Ulster County Real Estate Developer Sentenced In White Plains Federal Court To 37 Months In Prison For Fraudulent Kickback Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MICHAEL BARNETT, a real estate developer, was sentenced today by U.S. District Judge Kenneth M. Karas to 37 months in prison for conspiring to defraud lenders and make false statements to the U.S. Department of Housing and Urban Development (“HUD”) in connection with his development of Vineyard Commons, a luxury residential complex in Ulster County, New York. BARNETT pled guilty on January 19, 2016, before U.S. Magistrate Judge Paul E. Davison.
Manhattan U.S. Attorney Preet Bharara said: “Michael Barnett abused his position as the developer of Vineyard Commons to enrich himself and defraud HUD and his construction lender. Today he has been sentenced to federal prison for his crimes.”
According to the Superseding Indictment to which BARNETT pled guilty and his admissions in court during his plea allocution:
BARNETT, who was the developer of Vineyard Commons, sought kickbacks and investments from subcontractors and vendors on the project and made false statements to the project’s lender so that he could draw down on the project’s line of credit. BARNETT arranged with his co-defendants, Robert Lees and Kevin DiCello, executives of a vendor that provided rough carpentry and lumber supplies on the project (the “Lumber Company”), to have the Lumber Company pay Barnett a kickback in exchange for BARNETT’s award to the Lumber Company of the Vineyard Commons contract, as well as future business on other developments BARNETT was planning. To raise funds for the kickback, BARNETT, Lees, and DiCello agreed that the Lumber Company would inflate its bid for labor and materials by approximately $865,000.
BARNETT, Lees, and DiCello intended that the kickback would be funded unwittingly by the construction lender, and ultimately by HUD through its guaranty of the construction loan, through the submission of false and inflated requests to draw down the construction loan.
In January 2010, the Lumber Company made a partial kickback payment of $200,000 to BARNETT, and Lees and DiCello disguised the transaction on the Lumber Company’s books by making it appear to be a customer rebate payable to a company controlled by BARNETT that was not involved in the development of Vineyard Commons. BARNETT then used the $200,000 as a partial payment of an obligation he had to the general contractor on Vineyard Commons.
BARNETT also solicited subcontractors and vendors on the Vineyard Commons project, including the Lumber Company, to provide labor and materials to build a pool house at his home. Some of these subcontractors and vendors, including the Lumber Company, agreed to do so.
Finally, BARNETT submitted false invoices to the construction lender in order to enrich himself fraudulently by drawing down the loan.
In addition to the prison sentence, BARNETT, 47, of Marlboro, New York, was sentenced to three years of supervised release. Judge Karas also ordered BARNETT to forfeit $200,000 in ill-gotten gains and any interest in certain specified real property, and to pay $1,334,620 in restitution.
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BARNETT’s co-defendants have been convicted and are awaiting sentence. Lees was convicted by a jury on May 20, 2016, of conspiracy, mail fraud, money laundering, and making false statements in a loan application, and is scheduled to be sentenced by Judge Karas on December 15, 2016. DiCello pled guilty on April 20, 2016, to conspiracy, mail fraud, money laundering, and making false statements in a loan application, and is scheduled to be sentenced by Judge Karas on January 19, 2017.
Mr. Bharara praised the outstanding efforts of HUD-Office of Inspector General.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Michael D. Maimin, James McMahon, and Won S. Shin are in charge of the prosecution.