- Richard Donoghue, United States Attorney for the Eastern District of New York, announced a 22-count indictment against a New Jersey contractor who allegedly defrauded the New York City School Construction Authority.
- Prosecutors allege that, between 2014 and 2018, Rakesh Kumar, president of Orba Construction Co., turned in false certified payrolls for work he performed on authority construction projects. Through these submittals, Kumar affirmed that he was paying employees the prevailing wage when, in fact, he was paying them a lower rate in cash or with checks from another company he owned. The U.S. Attorney’s Office also claims that Kumar misrepresented the number of hours his employees worked.
- Kumar is charged with 21 counts of mail fraud and wire fraud and conspiracy to commit the same. If convicted, he faces up to 20 years in prison for each count.
Since 1998, according to the New York Daily News, the authority paid Orba more than $145 million for renovations to city school buildings, although prosecutors have no indication that the company’s fraudulent activities went back that far.
In April, a report from the Real Deal said that corruption in New York City’s $45 billion construction industry was not unusual, mostly due to those at the highest levels of authority not ensuring that project managers, contractors, suppliers and other players follow the rules and act ethically. This is one of the factors contributing to such high construction costs in New York City.
The state of New York has also had its issues with fraud. Buffalo, New York-area construction and real estate executives were sentenced to prison at the end of last year for their roles in a bid-rigging scheme involving the “Buffalo Billion” initiative, which was meant to drive development and construction in the region. Louis Ciminelli, formerly of general contracting firm LPCiminelli, was sentenced to 28 months in prison but is currently free pending appeal.
Kevin Schuler, former vice president at LPCiminelli, was sentenced only to two years of probation last week in return for his testimony about the corrupt practices that were part of the Buffalo Billion projects. Also sentenced to prison in December was Joseph Gerardi and Steven Aiello of Cor Development.
The reality of construction fraud, however, is usually far less dramatic. The most common types of industry fraud, according to Kroll's most recent Global Fraud and Risk report, involve the theft or loss of information, breaches of regulations or other acts of noncompliance, and fraud related to vendors, suppliers or other procurement activities. Junior employees, followed by vendors, suppliers and senior or middle managers were the most likely to commit fraud.