Siemens U.S. Subsidiary, Employees and Minority Partners Indicted in Alleged Fraud Scheme
CHICAGO, Jan. 20 /U.S. Newswire/ -- Siemens Medical Solutions USA Inc., two of its employees, and two partners in a joint venture were indicted on federal fraud charges relating to a $49 million radiology equipment contract that required minority business participation and was awarded during the construction of Cook County's new Stroger Hospital, federal authorities announced today. The company allegedly formed a sham joint venture with a minority business enterprise (MBE) to successfully bid on the public contract in 2000, and its employees allegedly schemed to cover up the initial fraud when the contract was challenged by a competitor in a federal court lawsuit. The sham joint venture partners, Faustech Industries, Inc., a local consulting firm that was certified by Cook County as a minority-owned business, and its sole owner, Faust Villazan, were re-indicted for allegedly paying a $20,000 bribe to a county contract compliance official a month after the contract to provide and service the hospital's radiology equipment was awarded to Siemens-Faustech.
Between May 2000 and November 2001, the indictment alleges that the defendants engaged in a fraud scheme by creating a sham joint venture in which they represented to Cook County that Villazan, through Faustech, was a true joint venture partner with Siemens Medical Solutions (SMS), and that it shared in the risks and rewards in proportion with its declared 30 percent ownership in the joint venture. The defendants allegedly knew, however, that the Siemens-Faustech relationship was a facade that did not comply with the county's bid requirements because Faustech and Villazan's risk in the venture was zero and Villazan's compensation was a flat fee of $500,000, which was not tied to the venture's loss or profit.
Five defendants -- two companies and three individuals -- were charged in a five-count superseding indictment that was returned by a federal grand jury late yesterday, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.
"Sham joint ventures deprive legitimate minority businesses of a level playing field in seeking contracts," Mr. Fitzgerald said. "When individuals or companies compete for public contracts they must be honest about describing whether the minority participation is real, and not enter into secret side agreements. If instead they commit fraud, they will face criminal prosecution. In addition, corporations and their employees, including their attorneys - like everyone else - have a duty to tell the truth when they speak to investigators or testify under oath. No one has the right to withhold documents from the Court or to lie about the facts to investigators or, worse yet, under oath in Court," he added.
Mr. Grant noted that the indictment brings to eight the number of defendants who have been indicted in recent months in connection with alleged bribery and procurement fraud in Cook County's hospital system. "We are determined to ensure that public contracts, especially those in the lucrative healthcare industry, are obtained based on merit and are not tainted by corruption. The investigation is continuing," he said.
The defendants and the charges are as follows:
Siemens Medical Solutions USA, Inc., formerly known as Siemens Medical Systems - one count of wire fraud and one count of mail fraud. Based in Malvern, Pa., SMS is the wholly-owned U.S. medical supply subsidiary of Siemens AG, which is publicly-traded and headquartered in Erlangen, Germany. SMS, which has a field office in suburban Hoffman Estates and is one of the world's largest suppliers to the healthcare industry, owned 70 percent of DD Industries, LLC, (also known as Siemens/Faustech), the joint venture entity that was formed to bid on and was awarded the Stroger Hospital radiology contract;
Faust Villazan, -- one count each of wire fraud, mail fraud and bribery. Villazan, 44, of Western Springs, was the chief executive officer and sole owner of Faustech Industries;
Faustech Industries, Inc. -- one count each of wire fraud, mail fraud and bribery. Faustech, then located in suburban River Grove, was certified by Cook County as a minority business enterprise. On paper, Faustech owned 30 percent of DD Industries;
Daniel Desmond -- one count each of wire fraud, mail fraud and perjury. Desmond, 43, of Arlington Heights, was the district business administrator of the SMS office in Hoffman Estates and the president of DD Industries, the bidding entity that was named after him; and
Ellen Roth -- one count each of wire fraud, mail fraud and making false statements to the FBI. Roth, 61, of Ridgewood, N.J., was an in-house attorney for Siemens USA. She was the principal corporate decision-maker responsible for creating DD Industries and drafting certain portions of the radiology bid package, including a sworn statement submitted by DD Industries attesting to the Siemens-Faustech joint venture arrangement.
All five defendants will be arraigned at a later date in U.S. District Court in Chicago. A status hearing previously was set for Jan. 25 on the bribery charges that were filed last September against Villazan and Faustech. The case is assigned to U.S. District Judge John Darrah.
On May 15, 2000, Cook County officials announced they were seeking bids for a complete turnkey package -- known as Bid Package No. 3 -- for radiology equipment and a Picture Archiving and Communication System for a new hospital on the westside of Chicago. DD Industries was among three entities that bid on the contract. Under a county ordinance in place at the time, bidders were required to set aside at least 30 percent of such contracts for the participation of certified minority businesses. If the MBE requirement was to be satisfied by a joint venture, the county required that MBE must share in the ownership, control, management responsibilities, risks ands profits in proportion with the MBE ownership percentage, that the MBE partner be responsible for clearly defined portion of the work using its own workforce and equipment, and the MBE must perform work that it has the skill and expertise to perform and which is clearly designated in a joint venture agreement.
On June 20, 2000, DD Industries submitted its bid, including a sworn statement attesting that: SMS would share profit and loss in proportion with SMS' 70 percent ownership and 30 percent for Faustech; there were no other ownership interests or agreements that restricted ownership or control; and there were no other agreements other than the joint venture agreement between the partners. The Cook County Board found DD Industries to be the lowest qualified bidder and formally awarded the contract on August 9, 2000.
On October 24, 2000, GE Medical Systems filed a civil lawsuit against Cook County in federal court in Chicago seeking to block the radiology contract based on claims it was fraudulently obtained by DD Industries. An evidentiary hearing was held before U.S. Magistrate Judge Geraldine Soat Brown in January 2001. GE Co. v. County of Cook, 00 C 6587 (N.D. Il.) Ultimately, the parties settled the lawsuit and almost all of the Stroger Hospital radiology contract was transferred to GE.
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