Construction News

Sat November 27 2021

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Contractor to forfeit $55m over fake purchase orders

1 May 14 A New York interiors business must forfeit US$55m (£33m) for falsifying purchase orders with the intent to defraud clients.

Manhattan district attorney Cyrus Vance Jr announced the conviction of Manhattan-based company Structure Tone, Inc (STI). The company was charged with and pleaded guilty to falsifying business records in the first degree and will forfeit $55m.

“Interiors construction is a multi-billion dollar industry in New York City and is vital to our city’s economy,” said Vance. “Structure Tone’s felony plea and forfeiture of $55m – one of the largest forfeitures ever imposed on a construction company – sends a clear message that this type of criminal activity will not be tolerated. This plea agreement addresses the severity of Structure Tone’s criminal conduct, while taking into consideration the remedial actions the company has implemented since 2010 to end the fraud and provide better oversight of its business practices. This is the Rackets Bureau’s third major case in this area since I became DA, and the industry should be  be on alert. We are rooting out fraud and making sure that honest businesses can compete fairly.”

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According to Structure Tone’s guilty plea and documents filed in court, between 2005 and 2009, the company, with the intent to defraud, falsified subcontractors’ purchase orders.

Here is how the practice worked:

  • STI required the subcontractors on jobs where it was construction manager (CM) jobs to increase their bids by adding, in many cases, unnecessary contingencies listed in an addendum provided by STI.  This practice was concealed from the CM clients.  
  • Once the CM clients agreed to pay the subcontractors’ increased bids, STI also procured additional discounts and savings from these subcontractors that were not passed along to the clients.
  • STI then created fraudulent purchase orders containing these increased amounts and omitting any discounts provided by subcontractors – in many cases caused the CM clients to overpay. The subcontractors held these overpayment amounts for STI.
  • STI recovered these overpayment amounts by inducing these same subcontractors to provide discounts to STI on other, unrelated GC projects. 

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