Structure Tone Inc., the New York City-based building and interiors construction giant, pleaded guilty to fraud charges in a Manhattan court April 30 in a client overbilling and falsified recordkeeping arrangement, and will pay $55 million.
Manhattan District Attorney Cyrus R. Vance, Jr. said the payout was one of the largest forfeitures ever imposed on a construction company. but the firm was sentenced to a three-year "conditional discharge."
No company executives were named in the agreement.
“Interiors construction is a multi-billion dollar industry in New York City and is vital to our city’s economy,” said Vance. “This plea agreement addresses the severity of Structure Tone’s criminal conduct, while taking into consideration the remedial actions the company has implemented since 2010 to end the fraud and provide better oversight of its business practices."
Structure Tone ranks at No. 19 on ENR's list of The Top 400 Contractors, with $3.08 billion in 2012 revenue, 86% in general building. Clients include banks, law firms, financial institutions, and advertising agencies, the D.A. said.
“We are pleased this matter has come to a conclusion," said Structure Tone in a statement. "The recordkeeping issues, which form the basis of this agreement, date back to the period 2005 to 2009, and we have fully cooperated with authorities from the beginning."
Vance said that, according to Structure Tone’s guilty plea and documents filed in court, between 2005 and 2009, the company "required the subcontractors on CM jobs to increase their bids by adding, in many cases, unnecessary contingencies listed in an addendum provided by [the contractor] called the 'Rider B.' This practice was concealed from the ... clients."
The firm then obtained added discounts from subs that were not passed along to clients, says Vance. Structure Tone created fraudulent purchase orders that omitted subcontractor discounts, with subs holding overpayments for the contractor, according to the district attorney statement.
Structure Tone "recovered these overpayment amounts by inducing these same subcontractors to provide discounts to [it] on other unrelated GC projects," says Vance.
Under the plea agreement, Structure Tone will allow the D.A.'s office to review selected projects to insure "the safeguards [the firm] put in place are, in fact, working," says the court document.
The contractor says that since about 2010, it has instituted new purchasing guidelines and trained its staff in their use. It also "has made Rider B transparent to all clients" and installed accounting procedures to track its use, according to the court document.
Structure Tone also has "issued directives to purchasing agents to ceast the practice of obtaining undisclosed discounts from its subcontractors," the plea says.
The firm paid about $30 million of its penalty with the rest to be paid over a three-year period beginning in April 2015.
The plea agreement is the result of a long-running investigation of industry corruption in New York City, said the D.A. statement.
Several other interiors' sector executives were indicted in 2011 related to a fraud conspiracy (see related link).
The D.A.'s office says its probe has resulted in convictions of 17 construction firms and 13 individuals "on a variety of felony charges, including enterprise corroption, grand larceny and false recordkeeping.
In 1998, Structure Tone paid $10 million and pleaded guilty to felony charges related to its role in a $2-billion bid-rigging and bribery scheme involving major corporate clients.
“The financial position of our company ... continues to be strong," said Structure Tone. We will be paying the government from prior years’ retained earnings," it added. “This case has no impact on our ability to complete existing and future projects."
The firm said that it has "strengthened our compliance protocols to improve transparency."
“Since our founding 43 years ago, we have developed a strong reputation for providing our clients with a high level of satisfaction and will continue to focus on providing best-in-class services," its statement said.