Michael Martin and D. Scott Henzel Charged with Fraudulently Obtaining Public Construction Contracts Worth Millions Through Identity Theft of Minority-Owned Businesses.
New York, NY - July 17, 2018 - Attorney General Barbara D. Underwood today announced the unsealing of an indictment in Albany County charging Michael Martin, 47, of Latham, and D. Scott Henzel, 52, of Albany, with fraudulently obtaining public construction contracts worth millions of dollars by stealing the identities of two minority-owned businesses, and willfully failing to pay over $400,000 in wages to over 50 employees. Martin is separately charged in a second indictment unsealed in Schenectady County with stealing over $150,000 from a minority-owned business pursuant to a fake lease agreement, and over $200,000 from Allegheny Casualty by filing a false insurance claim on behalf of the same minority-owned business.
“As we allege, the defendants crafted a shameful and elaborate scheme to line their pockets at the expense of minority-owned businesses, New York taxpayers, and their own employees,” said Attorney General Underwood. “We will continue to aggressively root out fraud and protect New Yorkers from those who seek to game the system."
The indictments are the result of a joint investigation conducted by the Attorney General’s Criminal Enforcement and Financial Crimes Bureau, the New York State Office of the Inspector General, and the New York State Department of Labor. If convicted of all counts, each defendant faces up to 10 to 20 years in state prison.
“These two construction executives abused minority-owned businesses and took shameful advantage of a laudable program meant to level the playing field for many small and disadvantaged companies hoping to compete,” said Inspector General Catherine Leahy Scott. “The integrity of the programs encouraging the use of women and minority owned businesses in New York is critical to the government contracting process, and I will use all the resources at my disposal and work closely with my law enforcement partners to pursue anyone who tries to defraud it.”
Department of Labor Commissioner Roberta Reardon said, “Under Governor Cuomo, New York State will not tolerate any abuse of workers, especially stealing their hard-earned wages. The actions of these bad actors are particularly egregious — the purchase of lavish vacations, motorcycles, jet skis and RVs with funds stolen from the pensions of hard-working New Yorkers is an example of the type of fraudulent and criminal behavior that we absolutely will not stand for.”
According to statements made by the prosecutor at arraignment and documents filed in Albany and Schenectady County courts, Martin served as President and owner of Eastern Building & Restoration, Inc., a general contractor headquartered in Albany, from 2004 to February 2014. Henzel is the former Controller for Eastern Building & Restoration, Inc. (“Eastern”).
As the Attorney General alleges, the defendants devised a scheme to enrich themselves at the expense of laborers, minority-owned businesses, and numerous state, county, and local agencies. The scheme included the identity theft of two minority-owned businesses, Lorice Enterprises, Inc. and Precision Environmental Solutions, Inc., as well as the theft of prevailing wage benefits from over 50 employees of Eastern.
The defendants’ identity theft scheme allegedly operated as follows:
Between April 2012 and September 2015, Martin and Henzel allegedly offered two minority business enterprises, Lorice Enterprises, Inc. (“Lorice”) and Precision Environmental Solutions, Inc. (“Precision”), the opportunity to partner with Eastern for the purpose of teaching the businesses how to successfully operate and bid on construction projects. In reality, Martin and Henzel allegedly took over the two businesses, managing all day-to-day business activities, including staffing of laborers and bidding decisions, as well as all banking activity and financial decisions. The defendants then allegedly used the minority-owned businesses to fraudulently obtain millions of dollars in public works projects awarded to Eastern, which required a portion of funds awarded to be paid to minority contractors pursuant to Article 15-A of the Executive Law.
The purpose of Article 15-A of the Executive Law is to promote employment and business opportunities on state contracts for minorities and women, so that when public dollars are spent on construction projects, a portion of those funds are used to promote the growth of minority or women-owned businesses.
In reality, according to statements made by prosecutors and documents filed in court, once Martin and Henzel brought Lorice and Precision into Eastern, those firms allegedly ceased to be minority-owned business enterprises other than on paper, and were in reality controlled exclusively by -- and for the benefit of -- Martin and Henzel. Prosecutors allege that Martin and Henzel intermingled the finances of Lorice and Precision with those of Eastern and Moisture Barriers, a roofing company also owned by Martin. They also allegedly failed to pay New York State withholding and unemployment insurance taxes on behalf of the minority businesses, resulting in thousands of dollars of penalties and interest being assessed against those businesses and their owners.
