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City misses chance to share in $2.2 million fraud judgment

Inspector General Joe Fergus |  Sun-Times file photo

Inspector General Joe Ferguson | Sun-Times file photo

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Updated: May 19, 2014 2:13PM

Mayor Rahm Emanuel has “resuscitated” Chicago’s scandal-ridden minority business program, but missed a chance to share in a $2.2 million forfeiture judgment stemming from a minority business fraud by not designating the inspector general’s office as a “law enforcement organization,” Inspector General Joe Ferguson alleged Thursday.

In his quarterly report, Ferguson noted that his joint investigation with the FBI had recently culminated in prison terms for the owners of a “sham minority-owned cable television installation business” with $8.3 million in sub-contracts from a cable company that serves Chicago’s North Side.

After describing the scheme as a “cynical manipulation” of a program “designed to enhance business opportunities for minorities, a federal judge entered a $2.2 million forfeiture judgment. That’s where the “missed opportunity” comes in.

According to Ferguson, forfeiture judgments are shared “among all of the law enforcement organizations [that] participate in the prosecution.”

Although the inspector general’s office is “often the originator and a critical investigative partner” in such cases, the city is not in line for any of the money because of a technicality, Ferguson said.

“The city is left on the outside of this important aspect of recovery in federal criminal sentences because it has not taken the simple step of conferring on the [Office of Inspector General] the technical designation of law enforcement organization,” Ferguson wrote.

“As a result, money that could and should go into city coffers goes to others. A simple amendment to the municipal code would fix this problem and position the city and the taxpayers to gain the full financial benefit of OIG work.”

Nearly three years ago, Ferguson released a follow-up audit claiming that Chicago’s minority-business program remained “dysfunctional” and “beset by fraud and abuse” because former Mayor Richard M. Daley lacked a commitment to clean it up.

One year after concluding that blacks, Hispanics, women and Asians were deprived of at least $19 million worth of construction contracts in 2008 alone because of “widespread” fraud, abuse and mismanagement, Ferguson determined that precious little had changed.

He argued then that City Hall still reported the percentage of city contracts awarded to minorities based on “projected participation” — not actual payment — “knowingly misstating” numbers “far less” than the city reports because of widespread fraud and abuse and a lack of monitoring and field audits. Ferguson further complained that a failure to pursue penalties against contractors had allowed them to thumb their noses at minority set-aside requirements.

“The lack of an overall commitment to confronting the program’s deficiencies has left it beset by fraud and abuse and unable to achieve its objectives,” Ferguson wrote at the time.

In Thursday’s quarterly report, the inspector general changed his tune.

He noted that Jesse Brunt, a former Mississippi sharecropper who landed millions of dollars in city contracts was sentenced in March to 17 months in prison for his role in a minority-contracting scandal that involved sewer deals held by a company whose investors secretly included then-Mayor Richard M. Daley’s son and nephew. That stemmed from a Chicago Sun-Times investigation.

Referring to both the cable and sewer contracting cases, Ferguson wrote, “These cases are trailing echoes of a [minority- and women-owned business] program once managed from place of neglect. In recent years, OIG program reviews and investigations — along with the continuing efforts of the city’s Department of Procurement Services — have resuscitated the program as a professional operation positioned to achieve its policy objectives.”

Minority contracting fraud has been a chronic problem during the Daley years.

In 2005, James Duff pleaded guilty to masterminding a scheme to defraud the city of $100 million in contracts earmarked for minorities and women. A few days later, the Sun-Times revealed that a Duff-run company was continuing to perform a pivotal truck dispatching role on the city’s $4.9 million winter salt contract.

The contract was canceled, but the political damage was done.

A string of revelations by the Chicago Sun-Times provided further proof that Daley’s minority set-aside program had been manipulated by the politically connected at the expense of minorities.

They included: a company brokering plumbing supplies owned by Reyes’ sister; a minority telecommunications company partially owned by Richard J. Daley’s longtime patronage chief Tom Donovan, and an O’Hare Airport restaurant owned by Billy Goat tavern owner Sam Sianis that was placed in the name of Sianis’ wife, apparently at the city’s direction.

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