GSA official jailed for accepting bribes and stealing property

Timothy Francis Cashman, a Building Manager for the General Services Administration (“GSA”), has been sentenced to 16 months in custody for accepting bribes and stealing property owned by the United States.

GSA logoAt a sentencing hearing on Oct. 23, 2015, Judge Gonzalo P. Curiel noted that Cashman was a religious man who performed many good deeds and selfless acts throughout his life. Nevertheless, he told the packed courtroom of friends, family, and supporters who requested leniency for Cashman that it was vital the general public understood that “quid pro quo is not the status quo; quid pro quo is not acceptable.”

During the sentencing, the government demonstrated how Cashman used his position with GSA (overseeing operations and maintenance at the Otay Mesa, San Ysidro, and Tecate Ports of Entry) for his personal enrichment; rather than to fulfill GSA’s core mission of delivering “the best value in real estate, acquisition, and technology services to government and the American people.”

Over a number of years, Cashman provided favorable treatment relating to the awarding of GSA contracts.  For example, he demanded $10,000 in cash and thousands of dollars’ worth of construction and renovation services on Cashman’s personal residence from government contractor Hugo Alonso Inc. (“HAI”).  These services included having HAI paint Cashman’s Lakeside home and replace his roof and windows free of charge.

The former GSA building manager also demanded that HAI pay another government contractor (Company “A”) $120,000 in exchange for HAI being awarded a GSA construction contract at the Otay Mesa POE. Subsequently, Cashman accepted six checks from Company “A” totaling $42,000, which he deposited into his personal account.  All of the income he received from HAI was concealed from the IRS when submitting his federal income tax returns.

In addition to accepting bribes from HAI, Cashman improperly obtained thousands of dollars in valuable United States Government building materials for his own benefit by causing GSA contractors and others to remove and transport such materials away from GSA facilities where he could sell or use them without the knowledge of GSA.  Among other things, Cashman instructed government contractors: 1) in March 2011, to load approximately 25 stainless steel panels located at the San Ysidro POE into his personal Ford truck; 2) in January 2012, to load 35 heavy brass letters (spelling out “United States Border Inspection Station” and weighing approximately 2,000 pounds) into his personal truck; 3) in December 2012, to collect approximately 3,000 feet of underground copper cable belonging to the United States and to deliver it to, among other places, his personal residence; and 4) in November 2013, to set aside for his personal sale a large quantity of underground copper cable and approximately 5 aluminum panels located at the Otay Mesa POE.

United States Attorney Laura E. Duffy remarked that the Cashman case demonstrates that combatting public corruption in all its forms will remain one of her office’s highest priorities. She also thanked the Special Agents with the FBI, IRS-CI and GSA-OIG whose tireless work both uncovered this corruption and resulted in removing the corrupt official from the government fisc.

In addition to his custodial sentence, Cashman was also sentenced to three years of supervised release and ordered to pay $50,057.32 in restitution. HAI, and its principal, Hugo Alonso, previously pleaded guilty and were sentenced.  In total, 11 individuals have been apprehended and pleaded guilty in related corruption investigations.

Appeals court allows DBE fraud convictions to be offset by contract performance

In a recent ruling, Philadelphia’s U.S. Court of Appeals broke from precedent by allowing a defendant credit toward the financial judgement rendered even though the work performed was done fraudulently.

Joseph Nagle and Ernest Fink, defendants in the case, co-owned Schuylkill Products Inc. (Schuylkill), a manufacturer of concrete beams used in highway bridge work (United States of America v. Joseph W. Nagle and Ernest G. Fink, U.S, Court of Appeals for the Third Circuit, Sept. 30, 2015).  SPI entered into an arrangement with a disadvantaged business enterprise (DBE) known as Marikina Engineers and Construction Corporation (Marikina).


The U.S. Department of Transportation (USDOT) provides funds to state transportation agencies to finance US DOTtransportation projects nationwide. These funds are used for highway construction, provided through the Federal Highway Administration (FHWA), or towards mass transit systems, provided through the Federal Transit Administration (FTA), or for airports, provided through the Federal Aviation Administration (FAA).  In Pennsylvania, the FHWA provides funds to the Pennsylvania Department of Transportation (PennDOT).

