President Of Highway Construction Firm Pleads Guilty
to $121 Million Disadvantaged Business Enterprise Fraud
Martin C. Carlson, United States Attorney for the Middle District of Pennsylvania; Janice K. Fedaryck, Special Agent in Charge of the Philadelphia Division of the FBI; Ned Schwartz, Regional Special Agent in Charge, U.S. Department of Transportation, Office of Inspector General; William Turpin, Special Agent in Charge, U.S. Department of Labor, Office of Labor Racketeering and Fraud Investigations; Leslie P. DeMarco, Special Agent in Charge of the Philadelphia Field Office, Internal Revenue Service, Criminal Investigation Division, announced today that a third guilty plea has been entered in connection with the largest reported Disadvantaged Business Enterprise (DBE) fraud scheme in U.S. Department of Transportation history.
Romeo P. Cruz, age 59, of West Haven, Connecticut, the owner of Marikina Construction Corporation and Marikina Engineering and Construction Corporation, pleaded guilty in federal court to conspiracy to defraud the United States Department of Transportation (USDOT), the Pennsylvania Department of Transportation (PennDOT), and various general contractors in connection with the DBE program. The guilty plea was entered before United States District Judge Sylvia Rambo in Harrisburg, Pennsylvania. As a result of the guilty plea, Cruz faces up to five years' imprisonment and fines totaling $250,000. Cruz pleaded guilty pursuant to a plea agreement in which he has agreed to cooperate in the on-going investigation of this fraud.
The plea agreement also specifies that Cruz will plead guilty to filing a false income tax return for 2005 at a later date. The tax offense carries an additional three years' imprisonment and fines totaling $250,000.
On February 13, 2008, Dennis F. Campbell, a Vice-President of Schuylkill Products, Inc. (SPI), a Cressona, Pennsylvania, based manufacturer of concrete products used on highway construction projects, pleaded guilty to the DBE fraud and awaits sentencing. On April 15, 2008, Timothy G. Hubler, a Vice-President of CDS Engineers, Inc., which operated as the erection division of SPI, pleaded guilty to the DBE fraud and tax fraud and awaits sentencing. Both men are also cooperating in the on-going investigation.
Cruz was the President and owner of Marikina Construction Corporation and Marikina Engineers and Construction Corporation which operated out of the basement of his home in West Haven, Connecticut. Marikina was a small highway construction company that was designated a DBE by PennDOT in 1993, and grew to be the largest recipient of DBE-designated funds under PennDOT's DBE program. Between 1994 and 2007, Marikina received over $121 million in subcontracts under the DBE program. Cruz admitted today that Marikina really was a front company for SPI and CDS and that funds were merely passed through Marikina to make it appear there was DBE participation. In reality, SPI and CDS personnel performed all of the work in connection with the subcontracts, and Marikina remitted all of the proceeds from the subcontracts to SPI and CDS. In exchange for allowing SPI and CDS to use its name, Marikina was paid a small fixed-fee, set by SPI. Essentially, SPI and CDS, which were not DBE's, rented Marikina's name to obtain lucrative government contracts slotted for small and disadvantaged businesses.
Cruz admitted that he and the other co-conspirators were able to conceal this scheme for over fifteen years by various fraudulent means, including making false statements to PennDOT on Marikina's DBE applications. Previously, Campbell and Hubler admitted that numerous SPI and CDS personnel routinely pretended to be Marikina employees when conducting SPI and CDS business and used Marikina business cards, eMAIL addresses, and Marikina letterhead to conceal who they were really working for. Other methods used to cover-up the scheme included using phony leases for SPI and CDS vehicles that were used to transport CDS workers and supplies to job sites and using magnetic placards with Marikina's name to cover-up the SPI and CDS name on the vehicles.
"DBE fraud harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts," said Ned Schwartz, regional Special Agent in Charge, USDOT-OIG. "Our agents will continue to work with the Secretary of Transportation, the Administrator of Federal Highways, and our other Federal, State, and local law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-assisted highway programs."
Daniel R. Petrole, Deputy Inspector General, United States Department of Labor, stated: "Today's guilty plea serves as a warning to contractors engaged in federal construction projects to be truthful when filing documentation to the Department of Labor. Submitting false certified payroll records in order to receive payments in a fraud scheme is a serious offense, and my office will continue to work with our law enforcement partners in investigating these types of crimes."
The investigation is being conducted by the FBI, the U.S. Department of Transportation Inspector General's Office, the U.S. Department of Labor Inspector General's Office, and the Criminal Investigation Division of the IRS. Assistant U.S. Attorney Bruce Brandler is supervising the prosecution.
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An Indictment or Information is not evidence of guilt but simply a description of the charge made by the Grand Jury and/or United States Attorney against a defendant. A charged Defendant is presumed innocent until a jury returns a unanimous finding that the United States has proven the defendant’s guilt beyond a reasonable doubt or until the defendant has pled guilty to the charges.
