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NY Contractors Face $32M Fraud Case

Tuesday, February 26, 2013

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Three top officials of a New York-based construction company are facing decades behind bars in an alleged scheme to defraud New York City School Construction Authority out of more than $32 million by shortchanging workers.

The men—Muzaffar Nadeem, 57, Afzaal Chaudry, 46, and Zainul Sye, 38, of SM&B Construction Company, based in Brooklyn, NY—were arrested and charged with conspiracy to commit mail fraud in federal court Thursday, Feb. 21, according to the U.S. District Attorney’s Office for the Eastern District of New York.

Prosecutors say the Brooklyn residents paid workers, in cash, and hundreds of dollars below the prevailing wage rate on renovation and repair projects at New York area schools.

Brooklyn school

The SM&B Construction officials are charged with defrauding the New York City School Construction Authority (SCA), an operation that manages the design, construction and renovation of capital projects in New York City's more than 1,200 public school buildings.

Also, more than $3 million of the proceeds from the alleged scheme were laundered to invest in an amusement park and resort complex in Pakistan, the prosecutors announced.

Nadeem is the CEO of the company; Chaudry is the foreman; and Syed is the office manager, according to court documents. The men were held in custody following initial court appearances Thursday, reports say.

Feds: Six Years of Shortchanging Workers

SM&B Construction has been awarded more than $72 million in contracts since 1997 to repair and renovate school buildings throughout New York City, according to court documents. However, beginning in 2008, the men began paying workers below the legal minimum and pocketing the rest, the U.S. attorney’s office said.

Both New York State Labor Law and the terms of its contracts with the School Construction Authority (SCA) required SM&B to pay workers a prevailing wage rate, which was set by the New York City Comptroller.


Bricklayers and other laborers were paid hundreds less than they were owed on school projects, the U.S. attorney's office said.

SM&B paid workers in cash at rates below prevailing wage and then falsely certified to the SCA that the workers had been paid in accordance with the law, the prosecutors allege.

For example, bricklayers renovating a Brooklyn elementary school were paid $250 for each eight-hour day, rather than the $580 daily wage to which they were legally entitled, the court documents alleged. Other laborers on the same project were paid about $125 per day, rather than the $460-$540 daily wage to which they were legally owed, the U.S. attorney's office said.

Investigator: Amusement Park Investment, ‘Not Amusing’

Court documents also allege that more than $3 million of SM&B’s proceeds from the charged fraud scheme were laundered through shell companies and then sent to Pakistan to fund an investment in an amusement park and resort complex there.

“The defendants were well schooled in cheating their workers, according to the charges, and even sent millions they skimmed overseas to fund an amusement park,” according to New York City Department of Investigation Commissioner Gill Hearn.

“But defrauding the City’s school construction program is a serious crime that no one in the law enforcement finds amusing.”

Nadeem, Chaudry and Syed each face maximum sentences of 20 years’ imprisonment for the conspiracy charges, the prosecutors report.

Alleged Cover-Up, Additional Charge

In order to conceal the charged fraud scheme from authorities and to obtain cash to pay the illegally low wages to workers, Syed along with Irfan Muzaffar, 28, of Brooklyn, and Arun Gandham, 44, of Jersey City, NJ, engaged in illegal structuring financial transactions, according to the U.S. attorney’s office.

Specifically, the men avoided filing required Currency Transaction Reports by cashing multiple checks, each for less than $10,000 on a single day, for an amount more than $10,000, the complaint alleges.

Syed, Muzaffar and Gandham each face a maximum sentence of five years of imprisonment for the charges of illegal structuring.

‘Now Held Accountable’

“[T]he defendants promised workers a fair wage for a day’s work—work that was often difficult manual labor, but shortchanged them to line their pockets,” said Loretta E. Lynch, United States Attorney for the Eastern District of New York.

“They also defrauded the taxpayers by falsely stating to the School Construction Authority that they were paying a full day’s wages for a full day’s work. Their lies resulted in the awarding of contracts they were not entitled to, tens of millions of taxpayer dollars obtained by fraud, and the exploitation of workers.

“They will now be held to account for their actions,” she said.

A spokeswoman from SM&B Construction declined to comment on the recent charges.


Tagged categories: Commercial Construction; Construction; Criminal acts; Ethics; Government contracts; Maintenance + Renovation; Schools

Comment from Tom Schwerdt, (2/26/2013, 8:49 AM)

$72.5/hr mandated minimum wage for bricklayers in NYC. Wow.

Comment from Joseph Gilman, (2/26/2013, 11:00 AM)

Tom, As is the case with most sloppy journalism such as this, the whole story is what you don't read, not what you do. The wage rate mentioned here for laborers and Bricklayers is there total hourly package, which includes medical,dental,pension etc etc. If you live in NY, you know no one is getting rich at these jobs. They are middle class wages, something we need more of in our country. I doubt any bricklayer is owning a 3 million dollar amusement park in pakistan!

Comment from k barrus, (2/26/2013, 11:36 AM)

I am not interested in defending the alleged dishonesty of company officials. But it is ridiculous that the comptroller of New York is setting wages for the private sector. Having worked construction, it is great to get the higher 'specified' wage, for federal jobs, but who is paying that premium? Every Jack and Jill taxpayer. Why should taxpayers like us pay more for a federal building than a private one? Our ridiculous government meddling is as corrupt as the smucks who figure out a way to cheat the system.

