A three-year-long federal investigation of alleged overbilling on reconstruction contracts in Afghanistan by engineer Louis Berger Group appears likely to force Derish M. Wolff, chairman of the firm’s holding company, from his job, according to court documents filed last week.
The company is trying to resolve Wolff’s status as chairman of Berger Group Holdings, it said a statement released on August 16. “We anticipate that the matter of his employment to be resolved by the end of next week,” the company said.
Contacted at his New Jersey home, Wolff, 75, said the matter is still “under discussion” and that he couldn’t comment further.
If the matter does end his role as chairman of the holding company, it will be a rancorous culmination to Wolff’s nearly half-century-long career at Berger Group and part of a gradual limiting of his role caused by the overbilling investigation. He is a nephew of Louis Berger, the engineer who founded the company.
The U.S. Justice Dept. hasn’t made any formal charge against the Berger Group or Wolff, but the investigation, begun in 2007, has thrown a monkey wrench into the company’s relations with one of its key clients, the U.S. Agency for International Development (USAID), and presented a possible financial challenge in the form of obligations to buy back shares from Wolff, who owns 27% of the company stock.
Although the investigation of the Berger Group’s Afghanistan billings involves two other former employees, the Justice Dept. said in court filings that Wolff is the subject of criminal and civil investigations and that USAID insisted—and Berger Group officials agreed—to circumscribe Wolff’s role last year and to arrange for his resignation last month.
U.S. attorney Paul Fishman then sought to have any funds used to buy out Wolff’s stake in the company placed in escrow, apparently because of concern that a buyout of Wolff’s shares would hinder Berger Group’s ability to pay potential fines that could result from the investigation. Although it isn’t clear if Berger Group complied with the escrow request, Wolff filed a lawsuit on Aug. 9 in Newark, N.J., federal district court to prevent the U.S. attorney from interfering with his stock buyout.
A federal judge denied Wolff's initial request to restrain the U.S. attorney on August 11.
Under a 1978 shareholder agreement, Morristown, N.J.-based Berger Group is obligated to purchase all of Wolff’s shares at book value. Wolff says the company must make the first 10% payment within 30 days of his severance.
The company reported 2009 revenue of $1.09 billion, with $880 million from international work.
According to Wolff’s court filings, the U.S. attorney sought Wolff’s termination as holding company chairman more than a year ago during settlement discussions with the Berger Group.
Then, the company asked Wolff to resign, effective on Aug. 13, the filing said.
In a request for relief from the court, Wolff’s attorney wrote that his client was “summarily terminated” and that the Louis Berger Group agreed to the government’s request to put Wolff’s shares in escrow.
“The Government has no right to express any interest in the employment matters of the Company,” Wolff argued in his request for relief. The filing stated, “[The] Government has improperly and illegally bullied the Company.”
In his response, Fishman said that, last year, USAID insisted—and his office agreed—that Wolff’s role in the company should be circumscribed. He said the Berger Group and Wolff have more recently “apparently come to realize that his continued presence in its hierarchy is no longer appropriate or productive.”
The request to escrow funds to buy out Wolff’s shares grew out of the government’s “legitimate concerns that a substantial payout to the Plaintiff could compromise the company’s ability to satisfy its obligations under the False Claims Act,” which could involve substantial fines in addition to refunds, Fishman wrote.
Along with transportation design, overseas economic development and reconstruction always had been Berger Group’s specialty, and for a long time the company’s clients have included overseas governments and international development agencies.
The war in Afghanistan marked a rebirth of nation-building, which the George W. Bush Administration had foresworn.
After the U.S. invasion in 2002, USAID awarded Berger Group a $300-million contract for rebuilding in Afghanistan that lasted until 2007. The work included managing the design, construction and repairing of powerplants, schools, dams and irrigation systems. There were also numerous technical, planning and economic studies. Under one unusual contract, Berger Group oversaw the physical destruction of the old Afghanistan currency so it could be replaced with a new one.
The most successful part of the program encompassed the dangerous and sometimes deadly reconstruction of Afghanistan’s national Ring Road in the southern half of Afghanistan—the Kabul-to-Kandahar and Kandahar-to-Herat highways.
Both the large contract awards by the government and the quality and efficiency of some of the reconstruction work...