Federal investigators seized documents, bank statements, computer data and more from four businesses along West Florist Avenue on Milwaukee's north side and a Menomonee Falls-based accountant last week as part of an investigation into an alleged scheme to illegally obtain federal contracts.
An affidavit applying for the search warrant alleges a construction businesses benefited from receiving approximately $268 million in set-aside contracts.
Those contracts included $71 million through the Small Business Administration’s 8(a) business development program, which is intended to help small businesses owned and controlled by socially and economically disadvantaged individuals get a foothold in government contracting.
The scheme also allegedly included $197 million in contracts offered under the Department of Veterans Affairs service-disabled veteran-owned small business procurement program.
BizTimes is not naming those involved in the search warrant because no one has been charged. Calls to the companies involved were not returned Monday morning.
The search warrant says the owner of one of the companies was certified for the SBA program during the 1990s and early 2000s.
After graduating from the program, the affidavit says he helped a former employee become the purported owner of a new company that sought contracts under the SBA program. The affidavit says the original owner was actually in control of the second business and benefited from contracts he was not eligible for.
The purported owner of the second business was rarely in the office and moved to Minnesota not long after the company was established, the affidavit says. A confidential source, described as a 14 year employee of the two companies, told investigators an office with papers and personal effects on the desk was maintained at the office “to create the illusion” the second owner was controlling the company, the affidavit says.
The document also says a project manager from the original company was actually controlling the second business on a daily basis.
The second company graduated from the SBA program in 2013, according to the affidavit.
The original owner and the project manager sought to also establish a service-disabled veteran-owned company, the document says. In 2006 they allegedly “selected and placed” a man they met while doing work for the VA as head of the new company.
The third company was able to secure a number of contracts between 2006 and 2012, although a non-winning bidder did question the company’s status as service-disabled and veteran-owned in 2010.
The confidential source told investigators the man the duo selected did not run day-to-day operations and was not physically present in the building for months at a time, according to the affidavit. After the company’s status for VA contracts was suspended in 2012 over suspicions the man was not the true owner, the affidavit says he began showing up on a regular basis.
The company was reinstated after claiming the project manager was removed from the payroll, but the affidavit says he simply moved to adjacent office space and was still running daily operations.
The affidavit also says the original owner and project manager sought to establish a fourth company that would be eligible for the SBA program. The document said they recruited a project manager from the third company to establish the business, which has been certified for the program but hasn’t been awarded any contracts.
The affidavit says all of the companies shared a Menomonee Falls-based accountant who previously worked at some of them and had office space at their facilities. The accountant allegedly would spread costs between the businesses to improve the appearance of profitability, the document says.
Investigators also were able to track payments from the third company, the one doing VA work, to a marketing services firm associated with the owner of the original company.
The affidavit says investigators reviewed the marketing firm’s records and found personal expense payments for cosmetic surgery, trailer and RV supplies, a motorcycle dealership, casinos, lodging and cash withdrawals.