Three Guilty Pleas in NYC's CityTime Payroll System Fraud Case

On Wednesday, Manhattan U.S. Attorney Preet Bharara announced that three defendants in its New York City's CityTime payroll system fraud case had decided to change their pleas to guilty. The three women—all related to Mark Mazer, a former city consultant who is charged with being one of the four central figures in the fraud—are: Svetlana Mazer, his wife; Larisa Medzon, his mother; and Anna Makovetskaya, a cousin.

As a quick recap, the CityTime project involved the development of a secure, Web-based time and attendance system for 80 mayoral and other city agencies. The original estimated project cost was some US $63 million, but CityTime ended up "costing" the Big Apple $720 million by the time it became fully operational in 2011. SAIC was the CityTime prime contractor, but it had shopped out much of the work (some $400 million worth) to Technodyne, LLC, a company owned by Padma and Reddy Allen.

An audit in early 2010 by New York City Comptroller Jon Liuthe first formal review of the project in 12 years, despite warnings as far back as 2003 that something wasn’t right with the management of the project —uncovered numerous contracting irregularities. In late 2010, federal charges were brought against SAIC employees and subcontractors involved in CityTime. At the time, the government believed the amount of fraud involved totaled about $80 million.

However, in 2011, Bharara announced that “...virtually all of the $600 million that the City paid SAIC for CityTime was tainted, directly or indirectly, by fraud.” More defendants and criminal charges were added (pdf) to the list of criminal complaints.  Bharara also announced in the complaint that SAIC’s Chief Systems Engineer on the project, Carl Bell, pleaded guilty to taking $5 million in kickbacks on the project.

In 2012, SAIC agreed as part of a deferred prosecution agreement to “forfeit a total of $500 392 977 to the Department of Justice, and forgive more than $40 million still owed by the City to SAIC in connection with the CityTime project.” SAIC also agreed to retain an independent monitor to ensure the company and its personnel followed its stated compliance and ethics policies. However, as I noted at the time, SAIC tried to put a pretty positive spin on its having to shell out $500 million to avoid prosecution for its part in the fraud. The company made out that it had been “victimized” and that it had, in fact, delivered a “world class workforce management system for New York City.”

Getting back to the three new CityTime criminals, not only did they agree to plead guilty, but they agreed to forfeit $31 million in cash and property. Reuters reported that each of the three were originally charged with “a count of money laundering conspiracy in connection with helping Mark Mazer conceal $25 million in kickbacks he received.” However, they agreed to plead guilty to lesser charges of obstructing justice by making false statements to a bank, and to serve sentences ranging from 10 to 30 months in jail. They could have faced 5 to 20 years in prison if they had proceeded to trial and been found guilty on the original charge.

Reuters also states that, “Despite so many members of his family pleading guilty, Mark Mazer is not in plea talks and continues to plan to fight the charges, said Gerald Shargel, his lawyer.”

“‘The guilty pleas have no impact whatsoever on our case,’ Shargel said. ‘Our position has been and remains the City of New York was not defrauded. The City of New York got exactly what it paid for.’“

Hmmm... Sounds just like what SAIC—and Mayor Michael Bloomberg—have claimed. In fact, observers are betting that the defense strategy will be something to the effect of, "Since there is a working, “world class” CityTime payroll system, no fraud was committed. Costly, maybe; but fraudulent, definitely not.

Interestingly, a story in yesterday’s New York Times indicates that the three women still believe Mark Mazer is innocent as well.  

His guilt or innocence will be determined beginning 30 September, when he and Gerald Denault (pdf), SAIC’s Program Manager for the CityTime project, go to trial. Technodyne owners Padma and Reddy Allen, the other main defendants accused in the fraud scheme, fled back to their native India in early 2011 with at least $39 million. Their whereabouts are unknown, except maybe to the NSA.

 

Photo: Charles O’Rear/Corbis

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