The U.S. Attorney’s Office for the Eastern District of New York filed fraud charges yesterday against construction giant Lend Lease Construction LMB Inc. — formerly Bovis Lend Lease LMB Inc., or just Bovis for short — and their former principal in charge of the company’s New York office.
Bovis admitted to fraudulently overbilling clients for more than a decade, and to falsely misrepresenting the work performed by its minority business enterprise partners, thus fraudulently obtaining payments on lucrative contracts.
Yet the company managed to strike a deal with the court attorneys by entering into a deferred prosecution agreement, whereby the prosecutor charges the corporation with a crime, but agrees to drop the charges if the corporation fulfills its promises to the prosecutor. So Bovis gets off with paying up to $56 million in penalties to the federal government, dispensing restitution to victims, and instituting corporate reforms “eliminate future problems and enforce best industry practices.”
Brooklyn U.S. Attorney Loretta Lynch defended the deal by noting that if the company were convicted of a crime, it would be debarred from doing government work and have to lay off workers.
Which brings the New York World to wonder: Who are the other wrongdoers who have cut deals that allow them to continue doing business with New York government?
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What we found
Several companies that still do big business with the city and state have deferred prosecution agreements with U.S. attorneys. Had they received a conviction they could have been barred.
Among them: Auditing firm KPMG paid out $456 million under a deferred prosecution agreement in 2005 after admitting to criminal violations in what was then called the “largest-ever tax shelter fraud case.” The firm generated at least $11 billion dollars in false tax losses which cost the United States at least $2.5 billion in evaded taxes. Today, KPMG is still being paid by the city, including extensive work with the Department of Education, and New York State contracts total about $100 million.
Investment bank UBS, under a deferred prosecution agremeement entered in 2009, paid out almost $800 million after being charged with conspiring to defraud the United States by impeding the IRS. UBS continues to hold contracts with both the city and state as part of interest rate swap transactions on municipal bonds.
Even the company behind the CityTime scandal, Science Applications International Corporation (SAIC), can continue to get government contracts. In December 2010, federal prosecutors in Manhattan charged CityTime with a multimillion-dollar fraud scheme dating back to 2005 in which the company had manipulated the city into paying out expensive contracts to businesses that they controlled, and then redirecting some of the money to enrich themselves. Last month, U.S. Attorney Preet Bhahara announced his office had entered into a deferred prosecution agreement with SAIC under which the corporation paid more than $500 million.
The New York Racing Association and Wachovia also have deferred prosecution agreements and continue to do business with the city and state.
Overall, the number of deferred prosecution agreements has been on the rise in recent years, according to legal experts. “DPAs serve a useful function as bringing sanctions against corporate entities, as well as being mindful of the consequences on employees and those who rely on the companies to make a living,” said former federal prosecutor Scott Resnik, now the co-chair of the litigation department at Katten Muchin Rosenman LLP. “DPAs are on the rise and are here to stay. The challenge for prosecuting authority is to put together a DPA achieving the law enforcement goal of being a meaningful deterrent, and not just a slap on the wrist.”