Manhattan U.S. Attorney Files And Settles Civil Fraud Lawsuit Against Subcontractor For Fraudulent Conduct That Violated Rules Designed To Encourage Participation Of Minority And Women-Owned Businesses
Moretrench American Corporation Admits Responsibility For Violating Applicable Regulations And Agrees To Pay $3 Million
Preet Bharara, the United States Attorney for the Southern District of New York, Robert E. Van Etten, Inspector General of the Port Authority of New York and New Jersey (the “Port Authority”), and Douglas Shoemaker, regional Special Agent-in-Charge of the U.S. Department of Transportation’s (“DOT”) Office of Inspector General, announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against a subcontractor, MORETRENCH AMERICAN CORPORATION (“MORETRENCH”), for engaging in fraudulent conduct to exploit regulations designed to increase the role of minority-owned businesses in order to secure a subcontract on the federally-funded World Trade Center Transportation Hub project (the “HUB Project”). Specifically, MORETRENCH caused the prime contractor of the HUB Project to falsely represent to the Port Authority that MORETRENCH paid hundreds of thousands of dollars to a disadvantaged business enterprise (“DBE”) to perform legitimate work on the contract when, in fact, the DBE did not perform any significant work and instead simply received a kickback from MORETRENCH for the fraudulent use of its DBE status. In the settlement, approved in Manhattan federal court yesterday by U.S. District Judge Laura Taylor Swain, MORETRENCH admitted and accepted responsibility for violating the applicable regulations governing the Hub Project and agreed to pay $3 million. MORETRENCH further agreed to pay the Office of Inspector General of the Port Authority $50,000 for its investigative costs.
Manhattan U.S. Attorney Preet Bharara said: “The federal Disadvantaged Business Enterprise regulations and similar Port Authority rules serve the important function of increasing legitimate participation by minority-owned businesses in federally-funded construction projects. With this settlement, Moretrench has publicly admitted to fraudulently violating these rules and will pay a substantial fine as a consequence. I want to thank our partners at the Port Authority Office of Inspector General and the U.S. Department of Transportation’s Office of Inspector General for their work in this important case.”
Port Authority Inspector General Robert E. Van Etten said: “This investigation has shown how individuals in the construction industry have manipulated and circumvented the intent of the Port Authority’s Minority and Women’s Business Enterprise Program for the World Trade Center Transportation Hub project by utilizing firms as fronts to satisfy the Program goals. I would hope that this case serves as an incentive to the industry to adhere to the Program’s intent. I urge those with information of instances of other fraudulent practices to report them to law enforcement. Working with our law enforcement partners we will continue to vigilantly investigate allegations of fraud in the construction industry.”
Douglas Shoemaker, regional Special Agent-in-Charge of DOT’s Office of Inspector General, said: “As evidenced by Moretrench’s agreement to settle this lawsuit, we remain steadfast in our commitment to preventing and detecting fraud related to federally funded transportation programs. Working with our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.”
BACKGROUND ON DBEs
In 1980, the DOT 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.
According to the allegations in the complaint:
As a condition of receiving DOT funding, the Port Authority set Minority Business Enterprise (“MBE”) and Women’s Business Enterprise (“WBE”) goals for the HUB Project. DOT determined that, with respect to the HUB Project, the Port Authority was permitted to follow its own MBE and WBE rules as they were substantially equivalent to the federal DBE regulations. MORETRENCH was hired as a subcontractor on the HUB Project and, as part of its contract, was required to use its best efforts to obtain seventeen percent MBE/WBE participation. MORETRENCH represented that it had hired Environmental Energy Associates, LLC (“EEA”) as a subcontractor to operate the dewatering system for the HUB Project (dewatering is the removal of groundwater). However, EEA operated as a shell company. EEA and MORETRENCH had an arrangement whereby MORETRENCH hired the pump operators, supervised the job site and assembled bi-weekly payrolls. In order to give the appearance that EEA was performing a legitimate role as an MBE, several pump operators, who were already working on the job site as MORETRENCH employees, were switched to EEA’s payroll. EEA’s payroll paperwork was assembled by MORETRENCH employees, but listed EEA as the contractor. EEA received a mark-up on the payroll records as compensation for the use of its MBE status. As part of its requests for payment, MORETRENCH prepared reports to the Port Authority falsely representing that MORETRENCH paid EEA for work performed on the project when in fact MORETRENCH was performing the work itself.
Pursuant to the settlement agreement, MORETRENCH 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. MORETRENCH also agreed to pay the United States $3 million.
Mr. Bharara praised the Port Authority Office of Inspector General and the U.S. Department of Transportation’s Office of Inspector General for their invaluable work on this case. He also thanked the Metropolitan Transportation Authority Office of Inspector General and the United States Department of Labor Office of Inspector General for their assistance.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Mara Trager and Ellen London are in charge of the case.