Manhattan U.S. Attorney Files And Settles Civil Fraud Lawsuit Against Yonkers Contractor For Engaging In Fraudulent Conduct In Violation Of The Disadvantaged Business Enterprise Regulations

            Preet Bharara, the United States Attorney for the Southern District of New York, Douglas Shoemaker, regional Special Agent-in-Charge of the United States Department of Transportation Office of Inspector General (“DOT-OIG”), and Michael Nestor, Inspector General of The Port Authority of New York and New Jersey, announced that the United States filed on Tuesday, and simultaneously settled, a civil fraud lawsuit against a contractor, YONKERS CONTRACTING INC. (“YONKERS CONTRACTING”), for engaging in fraudulent conduct designed to exploit the Disadvantaged Business Enterprise Program in order to secure a contract on the federally-funded project for highway rehabilitation and bridge refurbishment along I-287, the Cross-Westchester Expressway (the “I-287 Project”).   Specifically, as alleged in the complaint, YONKERS CONTRACTING falsely certified to the New York State Department Of Transportation (“NYS DOT”) that work being done by a disadvantaged business enterprise (“DBE”) qualified for DBE credit when YONKERS CONTRACTING knew that this was not the case and that YONKERS CONTRACTING instead paid kickbacks to the DBE for the fraudulent use of its DBE status.  In the settlement, approved in White Plains federal court by U.S. District Judge Nelson S. Román, YONKERS CONTRACTING admitted and accepted responsibility for violating the DBE regulations governing the I-287 Project and agreed to pay the Government $2,600,000.

            YONKERS CONTRACTING also entered into a non-prosecution agreement with the United States Attorney’s Office.  Pursuant to the agreement, YONKERS CONTRACTING agreed, among other things, that it has instituted and will continue to maintain internal corporate remediation measures regarding Disadvantaged, Minority-Owned, and Women-Owned Business Enterprises (“D/M/WBEs”) for a period of two years, including: (1) creation and maintenance of a D/M/WBE Policy Manual and updated Code of Business Ethics for distribution to all employees; (2) implementation of an internal D/M/WBE training program for its employees; (3) creation and maintenance of a position focused on D/M/WBE issues; and (4) development and implementation of a checklist for D/M/WBE compliance to be used on all projects.  Pursuant to the agreement, the United States Attorney’s Office agreed not to prosecute YONKERS CONTRACTING criminally in connection with credits claimed by it toward the DBE goal on a construction project on the Cross-Westchester Expressway for work purportedly done by two certified DBEs from in or about 2006 through in or about 2010.

            Manhattan U.S. Attorney Preet Bharara said: “The DBE regulations at issue serve the important purpose of increasing legitimate participation by minority-owned and disadvantaged businesses.  Instead of complying with the DBE regulations, Yonkers Contracting found fraudulent ways to get around them.”

            DOT-OIG regional Special Agent-in-Charge Douglas Shoemaker said: “Disadvantaged Business Enterprise fraud like that committed by YONKERS CONTRACTING harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts.  Our agents will continue to work with the Secretary of Transportation, the Administrator of Federal Highways, and other Federal, State, and local law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-assisted highway programs throughout New York and elsewhere.”

            Port Authority Inspector General Michael Nestor said: “This investigation has demonstrated how individuals in the construction industry have manipulated and circumvented the intent of the DBE Program by utilizing firms as fronts to satisfy Program goals. This conduct deprived legitimate DBE’s from receiving their fair share of government contracts. This investigation should serve notice to all in the industry to adhere to the Program’s intent or face legal consequences. The Port Authority’s Office of Inspector General and its law enforcement partners will aggressively identify, investigate and bring to justice those who corrupt the integrity of the construction industry.”

BACKGROUND ON DBEs

            In 1980, the United States Department of Transportation (“USDOT”) issued regulations in connection with a program to increase the participation of minority and disadvantaged business enterprises in federally funded public construction contracts.  To become certified as a DBE, a company must, among other things, be owned and controlled by socially and economically disadvantaged individuals; be an independent business whose viability does not depend on its relationship with other firms; employ its own work force and own equipment necessary to perform its work; and be able to meet its financial obligations.

            General contractors can count funds paid to DBEs toward the attainment of the DBE goals only if the DBEs performed a “commercially useful function.”  A DBE subcontractor performs a commercially useful function only when it is responsible for the execution of the work of the contract; actually performs, manages, and supervises the work involved; and furnishes the supervision, labor, and equipment necessary to perform its work.

            A DBE does not perform a “commercially useful function” if “its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.”

YONKERS’S FRAUD

            As set forth/described in the complaint:

            Yonkers was part of a joint venture that obtained a contract from NYS DOT for the I-287 Project.  This contract required adherence to DBE regulations, and as part of its bid, the joint venture submitted a DBE Utilization Packet to NYS DOT.  NYS DOT agreed to a DBE participation commitment from the joint venture of 8.03%, of which over 31% was based on the purported work to be provided by a DBE called Global Marine Supply Co. (“Global Marine”).  While YONKERS CONTRACTING claimed that Global Marine was going to serve as a steel supplier, YONKERS CONTRACTING in fact negotiated directly with a third-party steel supplier, which was not a DBE, to supply steel for the I-287 Project.  YONKERS CONTRACTING hired Global Marine solely for its DBE status, in exchange for a 1% mark-up.  The third-party steel supplier provided invoices to Global Marine, which recopied them, added the 1% mark-up, and submitted them to the joint venture.  Global Marine never stored or shipped any steel, and thus, as YONKERS CONTRACTING knew, performed no commercially useful function on the project.  Yet the joint venture regularly made entries into NYS DOT’s electronic-tracking system reflecting steel purchases purportedly made through Global Marine, and these records were used by NYS DOT to determine Global Marine’s contribution and whether the joint venture was meeting its DBE goal.  As a result of the false reports submitted, YONKERS CONTRACTING obtained federal money to which it was not entitled.

            Pursuant to the settlement agreement, YONKERS CONTRACTING admitted, acknowledged, and accepted responsibility for making and causing false statements to be made in violation of applicable regulations designed to encourage the participation of disadvantaged business enterprises in federally funded construction projects.  Under the agreement, YONKERS CONTRACTING must also pay the United States $2,600,000.               

            Mr. Bharara praised the USDOT Office of Inspector General and the Office of the Inspector General for the Port Authority of New York and New Jersey for their invaluable work on this case, and thanked the Office of the Inspector General of the Metropolitan Transportation Authority and NYS DOT’s Investigations Bureau for their assistance with this investigation. 

            Assistant United States Attorney Benjamin Allee of the Office’s White Plains Division is in charge of the criminal case.  Assistant United States Attorneys Ellen London and Mara Trager of the Office’s Civil Frauds Unit are in charge of the civil case.