Investigators Eye Possible $100 Million Construction Fraud

$100 Million Construction Fraud Bloomberg Fraud

Investigators Eye Possible $100 Million Construction Fraud

Construction fraud

New York State Police officers and investigators from the Manhattan district attorney swept into Bloomberg L.P., the financial news and information company, on Lexington Avenue in October. Armed with search warrants and grand jury subpoenas, they demanded access to the offices of two senior executives, apparently as part of an investigation into bribery, bid-rigging and kickbacks in the interior construction industry.

That same day, Oct. 12, investigators raided the downtown offices of Turner Construction, a large general contractor that oversees work on Bloomberg offices in New York, seeking records, emails and computers belonging to two executives.

A week later, three executives at a Queens interior construction company were fired over their alleged connection to the investigation. And several weeks ago, investigators raided the offices of an electrical contractor that has worked on Bloomberg projects.

The investigation focused on interior construction at various Bloomberg office buildings, including its headquarters at 731 Lexington Avenue, in which subcontractors paid bribes and kickbacks to Turner and Bloomberg executives to land work in a “pay-to-play” scheme, according to investigators. To avoid Turner’s in-house rules, the executives bypassed the company’s computers and budgeting systems.

Bloomberg is not suspected of wrongdoing.

Interior construction is a little-known but highly profitable world in which corporations pay millions of dollars to design and build the guts — dry wall, carpeting, plumbing, millwork, electrical systems — of their offices. It is a $9.4 billion-a-year industry in New York, according to the Building Congress, a trade group, and like much of the construction world, it is vulnerable to abuse, as companies can unknowingly overpay for services when the general contractor or construction managers collude with subcontractors to rig bids, inflate bills and pocket the proceeds.

That kind of corruption is a major contributor to the high cost of doing business in New York, experts said. “Years ago, New York’s construction industry was plagued by the mob,” which drove up costs, said Rod Leith, a longtime investigator specializing in the construction industry and a former assistant inspector general at the School Construction Authority. “Today, a handful of private contractors have made it a way of business to cheat, bribe and corrupt a whole sector known as the interiors industry.”

The investigation is doubly embarrassing for Bloomberg, the world’s largest financial information company whose founder, Michael R. Bloomberg, was a three-term mayor of New York City, and a famous stickler for data.

“We are grateful that the appropriate law enforcement authorities brought this to our attention,” said Ty Trippet, a spokesman for Bloomberg, “and we have worked closely with them on the investigation.”

Bloomberg and Turner contend that an isolated group of rogue employees at each company evaded corporate procedures and engaged in a scheme to pad bills and enrich themselves. Bloomberg said it overpaid by only $1 million, according to one executive who spoke on condition of anonymity because he was not authorized to discuss the matter.

Thomas Curran, a lawyer for Turner, said there was “a systemic effort to escape detection by avoiding Turner’s compliance program.”

But industry executives briefed on the investigation who spoke on condition of anonymity because they don’t want to run afoul of the district attorney’s office, said the raids are part of a broader investigation into other contractors and potential victims that could involve fraud totaling $100 million.

At least eight people have been fired from the companies involved, the companies said, but it appears that no one has been arrested so far. Investigators are continuing to scour the financial records of various executives and interview subcontractors concerning work for Turner, Bloomberg and others.

Nearly four years ago in a similar case, Bloomberg’s former general contractor, Structure Tone, pleaded guilty to corruption charges brought by the Manhattan district attorney’s office and agreed to forfeit $55 million for defrauding Bloomberg, prominent financial institutions, law firms and ad agencies.

Structure Tone admitted that it had electrical, plumbing, drywall and other contractors falsely inflate their bills, adding millions of dollars to the cost of the work. For Structure Tone, the guilty plea was a reprise of a prior investigation, in 1998, when the company pleaded guilty to felony charges for its role in a $2 billion bid-rigging and bribery scheme.

As a result, Bloomberg replaced Structure Tone with Turner.

But investigations and convictions appear to remain a perennial feature of the industry: In 2015, the Manhattan district attorney’s office successfully prosecuted John Cassisi, the former director of global construction for Citibank’s Citi Realty Services, for operating a pay-to-play scheme in which he received $500,000 in cash and gifts from contractors seeking work. Four other titans of the interior construction industry — Plaza Construction, Tishman Construction, Granite Construction and Hunter Roberts Construction Group — paid a combined $92 million in restitution and penalties in recent years for overbilling clients in connection with fraud charges brought by the U.S. Attorney’s Office in Brooklyn.

