Date: 12-19-2014

Case Style: United States of America v. RMD Holdings, Ltd., D/B/A Nationwide Construction

Case Number: NA

Judge: NA

Court: United States District Court for the Southern District of New York (New York County)

Plaintiff's Attorney: Mara Trager and Ellen London

Defendant's Attorney: NA

Description: New York, NY - Preet Bharara, the United States Attorney for the Southern District of New York, Douglas Shoemaker, the Regional Special Agent-in-Charge for the United States Department of Transportation Office of Inspector General (“USDOT-OIG”), and Michael Nestor, the Inspector General for The Port Authority of New York & New Jersey (“Port Authority”), announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against a subcontractor, RMD HOLDINGS, LTD., D/B/A NATIONWIDE CONSTRUCTION (“RMD”), for engaging in fraudulent conduct designed to take advantage of the Disadvantaged Business Enterprise Program in order to secure a subcontract on a federally funded project. Specifically, RMD caused the prime contractor on a project for the design and construction of the LaGuardia Central Terminal building (the “LaGuardia Project”) to falsely represent to the Port Authority of New York and New Jersey (“PANYNJ”) that RMD paid approximately one million dollars to a disadvantaged business enterprise (“DBE”) to perform legitimate work on the contract when, in fact, the DBE did not perform a commercially useful function, but rather received a “commission” from RMD for the fraudulent use of its DBE status. In the settlement, approved yesterday in Manhattan federal court by U.S. District Judge Vernon S. Broderick, RMD admitted and accepted responsibility for violating the DBE regulations governing the LaGuardia Project and agreed to pay $416,000. This is part of a global settlement between RMD and the United States for fraudulent conduct on the part of RMD with regard to DBEs, pursuant to which RMD will pay $1,750,000.

Manhattan U.S. Attorney Preet Bharara said: “The Disadvantaged Business Enterprise program exists to help qualified minority-owned and women-owned businesses succeed. That aim was subverted here. The regulations governing the program must be followed by all contractors working on federally funded contracts – not just prime contractors. Today’s settlement will help ensure that subcontractors as well as prime contractors comply with this important law.”

USDOT-OIG Special Agent-in-Charge Douglas Shoemaker stated: “As evidenced by this settlement agreement, we remain steadfast in our commitment to maintaining the integrity of the U.S. Department of Transportation’s Disadvantaged Business Enterprise program. Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.”

Port Authority Inspector General Michael Nestor stated: “This investigation has shown how individuals in the construction industry have manipulated and circumvented the intent of the DBE Program on a Port Authority project by utilizing a firm as a pass-through to satisfy the Program goals. I would hope that this case serves as an incentive to the industry to adhere to the Program’s intent. I urge those with information of instances of other fraudulent practices to report them to law enforcement. Working with our law enforcement partners we will continue to vigilantly investigate allegations of fraud in the construction industry.”

BACKGROUND ON DBEs

In 1980, the USDOT issued regulations in connection with the DBE program, a program to increase the participation of business enterprises owned by socially and economically disadvantaged individuals in federally funded public construction contracts. To become certified as a DBE, a company must:

be owned and controlled by socially and economically disadvantaged individuals;
be an independent business whose viability does not depend on its relationship with other firms;
employ its own work force and own the equipment necessary to perform its work; and
be able to meet its financial obligations.

Recipients of USDOT construction grants, such as the Port Authority of New York and New Jersey (“PANYNJ”), are required to establish a DBE program that establishes goals for the percentage of a project’s work that should be awarded to DBEs (“DBE goals”). General contractors on construction projects must make good faith efforts to meet the relevant DBE goals. As a condition of receiving USDOT funding for the LaGuardia Project, the PANYNJ established DBE goals for the project and required the general contractor to either meet or make good faith efforts to meet the DBE goal.

General contractors can count funds paid to DBEs toward the attainment of the DBE goals only if the DBEs performed a “commercially useful function.” A DBE subcontractor performs a commercially useful function only when it actually performs, manages, and supervises the work involved. A DBE does not perform a “commercially useful function” if “its 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.”

RMD’S FRAUD

According to the allegations in the complaint:

USDOT set the DBE participation goal for the LaGuardia Project at 17% of the project’s cost (or approximately $1.8 million). An intermediary contractor was hired by the prime contractor on the LaGuardia Project to install the bollard structural steel, and this intermediary contractor hired RMD as a subcontractor. The contract between the intermediary and RMD required RMD to provide materials provided by a DBE or woman-owned business, and RMD represented to the intermediary contractor that it would use the DBE MS Construction Co. (“MS”) to supply approximately $1.1 million in bollard structural steel. RMD provided the intermediary contractor with invoices and other documentation purportedly from MS so that the intermediary contractor could claim credit toward its DBE contract requirements. The payments to MS were incorporated into a report signed by the president of the intermediary contractor and submitted to the prime contractor to show that the intermediary contractor was meeting its DBE goals as required by the contract with the prime contractor. In reality, RMD knew that MS was not actually supplying the steel, which instead was supplied by several third-party suppliers, none of which was a DBE. RMD paid MS a percentage of the amount paid to the actual steel suppliers for the sole purpose of fraudulently using MS’s DBE status to earn DBE credit for the prime contractor.

Pursuant to the settlement agreement, RMD admitted, acknowledged, and accepted responsibility for the fact that one of its employees caused false certifications to be submitted to USDOT representing that a DBE performed certain work on, and received certain payments in connection with, the LaGuardia Project, when in fact the DBE never performed any work and merely received a commission from RMD for the fraudulent use of its DBE status. RMD also agreed to pay the United States $416,000 in damages.

Mr. Bharara commended the USDOT Office of Inspector General and the Port Authority Office of Inspector General for their invaluable work on this case. Mr. Bharara also expressed his thanks to the U.S. Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, New York Region, for its assistance in the case.

The case is being handled by the Office’s Civil Frauds Unit.

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Defendant's Experts:

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