Friday, November 20, 2009

Corruption: Former owners of Pennsylvania business indicted in $136 Million fraud

The former owners of Schuylkill Products Inc. (SPI) have been indicted by the federal grand jury in connection with one of the largest Disadvantaged Business Enterprise (DBE) fraud scheme in U.S. Department of Transportation (USDOT) history. The schemes which is alleged to have run for over 15 years, involved the improper award of hundreds of federally-funded highway and mass transit contracts in Pennsylvania and other states. In Pennsylvania alone over 300 contracts were improperly awarded that were valued at approximately $136 million.

Joseph W. Nagle, Deerfield Beach, Florida, and Ernest G. Fink, Jr., of Orwigsburg, Pennsylvania, co-owned and operated SPI and its wholly owned subsidiary CDS Engineers (CDS) until April 2009 when they sold the companies to Northeast Prestressed Products. SPI manufactured concrete products for use on highway construction projects and CDS operated as its engineering and erection division. Both companies were based in Cressona, Pennsylvania. Nagle was the President and Chief Executive Officer of SPI and Fink was Vice-President and Chief Operating Officer of SPI.

The thirty-two count Indictment filed today charges Nagle and Fink with two counts of conspiracy, eleven counts of wire fraud, six counts of mail fraud and eleven counts of unlawful monetary transactions, as well as two forfeiture counts. If convicted, Nagle and Fink face up to five years imprisonment on the first conspiracy count, up to 10 years imprisonment on the second conspiracy count, up to 20 years imprisonment on each wire and mail fraud count, and up to 10 years imprisonment on each unlawful monetary transaction count. Each count also carries potential fines of up to $250,000 or twice the gross gain or gross loss and the Indictment subjects Nagle and Fink to potential forfeiture of the proceeds traceable to the offenses.

The Indictment alleges that Nagle, Fink and others used a small Connecticut highway construction firm known as Marikina Construction Company as a front company to obtain lucrative government contracts reserved for small and disadvantaged businesses. Marikina was owned by Romeo P. Cruz, of West Haven, Connecticut, a naturalized American citizen with origins from the Philippines.

Marikina was designated a disadvantaged business by PennDOT in 1993 which made it eligible to bid on and receive Pennsylvania highway construction contracts reserved for DBE's. The Indictment alleges that between 1993 and 2008, Marikina received hundreds of federally-funded contracts for highway and mass transit construction projects worth millions of dollars but did not perform the work. In Pennsylvania alone, over 300 federally-funded contracts that were worth approximately $136 million were awarded to Marikina, and the Indictment alleges that the work was actually performed by SPI and CDS personnel.

The Indictment alleges that the money from the contracts merely passed through Marikina to make it appear that a DBE was involved, when in reality, SPI and CDS personnel actually found, negotiated, coordinated, performed, managed and supervised all the contracts awarded to Marikina. All the profits from the contracts allegedly ended up with SPI and CDS and in exchange for allowing SPI and CDS to use its name, Marikina was paid a small fixed fee. Essentially, SPI and CDS, which were not DBE's, rented Marikina's name to obtain lucrative government contracts reserved for small and disadvantaged businesses.

Previously, three former executives associated with SPI, CDS and Marikina entered guilty pleas for their role in this scheme. On February 13, 2008, Dennis F. Campbell, SPI's former Vice-President in charge of sales and marketing, pled guilty to conspiracy. On April 15, 2008, Timothy G. Hubler, CDS's Vice-President in charge of field operations, pled guilty to conspiracy and tax fraud charges.

On August 28, 2008, Romeo P. Cruz, the former owner and President of Marikina, pled guilty to conspiracy and on January 9, 2009, he pled guilty to tax fraud. All three men are cooperating with the investigation and await sentencing. All three previously admitted that the scheme was able to last for so long without detection because of the numerous fraudulent steps the co-conspirators took to conceal the true relationship between SPI, CDS and Marikina. These steps included SPI and CDS personnel pretending to be Marikina employees by using Marikina passwords, Marikina signature stamps, Marikina business cards, Marikina letterhead, and Marikina email addresses as well as using magnetic placards and decals bearing the Marikina logo to cover up SPI and CDS logos on SPI and CDS trucks.

In announcing the Indictment United States Attorney Pfannenschmidt stated: "The disadvantaged business enterprise program is designed to ensure that all Americans can enjoy the full promise of prosperity that is an essential part of this country's history. Today's Indictment, is one of the largest frauds ever reported involving this program, underscores the basic message that those who attempt to use this program, as a pathway to greed will face severe consequences. I want to commend all of those involved in this groundbreaking investigation including, the FBI, the U.S. Department of Transportation Inspector General's Office, the U.S. Department of Labor Inspector General's Office, the Criminal Investigation Division of the IRS, and Senior Litigation Counsel Bruce Brandler, who is supervising the prosecution."

The investigation is being conducted by the FBI, the U.S. Department of Transportation Inspector General's Office, the U.S. Department of Labor Inspector General's Office, and the Criminal Investigation Division of the IRS. Senior Litigation Counsel Bruce Brandler is supervising the prosecution.

An Indictment or Information is not evidence of guilt but simply a description of the charge made by the Grand Jury and/or United States Attorney against a defendant. A charged Defendant is presumed innocent until a jury returns a unanimous finding that the United States has proven the defendant's guilt beyond a reasonable doubt or until the defendant has pled guilty to the charges.

Source: U.S. Department of Justice

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