You are here

Justice News

Department of Justice
U.S. Attorney’s Office
Northern District of California

FOR IMMEDIATE RELEASE
Wednesday, October 17, 2018

Political Consultant Pleads Guilty To Conspiring To Defraud The United States And Making False Statements To Federal Investigators

SAN FRANCISCO – Derf Butler, owner and president of San Francisco-based Butler Enterprises, pleaded guilty today to conspiracy to defraud the United States in connection with a federal construction contract, and making false statements to federal investigators, announced United States Attorney Alex G. Tse, Federal Bureau of Investigation Special Agent in Charge John F. Bennett, and the Department of Energy (DOE) Office of Inspector General Special Agent in Charge James Breckenridge.  The plea was accepted by the Honorable Charles R. Breyer, U.S. District Judge.

A federal grand jury indicted Butler, 54, of Vallejo, with the charges on April 6, 2017.  In pleading guilty to the charges without a plea agreement, Butler has admitted that he conspired with others to knowingly and intentionally defraud the DOE.  Specifically, Butler admitted that beginning no later than July 17, 2013, he was involved with others in an illegal scheme to obtain a contract with the DOE to renovate a building on the campus of the Lawrence Berkeley National Laboratory (LBNL).  

Contractors seeking construction work with the DOE are legally required to obtain work through a competitive bidding process. In this case, Butler and others agreed to submit, or participate in the submission of, fraudulent and non-competitive bids to perform the renovation of LBNL Building 84.  Specifically, Butler agreed to take steps to ensure that a particular “developer” won the contract by ensuring the developer’s bid on the renovation project was the lowest bid.  Butler also helped to orchestrate the submission of bids by other contractors in amounts dictated by the developer.  Butler also admitted he understood the bids he arranged for submission by other contractors were not genuine bids and were intended to be higher than the bid submitted to the DOE by the developer.

In addition, Butler admitted meeting with the developer in July of 2013, at which time Butler agreed to locate contractors to submit bids for the DOE contract in amounts higher than the contractor’s bid.  During the meeting, the developer gave Butler $2,000 in cash.  At the same meeting, Butler proposed that, instead of paying the contractors for submitting the bids, the developer could give the bidders sub-contracting work once the developer won the contract.  Later that same month, Butler met with the developer other contractors.  All agreed that the contractors would submit separate bids and none of the bids would be lower than the $5.7 million bid to be submitted by the developer.  Within the next three months, the contractors’ additional, higher bids were submitted to the DOE and Butler received two additional cash payments of $4,000 and $9,000.  

Butler also admitted facts related to making fraudulent statements to investigators.  On March 26, 2014, agents from the Federal Bureau of Investigation interviewed Butler about his dealings with the developer.  Butler told the agents he had never received money from and that he had no financial relationship with the developer.  In truth, Butler already had received $15,000, he had requested an additional $15,000, and he had multiple conversations with the developer about the financial benefits he expected to receive once the DOE contract for the renovation project was awarded.

The grand jury charged Butler with one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and one count of making a false statement, in violation of 18 U.S.C. § 1001(a)(2).  Pursuant to today’s plea agreement, he pleaded guilty to both counts.  Judge Breyer scheduled Butler’s sentencing for January 23, 2019.

Butler faces a maximum penalty of five years imprisonment, a three-year term of supervised release and a $250,000 fine for the conspiracy charge.  In addition, Butler faces a maximum penalty of ten years imprisonment, a three-year term of supervised release, and a $250,000 fine for the false statement count.   However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.  

On March 9, 2018, Anton Kalafati, 34, of San Francisco, President of B Side Inc. in San Francisco, pleaded guilty to his role in the scheme.  Kalafati admitted to being one of the contractors who submitted a sham bid for the LBNL Building 84 renovation contract.  There is currently no date scheduled for Kalafati’s sentencing hearing. 

The investigation that led to the charges in the indictment arose out of the FBI’s 2012-2014 public corruption investigation of San Francisco political consultant Keith Jackson and then-State Senator Leland Yee, and the related organized crime investigation of Raymond “Shrimp Boy” Chow.  The FBI source who was posing as the developer and acting undercover in connection with the CalVet and DOE contracts described above was also involved in the investigation of Jackson and Yee.  Jackson and Yee were convicted of corruption charges in 2015.  

Assistant United States Attorneys Cynthia Frey, William Frentzen, and David Countryman are prosecuting the case with the assistance of Rosario Calderon and Bridget Kilkenny.  The prosecution is the result of an investigation by the Federal Bureau of Investigation and United States Department of Energy, Office of Inspector General. Additional assistance was provided by the California Department of Veteran’s Affairs.
 

Updated October 18, 2018