HARRISBURG - When they are sentenced, the two top executives of the former Schuylkill Products Inc. will be ordered to pay millions of dollars in restitution, but the exact amounts are uncertain, even after a five-hour hearing Wednesday in federal court.
Joseph W. Nagle, Deerfield Beach, Fla., and Ernest G. Fink Jr., Orwigsburg, already are awaiting sentencing for their parts in the largest fraud ever perpetrated under the federal Disadvantaged Business Enterprise program.
In Wednesday's hearing before Senior U.S. District Judge Sylvia H. Rambo, prosecutors and lawyers for Nagle and Fink argued whether the two defendants should be liable for more than $135 million, the value of government contracts Schuylkill Products improperly received, or a far smaller amount, potentially less than $1 million, representing actual losses sustained by actual disadvantaged businesses.
At the end of the hearing, Rambo said she would decide the amounts owed by Nagle, Schuylkill Products' former president and chief executive officer, and Fink, the company's former vice president and chief operating officer, after their lawyers submitted exact proposed figures within 10 days, and that she would schedule the defendants' sentencings shortly after.
Fink pleaded guilty in 2010 to tax fraud, while Nagle was convicted on April 5, 2012, of 26 charges, including wire fraud, mail fraud, engaging in unlawful monetary transactions and conspiracy, resulting from his role in the scheme.
Prosecutors charged Nagle, Fink and several other Schuylkill Products executives with using Marikina Engineers and Construction Corp., West Haven, Conn., as a front under the DBE program from 1993 until 2008 to funnel work to the Cressona company and its wholly owned subsidiary, CDS Engineers Inc.
Romeo P. Cruz, a Filipino, owned Marikina, enabling it to be classified as a DBE under federal law and making it eligible to obtain certain construction contracts, according to prosecutors. That, in turn, enabled Schuylkill Products and its subsidiary, CDS Engineers Inc., to use Marikina as a front that let them do the actual construction work, prosecutors said.
Schuylkill Products manufactured concrete bridge beams and other suppliers' products, while CDS Engineers installed them.
Schuylkill Products and CDS Engineers personnel used Marikina passwords, signature stamps, business cards, letterheads and email addresses and covered their companies' logos on trucks with Marikina magnetic placards and decals in efforts to conceal the fraud, prosecutors alleged.
Northeast Prestressed Products LLC bought Schuylkill Products in April 2009 for $9.25 million and continues to operate from the same site on Route 901 in Cressona.
On Wednesday, Assistant U.S. Attorney Bruce D. Brandler argued the amount of the contracts accurately reflects the government's losses.
"You don't deduct losses. You don't deduct expenses. You go by the face value of the contract," Brandler told Rambo.
Other federal courts have recognized that monetary losses alone do not provide adequate restitution in cases involving disadvantaged businesses, Brandler said.
"The government is interested in who does the work," he said.
Ellen C. Brotman, Philadelphia, Fink's lawyer, argued that the actual monetary losses of disadvantaged businesses that did not get contracts, as reflected in the net profits of CDS Engineers, should be adequate restitution.
"Everyone knows Schuylkill Products is supplying the beams. Nobody is being defrauded on this issue," she said.
Furthermore, Brotman said, the amount should recognize a company's expenses and losses.
"Harm always has to be a net (amount)," she said. "The pecuniary harm is the lost profit. This prosecution is deterrence."
Michael A. Schwartz, Philadelphia, Nagle's lawyer, agreed with Brotman, saying the fate of Nagle and Fink alone is a deterrent to such behavior.
"These defendants are facing jail sentences," he said. "This is not a slap on the wrist."
Before the lawyers' arguments, Brandler had presented evidence to support the government calculations of the losses.
Michael Purcell, an agent with the U.S. Department of Transportation's inspector general's office in King of Prussia, said the investigation showed Marikina received 339 contracts, 336 from the state Department of Transportation and three from the Southeastern Pennsylvania Transportation Authority, with a total face value of $135.8 million.
"To me, the $135 million was the number that mattered," he said when questioned about other methods of showing losses.
Purcell said executives from four other disadvantaged businesses in Pennsylvania said their companies were capable of doing the work under the contracts in question.
Under cross-examination, Purcell said there were no complaints about the work done under the contracts, and that no disadvantaged businesses actually supplied concrete beams from 1993 to 2008.
"The supplier doesn't have to be a DBE," Purcell said. "The installer has to be a DBE."
Purcell also said he did not compute the net profits of CDS.
The only other witness, Robert J. Barrett Jr., Northeast Prestressed Products' chief financial officer and a former Schuylkill Products employee, testified he used actual financial statements in computing Schuylkill Products' and CDS Engineers' profit and loss figures for 2002 and later.
"I was unable to obtain anything prior to this," he said.
Barrett said many factors entered into the companies' profit levels and that interest payments resulted from financing, which is common in businesses for funding day-to-day expenses.
Cruz and two former Schuylkill Products executives, Dennis F. Campbell and Timothy G. Hubler, already pleaded guilty to their roles in the scheme, testified against Nagle and are serving federal prison terms.