Federal regulations require states that receive USDOT funds to set annual goals for participation in public transportation contracts by DBEs (49 CFR § 26.21).  A DBE is a small business that is at least 51% owned by an individual or individuals who are both socially and economically disadvantaged and whose management and daily operations are controlled by one or more DBE ownership and controlof the disadvantaged owners.  State agencies set DBE goals when soliciting bids for a contract, and bids for the contract must show how the contractor will meet the goal. If the prime contractor is not a DBE, the goals are met by pledging that certain subcontractors that will work on a contract are DBEs.  Typically, state DOTs certify businesses as DBEs. A business must be certified as a DBE before it or a prime contractor can rely on its DBE status in bidding for a contract.   In order to count towards a contract’s DBE participation, a DBE must perform what is known as “Commercially Useful Function” on the contract.  Therefore, a certified DBE whose “role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation” cannot be counted towards DBE participation (Id. § 26.55(c)(2)).

The Case

Court records show that in 1993 the Schuylkill firm entered into an arrangement with Marikina, a Connecticut corporation owned and managed by Romeo P. Cruz.  Because Cruz was of Filipino descent, Marikina qualified as a DBE for USDOT projects. Marikina was certified as a DBE in Connecticut and Pennsylvania, among other states. Schuylkill and Marikina agreed that Marikina would bid to serve as a subcontractor for highway and transit contracts that had DBE participation requirements.  If Marikina was selected for the subcontracts, Schuylkill and a subsidiary would perform all of the work on those contracts. Schuylkill would pay Marikina a fixed fee for its participation but otherwise keep the profits from the scheme.  To conceal the scheme, Schuylkill used fake Marikina letterhead, provided employees with fake Marikina business cards, put magnetic signs with Marikina’s logo on the sides of Schuylkill’s vehicles, and used a rubber stamp with Cruz’ signature to endorse checks. In court, it was undisputed that Schuylkill had in fact performed the work for which Marikina had bid, constituting fraud by virtue of misrepresentation of DBE status.

Between 1993 and March 2008, Marikina was awarded contracts under PennDOT’s and the Philadelphia transit system’s DBE program worth $135.8 million.

Ultimately, Fink pled guilty to one count of conspiracy to defraud the United States, and a jury found Nagle guilty of conspiracy to defraud the United States, wire fraud, mail fraud, conspiracy to engage in unlawful monetary transactions, and engaging in unlawful monetary transactions.  Cruz and two of Schuykill’s employees were indicted separately, and they pled guilty to the charges along with agreeing to cooperate with the prosecution of Nagle and Fink.

The District Court concluded that the appropriate legal standard to calculate the amount of loss was the face value of the contracts Marikina received, and that the defendants were not entitled to a credit against the loss for the work performed because they had not allowed a legitimate DBE to perform the work.

The Appeals

Initially, Fink objected to the loss calculation on the basis that the proper loss amount was the pecuniary harm suffered by an actual DBE that did not receive the contracts — in other words, the profit an actual DBE would have received on the contracts.  Nagle objected to the loss calculation on the grounds that: 1) there was no evidence another DBE was willing to perform the contracts, 2) the highway department and the transit agency received what they paid for under the contracts, and 3) the largest conceivable actual loss was the value of the contracts less overhead and expenses.  A District Court found that they were responsible for the face value of the contracts Marikina received without any credit for the work performed on the contracts.

Before the Third Circuit Court of Appeals, Nagle and Fink insisted that the amount of loss they were responsible for was not the face value of the contracts Marikina received.  Instead, they said that they were entitled to a credit for the services they performed on the contracts (100%), therefore reducing the loss to $0.

The Court of Appeals noted that while the transportation agencies did not receive the full benefit of the contracts in that the Government’s interest in having a DBE perform the work was not fulfilled, they did receive the benefit of having the building materials provided and assembled.  The Court concluded that despite the DBE fraud, the District Court should calculate the amount of loss by taking the face value of the contracts and subtracting the fair market value of the services rendered under those contracts.  This includes, the Appeals Court noted, “the fair market value of the materials supplied, the fair market cost of the labor necessary to assemble the materials, and the fair market value of transporting and storing the materials.”  The Appeals Court also ruled that, “if possible and when relevant, the District Court should keep in mind the goals of the DBE program that have been frustrated by the fraud.”

