Brief

Construction execs plead guilty to $19M fraud

Dive Brief:

  • Three PA construction company executives have each pleaded guilty to bank fraud in connection with almost $19 million worth of U.S. Department of Transportation (USDOT) and Pennsylvania Department of Transportation projects they conspired to obtain through a sham company set up to look like a woman-owned minority business.
  • Carl Weber, Dennis Weber and Judy Noll each face five years in federal prison, two years of supervised release and a fine of $250,000 for presenting Noll's company, Karen Construction, as an independent, disadvantaged business enterprise (DBE) while the Webers, who also ran their own similar steel construction business, actually ran Karen's operations.
  • The USDOT spends billions of dollars each year on transportation projects, the bulk of which are highway projects. The agency must set aside 10% of its contracts for companies certified as DBE's.

Dive Insight:

Any business that has submitted an application to a state or federal DBE or minority certification program will attest that the paperwork is extensive and that the application questions focus on who actually runs the company — who bids on and manages projects, hires and fires subcontractors, receives the profits and controls the finances.

The Webers' company, Carl M. Weber Steel Service, facing probation and a $500,000 fine, shared offices with Karen, as well as labor and equipment, and the Webers controlled much of Karen's operations, all of which would have raised red flags on Karen's application for DBE status. However, for almost two decades, from 1995 to 2011, Noll continued to re-certify her company as a DBE, concealing the extent of the Webers' involvement.

Conventional wisdom among some in the construction industry is that as long as the minority qualifier, in this case Judy Noll owns at least 51% of the company and signs checks, whoever controls day-to-day operations doesn't matter. Undoubtedly, this case will cause many companies to scrutinize their operations to ensure that they deserve the status of DBE.

 

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Filed Under: Legal/Regulation
Top image credit: Beige Alert