The Wall Street Journal - April 25, 2012by JAMES CAMPBELL
Construction Scam Hit Major ProjectsConstruction giant Lend Lease has admitted to systematically cheating clients out of millions of dollars in an overbilling scheme, including fraudulent fees for work on Grand Central Terminal, Citi Field and the U.S. District Court in Brooklyn.
"We believe that it's definitely, as you put it, a New York thing," said U.S. District Attorney Loretta Lynch, after a deferred-prosecution deal with the company was unsealed Tuesday.
As part of the largest construction settlement in New York history, the Australian company's American division, Lend Lease (U.S.) Construction, formerly Bovis Lend Lease, agreed to pay a fine of $40.5 million, as well as up to $16 million in restitution to its victims.
James Abadie, 55 years old, the former head of the company's New York office, also pleaded guilty to conspiracy to commit mail and wire fraud and was released on bail. He faces up to 20 years in prison.
Lend Lease also admitted to making false claims under programs for minority- and women-controlled businesses in order to win contracts.
The overbilling scheme saw Lend Lease pay foremen one or two hours extra each day for work that was never done, passing on the expenses to clients without their knowledge, according to court documents. The company also padded its billings by paying foremen for sick days, holidays and vacation time in violation of its labor agreements.
Ms. Lynch said the overpayments benefited a group of 40 to 60 foremen, all of whom are members of Local 79, a building-trades union. The investigation analyzed thousands of time sheets over a 10-year period dating back to 1999, when Bovis was purchased by Lend Lease.
The company engaged in the overbilling on "every project over years," Ms. Lynch said, defrauding clients of $19 million.
There was one exception: The National September 11 Memorial and Museum, on which Lend Lease is the project manager, was not affected by the fraud.
Lend Lease said in a statement the company had fully and extensively cooperated with the investigations since 2009.
"We accept responsibility for what happened in the past and have agreed to continue to make restitution to the affected clients," said Robert McNamara, CEO Lend Lease Americas region. "We are satisfied that the investigation is now resolved and we are looking forward to continuing our commitment to projects in New York City."
Mr. Abadie's attorney and representatives for Local 79 didn't return phone calls Tuesday.
Private projects identified as victims of the fraud include the Time Warner Center, the American Natural History Museum, and two hospitals, according to law-enforcement officials.
Government projects were also affected, including the U.S. Post Office and Bankruptcy Court in Brooklyn, the New York Mets' new stadium in Queens, and Grand Central Terminal.
Lend Lease was responsible for the demolition of the former Deutsche Bank building, which was damaged in the Sept. 11, 2001, terrorist attacks. Investigators determined that the project was affected by phony billings as well.
Two firefighters died in 2007 after they became trapped in the building during demolition. An investigation found that the fire was started by a smoking worker and a water pipe had been cut.
Jeffrey Melofchik, a site safety manager working for Lend Lease, was acquitted in 2011 of manslaughter, criminally negligent homicide and reckless endangerment in the case.
In 2008, Lend Lease reached a non-prosecution agreement with former Manhattan District Attorney Robert Morgenthau in connection with the Deutsche Bank fire. The company could still face charges if the fraud revealed Tuesday violates a good-behavior clause in the earlier agreement. The present Manhattan District Attorney, Cyrus Vance, is a party to Tuesday's deal with federal prosecutors, but a spokeswoman declined to comment on whether Lend Lease will be accused of breaking the Deutsche Bank agreement.
Lend Lease also admitted on Tuesday to abusing affirmative-action programs designed to aid small construction firms or companies owned by women and minorities.
In those cases, Lend Lease falsely told authorities that work was being done by two firms that met the selection criteria for affirmative-action contracts. The work was instead done by Lend Lease employees who were transferred to the smaller companies' payrolls.
Both the Dormitory Authority of the State of New York and the New Jersey Schools Development Authority were deceived by the front companies acting in concert with Lend Lease, over projects to build the Bronx Criminal Courthouse and three schools in New Jersey.
As part of its agreement with prosecutors, Lend Lease has removed senior management in charge of its New York operations at the time the frauds were committed.
Ms. Lynch, who noted the investigation is continuing, said the decision to prosecute Mr. Abadie was taken because he was seen as especially culpable.
"He was uniquely positioned to see both the labor side and the management side of the scheme, and to be aware of the fact the hours that were being billed were not only not being worked but were not being disclosed to the clients," she said. "He also took active steps to make sure the clients were not aware of this."