The Significance

Time will tell what the District Court decides on re-sentencing Nagle and Fink and whether monetary penalties for DBE fraud, of any dollar level, are imposed.  The Nagle decision explicitly governs a DBE case, thus it could affect similar DBE fraud cases in the future.  The case also could become an important precedent for defendants in cases dealing with other sorts of fraud, including fraud involving contracts with 8(a), woman-owned, veteran-owned, HUBZone, and other small businesses.


Mass. AG cracksdown on DBE/MBE misrepresentations in subcontracts

The Massachusetts Attorney General is taking action to ensure that general contractors working on public construction are complying with state requirements to use DBE/MBE subcontractors.

Massachusetts sealIn August 2015, the Attorney General filed suit (Comm of MA v. CTA Construction Co., Inc. et al., Suffolk Superior Court Civ. Action No. 2015-02491) against multiple contractors for allegedly violating the Massachusetts False Claims Act by making misrepresentations over their compliance with requirements for working with Minority Business Enterprises (MBE), Women Business Enterprises (WBE) and/or Disadvantaged Business Enterprises (DBE).

The defendant contractors immediately settled for a combined $1.4 million.

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Bid-rigging ringleader sentenced to 88 months

A Great Falls, Virginia, businessman was sentenced a little more than seven years in prison for bribing officials at the Army Corps of Engineers for contracts.

usaceYoung N. Cho, also known as Alex Cho, received an 88-month sentence and must repay $7.6 million to the Corps for his role in the bid-rigging scheme, according to the Department of Justice. He also must pay a forfeiture judgment of another $6.9 million. The sentencing took place on Oct. 8, a day before the Justice Department announced it.

From 2007 to 2011, Cho, as chief technology officer for Nova Datacom, paid $17 million in bribes to former Army Corps program manager Kerry F. Khan and another $1 million to former program manager Michael A. Alexander to get government contracts, according to the Justice Department. He also conspired with officials to steer a contract worth nearly $1 billion to his company, according to Justice.

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Army contractors to pay $1.45 million to settle bid-rigging allegations

PAE Government Services Inc. (PAE) and RM Asia (HK) Limited (RM Asia) have agreed to pay the United States $1.45 million to resolve allegations that they engaged in a bid-rigging scheme that resulted in false claims for payment under a U.S. Army contract for services in Afghanistan, the Justice Department has announced. 

PAE, headquartered in Arlington, Virginia, provides integrated global mission services.  RM Asia, located in Hong Kong, provides motor vehicle parts and supplies.

Justice Dept. seal“Our national security and those of our allies depend on quality goods and services delivered at a fair price,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Today’s settlement demonstrates our continuing vigilance to ensure that those doing business with the government do not engage in bidrigging or other anticompetitive conduct.”

ArmyIn 2007, the Army awarded PAE a contract to provide vehicle maintenance capabilities and training services for the Afghanistan National Army at multiple sites across Afghanistan.  PAE partnered with RM Asia to supply and warehouse vehicle parts.  The government alleged that former managers of PAE and RM Asia funneled subcontracts paid for by the government to companies owned by the former managers and their relatives by using confidential bid information to ensure that their companies would beat out other, honest competitors.

In a related criminal investigation, the U.S. Attorney’s Office of the Eastern District of Virginia previously obtained guilty pleas from former PAE program manager Keith Johnson; Johnson’s wife, Angela Gregory Johnson; and RM Asia’s former project manager, John Eisner, and deputy project manager, Jerry Kieffer, for their roles in the scheme.

“This resolution, following criminal charges that were also brought against the individuals involved, represents the government’s efforts to use all of the criminal and civil tools available to the government to remedy fraudulent conduct,” said U.S. Attorney Dana J. Boente of the Eastern District of Virginia.

The allegations resolved by this settlement arose from a lawsuit filed by Steven D. Walker, a former employee of PAE, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and share in the recovery.  Mr. Walker will receive $261,000.

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Eastern District of Virginia, the Defense Criminal Investigative Service, the U.S. Department of the Army Criminal Investigation Command-Major Procurement Fraud Unit and the Defense Contract Audit Agency.

The lawsuit is captioned United States ex rel. Walker v. PAE, et al., 1:11CV382-LO/TCB (E.D. Va.).  The claims resolved by the settlement are allegations only; there has been no determination of liability.