idea," Arterton said. She said she was considering the already-restored pension fund, the company's remorse, and the company's family ownership.

Messages left for the U.S. Attorney's Office, Casale and Cherry Hill were not returned Friday (April 24).

Criminal Record Focus

Casale said that Cherry Hill Construction had an "unblemished" criminal record and that the money diverted from the pension fund had been used to keep the company operating, not for personal gain.

In a separate case, however, the company's former construction manager, Robert Santillo, pleaded guilty to two counts of tax evasion in 2012.

In 2005 and 2006, Santillo received about $790,600 from a Cherry Hill subcontractor on numerous asbestos abatement projects, according to the U.S. Attorney's office. Santillo did not pay taxes on this income and did not file federal tax returns for those two years.

He later admitted failing to file federal tax returns for 2007, 2008 and 2009, during which time he grossed $319,587, authorities said.

Santillo was sentenced to 18 months in prison, the Hartford Courant reported.

Health & Safety

Cherry Hill Construction also has a federal health and safety record.

Occupational Safety and Health Administration records show seven inspections between 2007 and 2012 that resulted in 24 citations and $70,844 in penalties, after informal settlements.

Like the U.S. Environmental Protection Agency, Connecticut's Department of Energy & Environmental Protection has often divvied up civil enforcement actions into fines and remediation projects, but doing so for a financial crime in federal court would be new, the Hartford Courant said.


Tagged categories: Construction; Contractors; Department of Transportation (DOT); Enforcement; Ethics; Federal Highway Administration (FHWA); Laws and litigation

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