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BY ALINE REYNOLDS | Lend Lease, the international construction company responsible for tearing down the Deutsche Bank building at 130 Liberty St. has admitted to a massive fraud scheme amounting to several million dollars in lost funds for its clients.
However, the Lower Manhattan Development Corporation, the state-city agency that contracted Lend Lease to demolish the 9/11-battered tower, managed to avoid the worst of the scam.
Lend Lease, previously known as Bovis Lend Lease, has overcharged private clients as well as the L.M.D.C. and several other government agencies for more than a decade, according to the U.S. Attorney’s Office of the Eastern District of New York, which filed the fraud charges against the firm early last week. The company has also been involved in the construction of the PATH station, the Fulton Street Transit Center and the National Sept. 11 Memorial. The agencies overseeing those projects weren’t available for comment by press time.
The L.M.D.C., for one, had implemented a scrupulous billing process that narrowly prevented the fraud from affecting the Deutsche Bank demolition project, according to an official familiar with the matter who requested anonymity. The source said the loss on the project resulting from Lend Lease’s scheme amounts to less than $50,000.
L.M.D.C. signed a contract with Lend Lease for the dismantling of 130 Liberty St. in fall 2005. Work on the project began late that year but came to a near halt in 2006 and 2007 because of cost disputes with Lend Lease that the two parties are still battling over in court, according to the source.
In early 2007, the L.M.D.C.’s billing procedures specifically tied to the Deutsche Bank project were changed, so Lend Lease’s fraud affected only its payments in the years prior, which were minimal, the source said. Yet the finding follows a series of other questionable but unconfirmed actions by the company.
From approximately 1999 to 2009, Lend Lease systematically added one-to-two hours of excessive overtime per day to the labor foremen’s time sheets, paid foreman for days they weren’t on the job and billed its clients for additional hours, the court papers say. The company’s clients were purportedly unaware of the scheme and forked over the inflated payments.
Lend Lease also defrauded the Dormitory Authority of the State of New York and the New Jersey Economic Development Authority in order to feign compliance with government programs aimed at increasing the participation of minorities, women and small businesses on public construction projects. The cover-up caused D.A.S.N.Y. to make payments to Lend Lease from approximately 2000 to 2007.
James Abadie, the former principal in charge of Lend Lease’s New York office, pled guilty in U.S. District Court to conspiring to commit a mail and wire scam by overbilling its clients, according to U.S. Attorney Loretta Lynch’s office. In consenting to the fraud, the company has entered into a binding agreement requiring it to pay a total of $40.5 million to the federal government over the course of two years, in addition to some $16.1 million to clients affected by the scheme.
Jeffrey Melofchik, the company’s site safety manager, was implicated in the 2007 fire that killed two firefighters as it raged through parts of the Deustche Bank building. However, Melofchik ultimately escaped criminal indictment. Per a pending court case, Lend Lease also allegedly owes the L.M.D.C. tens of millions of dollars in compensation for advanced payments toward the tower’s dismantling.
L.M.D.C. President David Emil deemed Lend Lease’s swindling tactic “outrageous.”
The L.M.D.C., he said, “intend[s] to recover any money which was claimed from us fraudulently.”
Emil and his team are working with the relevant criminal prosecuting agencies and consulting their own records to determine the extent of the overbilling. The lawsuit, however, doesn’t pertain directly to these payments, he said.
He wouldn’t comment on the status of the pending suit, nor would he confirm the total amount of the losses. He said only, “We have examined the bills and we’re working to get it back.”
Emil backed the fiscal penalties toward Lend Lease, saying they’re necessary to dissuade the firm and other mega construction companies from perpetrating fraud in the future.
“There has to be a real disincentive for contractors engaging in fraudulent activity,” he said, “particularly when dealing with public money.”
Richard Weiss, a spokesperson for the Local 79 Mason Tenders’ District Council of Greater New York, which represents scores of Downtown workers, stressed that the scandal does not in any way incriminate those that happen to be Lend Lease employees.
“The union had no role in this,” said Weiss. “If the company wants to pay them for their vacation, that’s between them and the company.”
In addition to the U.S., Lend Lease operates in more than 40 countries throughout Asia and Europe. It brands itself as a service corporation that provides construction, project management and consulting services to large-scale public and private construction projects.
To reclaim itself, the company has promised to revise its codes of conduct and billing guidelines, create a risk and compliance committee and hire an ethics and compliance officer as well as provide effective training of personnel on the revised rules.
Community Board 1 Chairperson Julie Menin said the fraud bolsters the L.M.D.C.’s standing in its legal battle with Lend Lease, even though the two aren’t directly related.
“The fact that we’re talking about… taxpayer dollars that are going to the rebuilding of the World Trade Center site, is really unconscionable,” she said.
C.B. 1 Vice Chairperson Catherine McVay Hughes, who chairs the board’s W.T.C. Redevelopment Committee, said it’s “disheartening” that a large corporation such as Lend Lease would cheat during the rebuilding of the W.T.C.
“Any money that was improperly taken by Lend Lease for any project in Lower Manhattan must be immediately returned and reinvested in this community so that we can continue to rebuild,” said Hughes.
The scheme is a blow to Downtown and the city as a whole, according to NYS Assembly Speaker Sheldon Silver.
“Like so many of my neighbors, I was outraged to learn of the fraud committed by Lend Lease,” he said. “I led an effort to bring more accountability to the deconstruction of the Deutsche Bank building, and the overbilling scheme that was revealed is a serious betrayal of our community and the entire city.”
Moving forward, Lend Lease will require all of its workers to certify their own time sheets, require that the time sheets be approved by their foremen, and have a New York-based auditor oversee the time sheet recording and billing procedures and conduct regular visits to the project sites.
Since the investigation into the fraud began in 2009, Lend Lease has put in place substantial remedial measures, such as axing employees guilty of unlawful conduct, replacing managers, consolidating its U.S. operations under a new C.E.O., and amending its compliance, billing and regulatory rules, according to a news release put out by the company.
In a written statement, Robert McNamara, Lend Lease’s chief executive officer for its Americas region, said the company takes corporate governance “very seriously” and is committed to the “highest levels of ethical standards.”
“We accept responsibility for what happened in the past and have agreed to continue to make restitution to the affected clients,” he said. “We are satisfied the investigation is now resolved, and we are looking forward to continuing our commitment to projects in New York City.”