In 2012, the U.S. Attorney’s Office in Chicago unsealed a criminal charge against Elizabeth Perino, owner of two MW/DBE- certified companies, for allegedly acting as a sham pass-through on contracts with unidentified prime contractors. The Chicago Tribune reported that one prime is McHugh Construction—a company that receives billions of dollars in government and private contracts. Civil liability is also possible in these cases, as well as suspension or debarment from bidding on future jobs. In 2012, the U.S. Department of Justice announced a $500,000 settlement against an Ohio construction company for civil fraud for alleged false reporting under the U.S. Department of Transportation (USDOT) DBE program. The USDOT has been especially active in investigating fraud; recent settlements are described at ht tp: / /www.oi g .dot . gov /ov e r s i ght - a r e a s / c r imina l - investigations/contract-grant-fraud. Violations of Joint Venture Requirements. Set-aside programs often allow MW/DBE goals to be met through joint venture arrangements. Generally, these require the MW/DBE to contribute a proportionate share of capital, actually incur risk, and actually perform a portion of the work. In a well-known case, Siemens Medical Solutions USA, Inc. (SMS) formed a joint venture with an MBE to fulfill the MW/DBE set-asides in a large contract with Cook County Hospital in Chicago. Prosecutors criminally charged SMS, SMS employees, SMS’s attorney, the MBE, its owner, and others, alleging that the joint venture was a sham. The case ended with felony convictions for SMS, several SMS employees and the MBE owner. Prison sentences ranged from probation to 33 months. Ownership Rule Violations. MW/DBEs typically must be owned and controlled by persons belonging to the minority group that the particular program seeks to benefit. Merely purporting to have a minority, woman or disadvantaged owner is insufficient to meet MW/DBE ownership requirements. Prosecutors can disregard legal formalities and investigate who has actual day-to-day control of the business, negotiates contracts, etc. In a highly publicized case, two Chicago companies—a Unless a company has an unusually high tolerance for criminal law risk, a rigorous compliance and contract management program is highly recommended. certified MBE and WBE—allegedly hatched a plan to fraudulently obtain more than $100 million in city contracts by claiming MW/DBE status. Although a minority and a woman were majority stockholders, prosecutors alleged that their ownership was a sham based on evidence that a white male made the actual business decisions. All key defendants were convicted and the lead defendant received a startling almost 10-year prison sentence, and was required to pay more than $12 million. Proving Criminal Intent. Settled mail and wire-fraud case law makes it easier for prosecutors to prove criminal intent under these statutes. The “willful disregard” doctrine permits a jury to find that a defendant had culpable knowledge when the evidence shows he or she intentionally avoided investigating the facts once there were red flags or clues. Thus, if there is a basis for suspicion within a company of any MW/DBE wrongdoing, the mere failure to conduct a thorough internal investigation can be deemed enough to prove criminal intent. Conclusion Particularly in light of the current legal risk environment, a rigorous compliance and contract management program is highly recommended. Even if issues exist that are unknown to the government, effective strategies exist to avoid prosecution. Given the willingness of prosecutors to charge companies and executives, and because legal requirements vary by contract and jurisdiction, the compliance process is legally intensive and would be benefited by expertise in this area. The author thanks Reed Smith attorneys Bradley J. Bolerjack, Robert S. O’Meara, Marina C. Santini, Lorraine M. Campos, and Denise M. Ware for their helpful suggestions to this article. 82 • DEEP FOUNDATIONS • JAN/FEB 2013
