Canadian steel contractor DCM Erectors was found guilty by a court in Manhattan last week of defrauding a federal programme intended to help businesses owned by women and ethnic minorities.
The company and Larry Davis, its owner and chief executive, had been awarded contracts worth almost $1bn on the Freedom Tower and the transportation hub near the former World Trade Centre site (pictured).
DCM won a $256m tender to erect steel in the Freedom Tower in 2007 and a $330m contract in 2009 for work at the hub. These were later increased to a total of almost $1bn by changes in the scope of works, Reuters reports.
Prosecutors said the contracts awarded to Davis required him to spend tens of millions of dollars to employ "disadvantaged business enterprises" (DBEs).
According to the charges, Davis, 65, used two firms as fronts. The principals of the companies received bribes in return for submitting paperwork to New York Port Authority claiming that they had done work that had actually been performed by DCM or another company Davis was close to.
After a seven-day trial, the company and its founder were convicted of wire fraud and conspiracy to commit wire fraud, and will be sentenced on 15 November. Davis faces a maximum penalty of 20 years in prison.
Davis and DCM denied wrongdoing, saying that the subcontractors carried out the work as claimed. His lawyer told the jury that he had "dedicated his life" to rebuilding the World Trade Centre.
However, the principals of the two businesses that prosecutors said participated in the scheme with Davis – Johnny Garcia and Gale D’Aloia – pleaded guilty in 2014 and cooperated with authorities.
Garcia and D’Aloia admitted to setting up a company called GLS Enterprises in order to get the earmarked funds. Garcia, who is Ecuadorean, testified that DCM and Davis paid him $2m to do "basically nothing".
Davis’ lawyer pointed out during cross-examination that Garcia did attend 10 meetings and travelled to China to review construction materials.
The trial came two years after Davis, a resident of Mississauga, Ontario, was arrested. At a court appearance in October 2014 he told a judge he would plead guilty; he later changed his plea to not guilty on the grounds that he did not knowingly commit a crime.
Davis’ lawyer said he and the company would appeal the verdict.
DMC is not the first US company to be prosecuted for using fronts to circumvent affirmative action programmes aimed at DBEs.
The Construction Dive website points out that South Carolina federal prosecutors have charged a group of construction executives with setting up shell companies to win $350m of government work.
In June, Illinois prosecutors won a conviction against contractor Elizabeth Perino for allowing two contractors to use her company as a front. Authorities alleged that she took a fee of $365,000 in exchange for participating in the fraud. She now faces a possible 80 years in prison.
Also in June, a San Diego contractor paid $5.4m to settle fraud charges related to work it had executed at two California military bases. Prosecutors alleged that Harper Construction Company did work through an associated business, Frazier Masonry Corp, while representing to government officials that it had subcontracted it to DBEs.
Image: The World Trade Centre transport hub during construction (The Port Authority of New York and New Jersey)