Additionally, according to prosecutors, Martin allegedly systematically failed to pay over 50 laborers $6 per hour in pension funds, which Eastern was obligated to pay them as part of their prevailing wage. Between March 1, 2012 and February 6, 2014, Martin and Henzel underpaid Eastern’s laborers over $400,000 in pension benefits, including over $100,000 on a single contract with the New York State Dormitory Authority. To conceal their crime, Henzel and Martin allegedly falsely certified on all of their public works projects that they had paid these pension payments to every employee.
Eastern went out of business in February 2014 after declaring itself financially unable to perform its numerous contracts. Thereafter, Martin moved Precision from Eastern’s former headquarters in Albany to a new location in Scotia, New York, where Precision paid the landlord $1,800 per month in rent. Martin then allegedly created a fake rental agreement between Precision and a fictitious company Martin controlled called Delta Land Holdings, LLC, whereby Precision paid Delta over $9,000 per month in “rent” for same the premises in Scotia. Martin then allegedly systematically withdrew the fake rent payments each month, for a total of over $150,000.
Martin is charged in Schenectady County with stealing over $150,000 from Precision through the fake rental scam, as well as stealing over $200,000 from Allegheny Casualty by falsely claiming on behalf of Precision that it was a subcontractor of Eastern and was never paid for work by Eastern on a construction project Eastern had secured through the New York State Office of General Services. In fact, as alleged in the indictment, Precision was not a subcontractor on that project, but was instead operated by Eastern.
According to prosecutors, Martin spent over $1 million dollars of the monies allegedly obtained through the defendants’ scheme to fund a lavish lifestyle, including the use of corporate credit cards to purchase high-end Harley-Davidson motorcycles, snowmobiles, trailers, jet skis, and off-road vehicles, payments toward a $170,000 R.V., and over $150,000 in other personal expenditures. Martin paid for similar purchases for his girlfriend, and used corporate funds to take lavish trips to the Dominican Republic, Paradise Island in the Bahamas, the Chatham Bars Inn, and the Whiteface Lodge.
The Albany indictment charges Martin and Henzel jointly with one count of Failure to Pay Prevailing Rate of Wage or Supplements (a class D felony), three counts of Identity Theft in the First Degree (a class D felony), three counts of Offering a False Instrument for Filing in the First Degree (a class E felony), and one count of Scheme to Defraud in the First Degree (a class E felony). The Schenectady indictment charges Martin with two counts of Grand Larceny in the Second Degree (a class C felony) and one count of Insurance Fraud in the Second Degree (a class C felony).
Henzel was arraigned on the Albany County indictment before Hon. Peter A. Lynch on July 13, 2018. He was released on $10,000 bond. Martin was arraigned on the Schenectady County indictment before Hon. Matthew Sypniewski on July 16, 2018. Bail was set at $100,000 cash or $200,000 bond, and Martin was remanded to custody in lieu thereof. Martin was arraigned on the Albany County indictment before Hon. Peter A. Lynch on July 17, 2017. Bail was set at $200,000 cash or bond and Martin was remanded in lieu thereof.
The charges are merely accusations and the defendants are presumed innocent unless and until proven guilty in a court of law.
The Office of the Attorney General thanks the following agencies for their assistance on the case: the New York State Office of the Inspector General, the New York State Department of Labor, the New York State Office of the Comptroller, the New York State Office of General Services, the Dormitory Authority of the State of New York, the New York State Division of Minority and Women’s Business Development, the New York State Tax Department’s Criminal Investigations Division, the New York State Police, the United States Bankruptcy Trustee for the Northern District of New York, and the Schenectady County District Attorney’s Office.
The criminal cases against Martin and Henzel are being handled by Special Counsel Benjamin S. Clark of the Attorney General's Criminal Enforcement and Financial Crimes Bureau, with the assistance of Legal Support Analysts Kira Russom and Joseph Conniff. The Criminal Enforcement and Financial Crimes Bureau is led by Bureau Chief Stephanie Swenton and Deputy Bureau Chief Joseph D’Arrigo. The Division of Criminal Justice is led by Executive Deputy Attorney General Margaret Garnett.
The Attorney General’s investigation was conducted by Investigator Mark Terra, under the supervision of Deputy Chief Antoine Karam. The Investigations Division is led by Chief Investigator Dominick Zarrella. Audit work was performed by Principal Forensic Auditor Jason Blair. The Forensic Audit Section is led by Chief Auditor Edward J. Keegan and Deputy Chief Sandy Bizzarro.