Patrick Lindsey, former executive with the now defunct MGT Construction in Richmond, Virginia, has been sentenced to 27 months in prison for his role in a five-year accounting fraud that, when discovered in 2016, revealed the contractor was not profitable but was about $28 million in debt. Because of this, MGT was forced to file bankruptcy in 2018, reporting only $50,000 in assets.
Lindsey started working for MGT in 2007 as an estimator, according to court documents, and the company promoted him to vice president of preconstruction services in 2013. From 2011 to 2016, Lindsey took on the responsibility for tracking job costs and issuing work in progress reports, which are intended to provide snapshots of where each project stands financially such as total costs to date, change orders, total amount billed to the owner and estimated profits. These reports are key in monitoring and projecting each project's budget performance and profitability.
MGT also used these reports in calculating executive bonuses, including those paid to Lindsey, and as part of loan application packages submitted to lenders. The contractor also submitted the WIP reports to surety companies that used the information, in part, to determine bonding capacity.
MGT was employee owned through an ESOP (employee stock ownership plan), and Lindsey's activity also caused cash distributions made through the plan to be higher than they should have been due to overvalued stock. Instead of those who received the money being forced to pay it back, MGT's parent company Morton G. Thalhimer Inc. repaid it on their behalf.
As other company officials discovered, Lindsey had shifted subcontractor and vendor invoices between projects, even going as far as to not record them at all, so that projects looked more profitable than they were. For example, as an unprofitable project neared completion, Lindsey would move certain costs from that project to projects in the early stages of construction. Having a consistent pipeline of new projects was critical in being able to continue with the scheme, the documents show.
Lindsey reportedly was a co-conspirator and perpetrated the fraud at the direction and with the knowledge of others, but prosecutors have not yet officially implicated or charged any other individuals.
Lindsey's sentence was the result of a plea agreement. In addition to his prison sentence, Lindsey must also serve three years of probation and pay restitution of $18.7 million to those companies damaged by the fraud. The list of those owed money includes Thalhimer, which has a claim of almost $14.9 million.
Prosecutors acknowledged that, aside from the benefits of continued employment, Lindsey's take from the scheme was only $227,000, but, according to attorney Brian Tannebaum with Bast Amron LLP in Miami, restitution laws are very broad and those found guilty are typically saddled with the debt resulting from their actions regardless of their ability to pay.
Convicted co-conspirators, he said, typically share in the burden of restitution.
When Lindsey is released, he will pay monthly $100, or 25% of his net income, toward restitution to the court after his release from prison.
The amount of control Lindsey had over MGT's accounting and job costing system could have played a part in making the scheme undetectable for years.
Angela Morelock, managing partner and forensics expert at BKD LLP in Springfield, Missouri, told Construction Dive in 2019 that one of the red flags of fraud, as identified by the Association of Certified Fraud Examiners, is that one person is unwilling to share duties and insists on maintaining a significant amount of control.