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Firm’s Scandal Jeopardizes Projects

Monday, April 15, 2013

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Indictments and mass layoffs at a politically connected New Jersey engineering firm have cast doubt on the fate of millions of dollars in ongoing construction projects across the region.

After seven top executives and the company itself were indicted for allegedly violating New Jersey's "Pay to Play" anticorruption laws, Birdsall Services Group (BSG) announced Wednesday (April 10) that it had furloughed its 300 employees.

The Eatontown, NJ-based company acted after U.S. District Judge Michael A. Shipp blocked it from tapping its $41.6 million in frozen assets to make payroll, pending a hearing Monday (April 15). BSG filed for Chapter 11 bankruptcy March 29, just days after the indictments were announced and the state seized the company's assets.

Hoboken High School Belmar Public Library
Hoboken School District (left); City of Belmar (right)

Scandal-plagued Birdsall Services Group says that work at Hoboken High School, the Belmar Public Library and many other commercial and public-works projects in New Jersey will be shut down if the company cannot get access to its assets.

The state is fighting the bankruptcy petition, calling it a ruse to shield illegally gained assets.

The widening scandal now threatens all of the company's current projects across the Northeastern U.S. In a declaration filed Thursday (April 11) in federal court, BSG chief operating officer John L. Wuestneck said that the firm would "be forced to cease their business operations immediately" if it could not gain access to cash.

That would leave the firm unable to pay its taxes and could imperil the professional licenses of employees, the firm said.

Projects Threatened

Furthermore, the lack of assets "threatens the Debtors' ability to complete work on several rebuilding projects in Monmouth and Ocean Counties and elsewhere in New Jersey, as well as continue to provide contractual engineering services," the declaration said. "Many of these projects are vital to the health and safety of residents of New Jersey [emphasis in original]."

BSG is heavily involved in post-Hurricane Sandy rebuilding projects for government and commercial clients.

According to the declaration, the threatened projects include:

  • Reconstruction of the Sandy-ravaged public library, marina, retail and restaurant space and other facliites in Belmar, NJ;
  • Air sampling at Middlesex County Vocational Technical School and Hoboken High School;
  • Construction of nine stormwater pump stations damaged by Sandy;
  • Construction administration on 200 affordable apartments that are nearly complete in Paterson, NJ;
  • Replacement of the Swimming River Water Treatment Plant Pipe Bridge; and
  • Private beach clubs rebuilding for the 2013 summer season.
Belmar Boardwalk Project Belmar Boardwalk
FEMA (left); iPhone video Daniel Radel via app.com (right)

Birdsall Services Group (BSG) is working to rebuild the historic boardwalk of Belmar, NJ, which was destroyed by Hurricane Sandy. The firm, now under indictment, argues that its many public-works projects make its continued operation imperative.

The declaration also notes that the scandal-plagued firm has "fielded inquiries from four potential buyers interested in purchasing" the company.

'Forced to Furlough'

Birdsall president and CEO Ralph J. Orlando, P.E., said the company had been forced into the layoffs.

“With no immediate certainty that we will be capable of paying our employees because of the frozen assets, we were forced to furlough all 300 existing employees to allow them to collect unemployment and not suffer any further financial hardship brought by the state’s actions,” Orlando said in a prepared statement.

“I am deeply disappointed that these actions had to occur and hope that the state will recognize the hardships it is causing 300 families and our 1,000 clients and will work with us to resolve the matter immediately."

'Pay to Play' Charges

The recent indictments by a New Jersey state grand jury have swept in the firm, namesake and principals of BSG, which has an extensive government, commercial and institutional project portfolio throughout New Jersey, New York, Pennsylvania and Connecticut.

Two former members of BSG's marketing department have already pleaded guilty in the alleged six-year scheme, in which the firm is accused of illegally channeling hundreds of thousands of dollars in political contributions through individual employees to obtain millions of dollars in public contracts.

Alan Hilla Thomas Rospos William Birdsall
Scott MacFadden James Johnston Robert Gerard

Six executives, in addition to CEO Howard Birdsall, face conspiracy, money laundering and other charges. Clockwise from top left: Alan Hilla Sr., Thomas Rospos, William Birdsall, Robert Gerard, James Johnston and Scott MacFadden.

Last week, U.S. Bankruptcy Judge Michael Kaplan denied a request by New Jersey's Attorney General to dismiss the bankruptcy filing. Kaplan allowed the firm access to some of its assets, to pay its staff for two more weeks. However, Kaplan also granted the Justice Department’s request to appoint a U.S. Trustee to oversee the company.

In the Public Interest?

The state has appealed Kaplan’s rulings to the U.S. District Court in Trenton, saying that the firm’s continued operation hinders prosecutors' ability to enforce anti-corruption laws.

“The state’s interest in enforcing its criminal laws to deter political corruption far outweighs any interest in the continued operation of BSG’s business,” Andrew H. Sherman, a special counsel to the state, wrote in papers filed April 8 in Trenton.

Birdsall argues that its continued operation is in the public interest because of its role in numerous Sandy recovery projects. The company also notes that none of the seven employees newly indicted—or the two who have already pleaded guilty—"exercise any control over" the company now.

