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Defense firm owes U.S. $69.3 million, two plead guilty, in overbilling

Photo Credit: Cliffview Pilot

A New Jersey-based engineering consulting company has agreed to pay the government nearly $70 million as part of a deal to stave off criminal charges for over-billing millions of dollars in reconstruction contracts in Iraq and Afghanistan.

The Louis Berger Group, Inc. (LBG), of Morristown, basically defrauded U.S. taxpayers of more than $50 million while working for the Defense Department and the U.S. Agency for International Development, records show.

Paul J. Fishman, the U.S. Attorney for the District of New Jersey, held a news conference at his Newark offices today to announce the deal. Also attending was Rod J. Rosenstein, U.S. Attorney for the District of Maryland, and Tony West, Assistant Attorney General of the Civil Division of the Department of Justice, as well as directors of the various agencies who built the case and a trio of federal prosecutors who produced the result.

This was “more than playing with the numbers to rip off the government,” Fishman told reporters. “Funds that could have raised hope from the rubble instead padded the bottom line.

“This criminal conduct sends the wrong message to the world about what we stand for as a nation. Today’s guilty pleas, together with the agreements committing LBG to the highest standards of corporate conduct, send the right message: it is just as intolerable to steal our government’s money overseas as it is here at home.”

The Bergen Group, in addition to an $18.7 million criminal penalty, must also pay the government $50.6 million to resolve allegations that LBG violated the False Claims Act by charging inflated overhead rates on government contract invoices.

The company also must make full restitution to USAID; adopt effective standards of conduct, internal controls systems, and ethics training programs for employees; and employ an independent monitor who will evaluate and oversee the company’s compliance with the DPA for a two-year period, Fishman said.

An outside, independent monitor — selected by Fishman — will evaluate and oversee LBG’s compliance with the agreement.

Two former senior employees with the Berger Group also pleaded guilty in federal court in Newark this morning to their roles in the scheme: Salvatore Pepe, 58, of Tuckahoe, N.Y., LBG’s former Chief Financial Officer, and Precy Pellettieri, 54, of Rahway, the former Controller, admitted today in Newark federal court to conspiring to defraud USAID by obtaining contract payments billed at falsely inflated overhead rates.

Fishman said the scheme was carried out by Pepe and Pellettieri, at the direction of a former executive — who wasn‘t identified at the news conference but clearly is former LBG Chairman Derish M. Wolff, who had been wrestling with the government in federal court over the allegations.

Soon after Wolff — the nephew of company founder Louis Berger — became the firm‘s president in 2002, federal officials awarded a five-year $300 million contract to the Berger group for rebuilding power plants, schools and irrigation systems in Afghanistan.

But the company, among other sleights of hand, shifted overhead costs from private clients to federal and state contracts, hoping they wouldn’t be noticed, federal authorities said.

Pepe and Pellettieri admitted targeting an overhead rate above 140 – meaning: for every dollar of labor devoted to a USAID contract, LBG would receive an additional $1.40 in overhead expenses and total profits allegedly incurred by LBG.

The duo reclassified employees’ work hours — including those in the accounting department — to make it look like they worked on exclusive federal projects they never really came near, Fishman said.

The workers had no idea, he said.

USAID asked the company more than a year ago that Wolff “not be involved with any government contracts while the investigation by the U.S. attorney proceeded,” and threatened to cancel any deals if the Berger Group didn’t comply.

“Wolff is a subject of federal criminal and civil investigations of allegations that the Louis Berger Group (“LBG”), a company of which he was the chairman, defrauded the United States Agency for International Development,” Assistant U.S. Attorney Alex Kriegsman wrote in an Aug. 10 filing.

In the end, the government and company officials reached a “deferred prosecution” deal: As long as the Louis Berger group pays up and keeps its nose clean, the U.S. Attorney’s Office won’t bring charges. However, if any evidence of future wrongdoing arises, the entire case gets reopened.

The company issued a statement last night: “The Louis Berger Group/Black & Veatch Joint Venture is not withdrawing from Afghanistan. We are committed to successfully completing our work on behalf of USAID for the Afghan people, while ensuring the safety of all people working on these important projects.”

The deferred prosecution agreement allows Berger to remain in business doing government work.

Fishman credited special agents of the USAID, the Office of Inspector General, the FBI, the Department of Defense, and the Office of the Special Inspector General for Iraq Reconstruction.

Making the government’s case was Assistant U.S. Attorneys Lisa Rose, Scott B. McBride, and Joyce Malliet of the New Jersey U.S. Attorney’s Office Criminal Division in Newark.

In business more than 60 years, the Morristown-based Berger group — with 5,000 or so employees — does work in engineering and construction here and in roughly 80 other countries.

A former Berger employee got investigators checking the books, even before the international development agency handed the company $1.4 billion in reconstruction contracts in Afghanistan, by filing a whistle-blower suit in federal court in Maryland. That action is now sealed as part of the government’s investigation into the company.

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