- South Carolina federal prosecutors have indicted a group of seven construction executives and associates for allegedly setting up and operating a network of sham disadvantaged and minority businesses in order to win approximately $350 million in government contracts in and out of the state since 2002, according to The State.
- In addition to creating their own shell companies, authorities alleged that the group also enlisted existing companies owned by women, minorities, veterans and disabled veterans to assist in perpetrating their fraud.
- If convicted, the individuals and two companies — financing firm Automatic Cash and construction consultant EEC — face sentences ranging from five to 20 years in prison, as well as fines of $250,000 to $10 million.
Most publicly funded projects, particularly high-dollar ones, include some level of minority participation requirements, and because many owners and general contractors maintain there is a shortage of qualified minority contractors, some firms see this as an opportunity to gain entry into a potentially lucrative niche, even if they're not legally entitled.
Lately, however, state and federal authorities have been cracking down on construction companies that try to cash in on contracts meant for minority, disadvantaged and veteran-owned businesses. Until their deception was discovered, many of these contractors, like the ones in South Carolina, managed to bilk the public out of hundreds of millions of dollars over several years.
For example, in Pennsylvania, three steel executives pleaded guilty last year to setting up and running a fake minority business for nearly 20 years and performing almost $19 million worth of Pennsylvania Department of Transportation and federal highway projects. The trio was sentenced to probation and had to pay fines totaling more than $1.3 million for using a straw woman-owned business to take on contracts that were actually executed by an established non-minority steel contracting firm.
And just this past June, another woman-owned business executive in Illinois was found guilty of allowing other contractors to use her company as a front in order to secure minority contracts. Prosecutors alleged that Elizabeth Perino, in exchange for a percentage of labor costs and other fees, allowed two general contractors to perform work awarded to her company on a $200 million project. Perino has not yet been sentenced but faces a maximum prison sentence of up to 80 years.