7 Indictments

Indicted March 26 were:

  • Howard C. Birdsall, 69, of Brielle, the largest shareholder of Birdsall, who retired late last year as CEO. He allegedly made at least $49,808 in illegally reimbursed political contributions.
  • Thomas Rospos, 61, of Belmar, a former Executive Vice President of Birdsall. Rospos was charged in a prior indictment in the case, but this indictment supersedes the earlier one. He allegedly made at least $241,000 in illegally reimbursed political contributions.
  • William Birdsall, 64, of Manchester, Howard’s brother. Now semi-retired, he holds the title of Senior Vice President and is a significant shareholder of the firm. He allegedly made at least $74,459 in illegally reimbursed political contributions.
Howard Birdsall Ralph Orlando
NJ Office of Attorney General (left); BSG (right)

BSG president and CEO Ralph J. Orlando (right) said the company had no choice but to lay off its staff. Orlando succeeded CEO Howard C. Birdsall (left), the company's largest shareholder, who is now under indictment.

  • Alan Hilla Sr., 73, of Brielle. Also semi-retired, he is Executive Vice President for Business Development for Birdsall and a significant shareholder. He allegedly made at least $148,309 in illegally reimbursed political contributions.
  • Scott MacFadden, 58, of Brick, Chief Administrative Officer. He allegedly made at least $77,957 in illegally reimbursed political contributions.
  • James Johnston, 51, of North Brunswick. He is President of BSG's Environmental Consulting Division and a significant shareholder.  He allegedly made at least $45,797 in illegally reimbursed political contributions.
  • Robert Gerard, 52, of Wall. He is the former Chief Marketing Officer of Birdsall and was formerly a significant shareholder. He allegedly made at least $48,700 in illegally reimbursed political contributions.

Charges and Penalties

Each of the defendants is charged with:

  • Conspiracy (first degree);
  • Two counts of money laundering (first degree);
  • Making false representations for government contracts (second degree);
  • Misconduct by a corporate official (second degree);
  • Tampering with public records or information (third degree);
  • Falsifying records (fourth degree);
  • Prohibited corporation contributions through employees (fourth degree); and
  • Concealment or misrepresentation of contributions or expenditures (fourth degree).

The first-degree charges carry a sentence of 10 to 20 years in state prison; the money-laundering counts also carry fines and penalties of up to $1 million.

How it Worked

Authorities say the scheme was intended to get around New Jersey’s so-called "Pay to Play" rules.

Rather than make corporate political contributions to campaigns and political organizations that would disqualify it from public contracts, BSG funneled money through unreportable individual contributions of $300 or less in the names of employees and shareholders, authorities said.

Birdsall bridge project
Birdsall Services Group

Prosecutors say BSG landed millions of dollars in public contracts through illegal campaign contributions.

The company bundled together “multiple personal checks” and sent them “to the appropriate campaign or political organization,” Attorney General Jeffrey S. Chiesa alleged in an announcement. The shareholders and employees were then reimbursed with bonuses.

‘Stacking the Deck’

The contributions were not reported as required to the Election Law Enforcement Commission (ELEC) or to the government agencies that awarded the firm engineering services contracts. BSG also “filed numerous false Certifications of Compliance declaring that the firm was in compliance with pay-to-play rules,” authorities said.

“These men allegedly participated in a corrupt scheme in which they made hundreds of thousands of dollars in corporate political contributions, but disguised them as individual contributions to evade our pay-to-play law,” Chiesa said in a statement.

“The defendants secured millions of dollars in public contracts for which they should have been disqualified. We have rules to prevent politically connected firms from stacking the deck in their favor in public contracting, but these defendants allegedly broke those rules and committed serious crimes.”

Previous Pleas

Two employees of the marketing department of Birdsall have already pleaded guilty to participating in the scheme.

NJ.gov

Philip Angarone, Birdsall's former marketing director, pleaded guilty in November to participating in the scheme.

On Nov. 30, 2012, former marketing director Philip Angarone, 40, of Hamilton, NJ, pleaded guilty before Superior Court Judge Wendel E. Daniels in Ocean County to third-degree tampering with public records or information and fourth-degree prohibited corporation contributions through employees.

Under the plea agreement, he faces up to 364 days in jail and a term of probation. He must forfeit $26,775 in illegally reimbursed political contributions that he made under the scheme

On Feb. 12, Eileen Kufahl, 48, of Bradley Beach, a former administrative assistant and later marketing manager, pleaded guilty to a fourth-degree charge of making prohibited corporation contributions through employees.

Under the plea agreement, Kufahl must forfeit $17,119 in political contributions that she made under the scheme, which were allegedly reimbursed by Rospos. The state will recommend that Kufahl be sentenced to a term of probation.

Prosecutors say the investigation is continuing.

The Division of Criminal Justice has established a toll-free Corruption Tipline (1-866-TIPS-4CJ) for the public to confidentially report corruption, financial crime and other illegal activities. The public can also log on to the Division’s webpage to report suspected wrongdoing confidentially.

   

Tagged categories: Bridges; Business operations; Commercial Construction; Consultants; Contracts; Engineers; Government contracts; Laws and litigation

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