Still another “pass-through” fraud scheme involving the U.S. Department of Transportation’s disadvantaged business enterprise (DBE) program has been exposed, with criminal penalties for all involved.
On October 8, 2015, Dennis Weber, Dale Weber, Carl M. Weber Steel Service, Inc., and Judy Noll pleaded guilty to federal conspiracy charges related to a complex DBE fraud scheme that, incredibly, lasted for more than 16 years, totaled almost $19 million, and involved 224 bridge projects throughout Pennsylvania.
The scheme worked like this: Carl M. Weber Steel Service, Inc., set up Karen Construction, Inc., a sham DBE owned by Judy Noll, to siphon profits from lucrative DBE subcontracts on PennDOT projects. Weber Steel and Karen used a variety of tactics to hide the scheme from state and federal officials. Dennis Weber, the president of Weber Steel, was actually in charge of Karen’s sales, marketing, project selection, and price estimating, and Dale Weber, vice-president of Weber Steel, was actually in charge of Karen’s purchasing, project supervision, and hiring. Although Karen was supposed to be an independently-run business, Karen and Weber Steel shared office space, an office manager, a computer network, equipment, fuel, materials, and construction employees. Noll created and submitted various false documents which misrepresented that Karen was in compliance with DBE certification requirements. Dennis and Dale Weber directed that profits from Karen be shared with them in year-end bonuses, and disguised them through phony invoicing to mask the transfer of funds from Karen to Weber Steel.
Weber Steel and Karen were also suspended from participation on all state-funded and federally-funded contracts.
The Weber Steel case is yet one more reminder that DBE fraud does not pay, although here it paid for 16 years. You will get caught, and you will get punished. Count on it.
The case also is a lesson for prime contractors who are required to comply with the US DOT DBE rules and use DBEs to meet subcontracting goals. While the Webers and Noll engineered the fraud scheme, contractors who used Karen on their prime contracts with PennDOT to meet goals are equally at risk of civil or criminal penalties if they knew that Karen was a sham DBE or if they failed to do any due diligence to determine that Karen was a performing a “commercially useful function” on their contracts. The scheme lasted for 16 years and not one prime contractor smelled a rat during all that time?
The takeaway for prime contractors? Don’t be afraid to conduct serious due diligence before committing to and using a DBE on your contract in order to meet a DBE subcontracting goal. It will be well worth the time and effort.
If you need assistance in this area of contracting, call or email me for a free consultation.
Christopher I. McCabe, Esq.
