White Collar Criminal Defense Group

Tailoring RFP For Preferred Contractors Leads To Guilty Verdicts Of A State University’s President And Construction Executives

What Happened?

On July 10, 2018 a federal jury in Manhattan convicted a State University of New York’s Polytechnic Institute (SUNY Poly) former president, and three executives of two construction companies, of wire fraud, conspiracy to commit wire fraud, and making false statements to investigators for rigging the public competitive process. SUNY Poly is a system of public institutions of higher education which receives federal monies. It created a nonprofit entity, Fort Schuyler Management Corporation, for the purpose of engaging contractors in building development projects. Because the nonprofit entity was funded with federal monies, it must adhere to a competitive process of bidding for construction projects.

The Rundown

According to the indictment, Dr. Kaloyeros, SUNY Poly’s president at the time, oversaw the steering of lucrative state contracts worth millions of dollars to two construction companies owned by his co-defendants. The government alleged, and the jury found convincing, that Dr. Kaloyeros used his official position to tailor Requests for Proposals (RFPs) to fit the qualifications of the two construction companies. Furthermore, the construction companies worked with a lobbyist to obtain advanced copies of the RFPs and obtained secret information which gave them a distinct advantage over its competitors in bidding. The government successfully argued to the jury that the winners of the RFPs, Kaloyeros’ co-defendants, were selected before the issuance of the RFPs and that the appearance of a competitive bid was a sham. The government was able to prove that Dr. Kaloyeros used his official position and fraudulently represented to the Board of Directors of Fort Schuyler that the competitive process was fair, open and competitive when in fact, it was not. Dr. Kaloyeros and the executives of the construction companies are facing a maximum of 45 years in prison.

For The Record

Contractors and vendors often develop relationships with government officials and employees when seeking government contracts. It is a common and well-established method for vendors and contractors to establish relationships with potential buyers to sell their wares or gain a contract. While this method of selling goods and services in the private sector is sound and lawful, public employees and officials must be careful. Municipalities and public entities have a duty to prevent waste and the fraudulent use of public funds, therefore, procurement of certain goods and services must be obtained through a fair, transparent and competitive bidding.

The Take Away

Public officials and employees must keep communication with potential vendors at arms-length and avoid inappropriate communications or the appearance of inappropriate communications. There should be clear and robust procurement and ethics policies, such as prohibiting all communication with potential vendors or bidders for a certain time during the issuance of an RFP until after the contract has been awarded. Key personnel and potential vendors must be trained on the policies and compliance plans should be adopted and monitored. Failure to establish, train and monitor good governance may lead to a civil lawsuit under the False Claims Act and/or criminal prosecution.

New Initiatives Announced By DOJ In Opioid Response

With the opioid crisis showing no signs of abating, Department of Justice officials are undoubtedly feeling pressure to take additional steps to address it.  The Trump Department of Justice has taken several steps over the past year including, in August 2017, the creation of the Opioid Fraud & Abuse Detection Unit to target opioid-related over-prescribing and healthcare fraud through the use of data analytics.  The Unit enlisted government attorneys and agents from the hardest-hit jurisdictions in the United States, including western Pennsylvania and southern West Virginia.

More recently, in December 2017, the DOJ created a director-level role at DOJ dedicated solely to opioid enforcement, titled “Director of Opioid Enforcement and Prevention Efforts.”  Long-time DOJ prosecutor, Mary Daly, is in that position.

Just last week, DOJ announced two new initiatives regarding opioid enforcement:

• July 11, 2018: DOJ announced the finalization of regulatory steps designed to improve the DEA’s ability to reduce drug diversion through control of opioid production. Initially announced in April, the DEA will be empowered to limit the amount of opioids that manufacturers produce in a given year if the DEA believes that a particular opioid or a particular company’s opioids are being diverted for misuse. The regulation also requires DEA to share notices of proposed production limits to state attorneys general. In certain instances, it also allows for a hearing to resolve an issue of fact raised by a state in objection to production limits if related to a legitimate United States’ need.
• July 12, 2018: DOJ announced Operation Synthetic Opioid Surge (“S.O.S.”), a new program to reduce the supply of synthetic opioids in jurisdictions hardest hit by the opioid crisis.  Through Operation S.O.S., DOJ will launch an enforcement “surge” in ten federal judicial districts with some of United States’ highest drug overdose death rates. The surge will involve a coordinated DEA Special Operations Division operation to insure that leads from street-level cases are used to identify large scale distributors.  Additionally, the Organized Crime Drug Enforcement Task Forces (“OCDETF”) Executive Office will provide additional Assistant U.S. Attorneys to each participating district to assist with these prosecutions.  The ten districts participating in Operation S.O.S. include the Western District of Pennsylvania, Northern and Southern Districts of West Virginia, and Northern and Southern Districts of Ohio.

Obviously, the Department of Justice – and the Trump Administration as a whole – is identifying new strategies and initiatives to address the opioid crisis.  We undoubtedly haven’t seen the last initiative on this important topic.