Schiavone Agrees to $23-Million Settlement for MBE Fraud
Schiavone Construction Co. has agreed to pay a $22.4-million settlement of a federal investigation of Schiavone's use of phony companies in place of legitimate minority-owned businesses on four big New York City infrastructure contracts, prosecutors said Nov. 29.
The payment is a civil settlement agreement made with the U.S. Attorney in Brooklyn, N.Y.
U.S. Attorney Loretta E. Lynch said that the firm admitted that some of its employees engaged in a scheme to defraud public agencies by submitting reports between 2002 and 2007 representing that the company was using certified minority business enterprises (MBEs), women business enterprises (WBEs) and disadvantaged business enterprises (DBEs) on the projects.
Although the contractor was required to use the firms, the funds were actually going to other companies or individuals.
This settlement enables Schiavone to put this investigation behind it, said a company spokesperson.
Settlement talks were first reported in the New York Times on Nov. 24.
Lynch said the employees, who were not named, are no longer at Schiavone. The contractor, based in Secaucus, was acquired by Spanish infrastructure giant, Dragados, in 2007, and now is a unit of its American arm, Dragados-USA, New York City.
All of the activities covered by the settlement occurred prior to the company's sale, a spokesman for the company said.
According to the prosecutor's office, the alleged fraud occurred on two contracts on the $2.8-billion Croton Water Filtration plant in Bronx, N.Y., for the city Dept. of Environmental Protection (DEP), and two involving rehab work on Manhattan subways for the Metropolitan Transportation Authority (MTA).
Schiavone was not charged with any crime, but under its non-prosecution agreement, the firm also agreed to undertake several remedial measures, said Lynch. These include creation of a new ethics and compliance officer position, which the firm did in 2008. The position was filled by an attorney who reports to top management in Schiavone and Dragados.
The contractor also created anonymous reporting mechanisms for employees to report fraud, new manuals for minority contracting compliance, a new code of ethics and business conduct and mandatory compliance courses for employees. Lynch said that the firm is still assisting investigators in the fraud probe for three more years and has agreed to reimburse more than $2.3 million in investigative costs.
Schiavone also has agreed to retain Thatcher Associates, a consulting firm owned by consultant Toby Thatcher, to perform an independent review of the firm's subcontracting procedures on MTA projects.
Thatcher was retained by MTA to monitor such compliance on projects and reported the alleged fraud by the firm to the agency, according to a report in the New York Post.
No other companies were named in the settlement, but federal prosecutors in Manhattan are probing similar allegations involving other area contractors.
Skanska USA, New York City, said Nov. 24 that it was aware of such a government probe of a subcontractor that its subsidiary Skanska Civil had used, also on the Croton project. A spokeswoman identified the firm as Environmental Energy Associates, based in Ridgefield, N.J.
A DEP spokesman said that the agency had used an independent monitor since 2007 to ensure the integrity of the project. It did not identify the name of the monitor.