Chicago Engineering Firm, Owner Sentenced
Springfield, Ill. – The principal owner of a Chicago engineering firm was sentenced today to nearly three and one-half years in federal prison. U.S. District Judge Jeanne E. Scott sentenced Manu Shah, 73, of Oak Brook, Illinois, the sole shareholder, owner and operator of Shah Engineering, Incorporated, to serve 41 months in prison. Shah is to report to prison on August 20, 2009, to begin serving his sentence. Judge Scott ordered Shah and the corporation to pay a total of $10 million in restitution to 12 state and municipal entities, including the Illinois Department of Transportation, that were overcharged as a result of the fraud scheme from 1997 through 2004. The firm was further ordered to pay a fine of $500,000.
Restitution amounts and the agencies to receive restitution include: $1.24 million plus $264,889 for audit costs to the Illinois Department of Transportation; $739,413 to Illinois State Toll Highway Authority; $1.47 million to Metra; $2.6 million to Chicago Department of Transportation; $269,471 to the City of Chicago; $1.2 million to Chicago Transit Authority; $496,783 to Chicago Department of Aviation; $367,763 to Department of Construction and Permits; $141,051 to Chicago Department of Sewers; $438,771 to Chicago Department of Water; and, $628,943 to the Metropolitan Water Reclamation District.
A federal investigation of Shah Engineering’s business practices was initiated by the Illinois Department of Transportation following a department audit in January 2004. Throughout the investigation, IDOT’s team of auditors has worked extensively and cooperatively with agents from the Federal Bureau of Investigation and the U.S. Department of Transportation Office of Inspector General. The case was prosecuted by Assistant U.S. Attorney Patrick D. Hansen.
“The long term, pervasive nature of this fraud and the amount of government funds fraudulently obtained by Shah make this case particularly egregious,” stated First Assistant U.S. Attorney Jeffrey B. Lang. “The resulting order of $10 million in restitution to be returned to these agencies is the result of hours of teamwork by a dedicated group of IDOT auditors and federal criminal investigators.”
Illinois Transportation Secretary Gary Hannig said, “We are gratified to learn today that Mr. Shah has been sentenced to federal prison and ordered to pay the Illinois Department of Transportation more than one million dollars his engineering firm was convicted of stealing from the Department. We are very thankful for the hard work and dedication of federal and local law enforcement, as well as IDOT employees, for their efforts to hold Mr. Shah accountable for his actions.”
On February 1, 2007, Shah pled guilty to two counts of mail fraud and one charge of submitting false documents to IDOT auditors as charged in an information.
Shah has since paid $1.5 million in cash towards the restitution, depositing it with the U.S. Clerk of the Court. He also posted $5.5 million in stock funds; however, since the deposit, the value of the securities posted with the court and held by Shah has substantially decreased. During today’s hearing, Judge Scott ordered the stock assets be liquidated to cash in the next 30 days. Shah was ordered to post another $1 million in 60 days with the total amount to be paid within 18 months.
According to documents filed by Shah’s attorneys in this case, Shah Engineering, Inc. has not operated as a business since December 1, 2008, and Manu Shah does not intend to operate the company in the future. Because the company is still a legal corporation, restitution payments may be made through the company, however, once audit issues have been resolved, Shah expects that the company will be dissolved. Further, Manu Shah has surrendered all professional and business licenses relating to engineering and has entered into a Consent Order with the Illinois Department of Financial and Professional Regulation that his licenses would be suspended for an indefinite period of time but not less than two years.
According to the information and plea agreements for Shah and Shah Engineering Inc., Shah Engineering was a primary contractor or subcontractor on various projects for engineering and architectural services for IDOT and other state government agencies as well as for the city of Chicago from 1997 through 2005. Shah Engineering also acted as a subcontractor on additional jobs financed or directed by these state and municipal agencies.
IDOT and the other entities used several billing procedures in its contracts for services during the period of the fraud scheme, beginning in 1997 through 2004. These billing procedures included ‘lump sum’ and ‘variable sum’ contracts as well as ‘cost plus’ and ‘direct labor multiplier’ contracts. Each involved a different way of calculating the relationship of costs for direct labor and overhead expense.
During court proceedings and in court documents, Manu Shah admitted overcharging IDOT and other entities when submitting contract invoices in several ways:
- Direct billing fraud in which Shah Engineering misrepresented the amount of work its employees performed on certain contracts, by both overstating the number of hours actually worked by individuals, and by “shifting” hours worked by individuals from less profitable projects to more profitable contracts or to overhead categories;
- Overhead fraud in which Shah Engineering materially misrepresented its indirect expenses attributable to overhead, using false and fraudulent entries, invoices, calculations and documentation. These artificially inflated overhead expenses were filed with IDOT as “Statements of Experience and Financial Condition.” The SEFC form was used to calculate the rate IDOT and other contractors paid Shah Engineering for overhead in “cost plus” and “direct labor multiplier” contracts and others. Using the inflated numbers, Shah Engineering was able to negotiate higher reimbursement rates than would have been paid otherwise; and, overstatement of employees to misrepresent that certain part-time, contract or independent workers on certain projects were employees of Shah Engineering to fraudulently claim overhead expenses or enhance the billing with a “multiplier” that would be allowed only for legitimate full-time and full-benefit employees of the contractor.
Manu Shah also admitted to falsifying records for an audit conducted by IDOT in 2003 and 2004. Shah was asked to supply documentation for certain direct labor and overhead expenses claimed for IDOT and other contracts in prior years. Shah presented auditors with false and fraudulent documents including an invoice purportedly from “Associated Engineering and Technology,” which had been altered to read “office rent” (an overhead expense) which was actually for the delivery of other services.
James A. Lewis
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