Comment from Martha Ireland, (2/26/2013, 3:16 PM)

Interesting that public sector contracts funded by taxpayers go to corporations headed by foreigners who display no respect for American laws. Also, am I the only one having a hard time visualizing an "amusement park" in Pakistan? Sign me, "not amused"

Comment from Joseph Gilman, (2/26/2013, 5:34 PM)

Mr. K Barrus, The Comptroller is is not setting wages for the private sector. Those are the private sector wages. The city of New York just puts minimum wage requirements in their bids. this has nothing to do with Federal Jobs, it was a NYC school job. Would you prefer we pay poverty wages of perhaps hire illegals? Then every contractor could own an amusement park in Pakistan. But then when no one make a decent wage, no one buys anything and the economy crashes to halt, kind of like it has for the last 6 years

Comment from Paul Braun, (2/27/2013, 8:38 AM)

Bravo, Joseph!

Comment from John Fauth, (2/27/2013, 10:59 AM)

Joseph, I resent the inference that poverty wages or illegal employment is the expected outcome if some bureaucrat doesn't set a minimum wage for an industry. There are too many industries, too many jobs, proving that sentiment demonstrably incorrect. I believe it's also misguided to portray government mandated minimum (elevated) wages as "private sector wages", since those wages are surely not earned on private construction jobs. In fact, you might say these elevated minimum wage jobs for public construction invite various illegal activities well beyond those brought to light in this article.

Comment from Joseph Gilman, (2/27/2013, 7:05 PM)

Mr Fauth, I appreciate your comments. Those wages are not plucked out of thin air. those are previling wages in an area that arrived at by surveying contractors in the industry who employ labor. I dont believe that the downard pressure on wages that come from free for all mentality is not demonstrably incorrect, in fact i believe it is demonstrated over and over in construction and whole lot of other industries

Comment from John Fauth, (2/28/2013, 8:51 AM)

Joseph, there are perpetual downward pressures on wages, and concurrently upward pressures, from a variety of competing forces. There are times when the downward pressures prevail and wages drop, and times when upward pressures prevail and wages rise. That's the way the market works... entirely without the aid of governmental intervention. In closing, I have no statistics to support the following contention, but my intuition and common sense tell me that the wages stated in this article do not represent any sense of reality. Maybe you were surveying SM&B Construction?

Comment from Joseph Gilman, (2/28/2013, 9:50 AM)

Mr Fauth, Thank you for your response.I did not survey anyone, I was simply explaining how the prevailing wage rates are calculated.They include the total package of wages including all benefits. That is the Hourly rate and it can be paid all in the paycheck to non-union and Union employers pay the same but it split into wages and benefits. I have worked in construction and owned a contracting business, believe me these are not arbitrary rates. The rate for the painter at WTC or on a commercial business in NYC is the rate that paid on School Construction. In answer to your other comment, I believe that there is much more downward pressure on wages than upward pressure and if you believe that we have an invisble hand controlling our "Free Market", I would vehemently disagree with that also.

Comment from John Fauth, (2/28/2013, 2:08 PM)

Joseph, the "invisible hand" is the government imposed prevailing wage. If the prevailing wage is purported to represent real wages in common practice, and those real wages are set by the market without government intrusion, then by inference there would be no need for a bureaucrat to declare a prevailing wage requirement in the first place. No?

Comment from Robert Ikenberry, (3/1/2013, 9:41 AM)

These statistics cited in a 2/28 article may be informative. Texas is probably the other end of the spectrum and seems to show the invisible hand of the market is pressing down on wages, not lifting them up... "However, despite its importance, the construction industry in Texas faces some serious problems that restrict future growth, according to the Workers Defense report. Those issues include the following. 99 percent of the jobs created between 2005 and 2010 paid wages at or below the federal poverty level for a family of four. 52 percent of workers surveyed had wages below federal poverty guidelines. 41 percent of the construction workers surveyed experienced payroll fraud. Workers receive few non-wage benefits: medical insurance (22 percent); vacation (15 percent); sick leave (12 percent); retirement or pension benefits (9 percent); and workers’ compensation (40 percent). Texas is also the deadliest state when it comes to construction-related fatalities. Between 2007 and 2011, 585 Texas construction workers died, compared to 299 in California, which had a larger construction work force, the report relates."

Comment from k barrus, (3/1/2013, 12:11 PM)

Mr. Ikenberry, I don't mean to nit pick. But in your quote about the work situation in Texas, you make reference to the "federal poverty level." Underlying the federal government establishing a federal poverty level is the notion that without government establishing a federal poverty level and wages, ruthless businessmen would starve their employees. The historical reality seems to be just the opposite. Countries with less intrusive regulations enjoy greater prosperity and higher economic activity across the board. And the poor in America are doing incredibly well when compared to the poor in any other country in the world. Most have cell phones, tv's, cars, indoor plumbing, etc. It is politically expedient to always have a large group of "poor" people to manage as a power base.With over 100,000 pages of regulations in the CFR, the government is not a solver of problems--it is a huge self-serving parasite on the public weal, and will eventually kill its host. Look at the deficit and weep for our children's future. Nothing the government does is free, and it is nearly always more inefficient than the private sector.

Comment from John Fauth, (3/1/2013, 1:49 PM)

In order for a comparison of wages from state to state to be relevant, we would need to compare wages for similar jobs. Nonspecific statistics aren't very helpful, and in this case even less helpful since Texas is a net job gainer and New York is a net job loser. How do we compare lower wage jobs created with jobs lost? And the Texas/California construction related deaths may reflect differences in the type of construction jobs (ie: refinery, oilfield, offshore, etc) that Californians are not fond of. And I think those jobs pay reasonably well, but I'm not sure.

Comment from Tom Schwerdt, (3/4/2013, 2:17 PM)

Guys are getting hired right out of High School as roughnecks in Midland/Odessa for $50-60k. Of course, their living conditions suck and the work is hard.

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