The district attorney’s office declined to comment on the Bloomberg-Turner case and people familiar with the investigation were reluctant to discuss it for fear of being drawn into the scandal, or because they have been advised not to discuss it. But a picture of the case emerged through interviews with executives at Turner and Bloomberg, people briefed by the district attorney’s office, and lawyers representing people who have been fired.

Bloomberg employees were stunned on Oct. 12 when the State Police and investigators arrived at their headquarters at 731 Lexington Avenue, waving search warrants for records and computers used by Anthony Guzzone, the global head of construction for Bloomberg, and another executive. The two men were immediately suspended and a short time later fired, along with an operations manager at Bloomberg.

Investigators also searched their houses.

Mr. Guzzone’s lawyer, Alex Spiro, said his client “categorically denies any wrongdoing.” The other two executives either did not return requests for comment or could not be reached.

At roughly the same time, investigators also went to Turner’s offices at 375 Hudson Street with search warrants and grand jury subpoenas for two executives involved in interior construction, one of whom had been a project superintendent on Bloomberg jobs.

Their homes were also searched.

Though both Bloomberg and Turner are companies with global reach, the investigation also involved a modest Queens company called Jonathan Metal & Glass, which fabricates and installs architectural metal walls and glass for office interiors, according to two people briefed on the investigation who spoke on condition of anonymity because they were asked by the authorities not to discuss it.

Investigators suspected that company employees had been paying kickbacks or providing services to the executives at Bloomberg and Turner in return for work. At the same time, the executives at Bloomberg and Turner would inflate the cost of the contracts for the work.

In an Oct. 26, 2017, letter to customers and vendors, Wilfred Smith, the president of the company, announced that he had terminated three employees, without giving a reason.

The three employees who were fired declined to comment, as did Mr. Smith.

Mr. Curran, the lawyer for Turner Construction, said that the company supplies cellphones, tablets and laptops to its employees to use in the bidding process and to track work. Records for jobs are supposed to be kept at Turner’s offices, as part of the company’s compliance requirements. But in this case, he said, they did not use the Turner-issued devices and job records were kept at Bloomberg work sites.

The district attorney’s investigation parallels a lawsuit, which was filed nearly a year ago by another subcontractor, Nastasi & Associates, against Bloomberg LP, Mr. Guzzone and other executives, seeking $15 million in damages. The suit, filed in State Supreme Court in Nassau County, claims that they engaged in a “conspiracy” to award work to an electrical subcontractor called Litespeed to “achieve higher profit margins for themselves, which they could not obtain by awarding bids and contracts to the lowest bidder; and embezzle upwards of $100,000,000 from Bloomberg.”

Nastasi, a dry wall contractor, contends that the defendants terminated a long-term relationship with Bloomberg in 2015 in favor of another contractor, Eurotech Construction.

In addition, the Nastasi suit states that Bloomberg and Turner employees altered the Nastasi bid — raising it by $100,000 — for a Bloomberg work contract at 120 Park Avenue to prevent Nastasi from being selected as the low bidder.

Bloomberg lawyers, who also represented Mr. Guzzone and other executives, and Eurotech lawyers sought, unsuccessfully so far, to have the case dismissed, arguing that Nastasi was fired after it failed to pay benefits for union carpenters, a claim that Nastasi denied.

For its part, Turner says that Nastasi defaulted on three separate, non-Bloomberg jobs.

Last month, investigators also raided the offices of Litespeed Electric in New York and New Jersey.

Linda Fleming, the president of Litespeed, did not return phone calls requesting comment. Marc Agnifilo, a lawyer for Robert Fleming, her husband and an executive at Litespeed, said his client denied any wrongdoing.

Well before the investigation gathered steam last fall, Bloomberg received a warning that something was amiss. Nastasi & Associates contacted Bloomberg’s global head of real estate in 2016, 18 months before investigators arrived at Bloomberg headquarters, to warn the company about what it said were illegal actions taken by Mr. Guzzone and the other executives.

Nastasi never heard back.

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