2nd Federal Elections Commission General Counsel's Report on Corruption of Our Democracy by PBSJ

FEDERAL ELECTION COMMISSION
999 E Street, N.W.
Washington, D.C. 20463

FIRST GENERAL COUNSEL’S REPORT

MUR: 5903
DATE COMPLAINT FILED: March 1, 2007
DATE OF NOTIFICATION: March 7, 2007
LAST RESPONSE RECEIVED: March 27, 2007
DATE ACTIVATED: May 1, 2007
Exemption 2
EXPIRATION OF S.O.L.: March 1, 2010

COMPLAINANT: Maria M. Garcia

RESPONDENTS: PBS&J Corporation
William S. DeLoach
Richard A. Wickett
H. Michael Dye
Maria M. Garcia
Rosario Licata
Shannan Ighodaro
Sybil Thomas
Lourdes Fernandez
Reinaldo Fernandez
Ana Quinones
Victor Quinones
James Breland
Larry Boatman

RELEVANT STATUTES 2 U.S.C. § 441b(a)
AND REGULATIONS: 2 U.S.C. § 441f
11 C.F.R. § 100.22
11 C.F.R. § 100.26

INTERNAL REPORTS CHECKED: Disclosure Reports

FEDERAL AGENCIES CHECKED: U.S. Department of Justice

RELATED MATTER: MUR 5822 (William S. DeLoach)
I. INTRODUCTION
This matter originated with a complaint filed by Maria M. Garcia alleging that PBS&J Corporation (“PBS&J”), violated the Federal Election Campaign Act of 1971, as amended (the “Act”) by reimbursing the campaign contributions of its employees and their family members. The Complainant alleges that PBS&J, through a succession of former senior executive officers and accounting personnel, including the complainant, “knowingly” made prohibited corporate contributions to various political committees from the 1990s through the 2002 election by reimbursing personal contributions and the contributions of others in violation of 2 U.S.C.
§§ 441b(a) and 441f.
In its response, PBS&J claims that it has suffered greatly due to a multi-million dollar embezzlement scheme perpetrated by several company employees, and that it uncovered the reimbursed contributions as part of the investigation into the greater fraud. See PBS&J Response, at 1-4. PBS&J cites its extraordinary cooperation with the criminal investigation of this matter, as well as the fact that the statutes of limitations have expired for all but one of the potential violations, as reasons the Commission should find no reason to believe it violated the Act. See id. at 4-6. In a separate response, William DeLoach, one of the former employees implicated in the embezzlement scheme, cites his criminal plea and the extraordinary level of cooperation and restitution provided in the criminal proceedings as the basis for not imposing any further sanctions in this matter. See generally DeLoach Response.
As more fully set forth below, available information indicates that PBS&J engaged in
activities that constitute corporate reimbursement of contributions. Although the majority of the
activity occurred beyond the generally applicable statutes of limitations, for the reasons discussed infra, we believe this is an appropriate case to argue that the statutes of limitations tolls based on the doctrine of fraudulent concealment. We therefore recommend the Commission find reason to believe that PBS&J knowingly and willfully violated 2 U.S.C. §§ 441b and 441f. We also recommend the Commission find reason to believe that Richard A. Wickett, H. Michael Dye, Maria M. Garcia, and Rosario Licata, as officers and agents of PBS&J, knowingly and willfully violated 2 U.S.C. §§ 441b and 441f by consenting to PBS&J’s reimbursement of campaign contributions, and that William DeLoach knowingly and willfully violated 2 U.S.C.
§ 441b. Finally, we recommend the Commission find reason to believe that Shannan Ighodaro, Sybil Thomas, Lourdes Fernandez, Reinaldo Fernandez, Ana Quinones, Victor Quinones, James Breland, and Larry Boatman violated 2 U.S.C. § 441f by permitting their names to be used to effect contributions in the name of another.
II. FACTUAL BACKGROUND
PBS&J is a Florida-based government contractor that provides a range of services related to transportation, environmental, construction management, and civil engineering. In late March 2005, a PBS&J auditor reported to the Audit Committee that the company was the victim of embezzlement. See Sentencing Memorandum, U.S. v. William DeLoach, Crim. No. 06-CR-20583, at 2 (S.D. Fla. Feb. 9, 2007) (Attachment 1). Shortly thereafter, William S. DeLoach, the Chief Financial Officer, identified himself as one of the participants in the embezzlement scheme. See id. Mr. DeLoach explained to the company how he, along with Maria Garcia, PBS&J’s Business Information Systems Manager, and Rosario Licata, PBS&J’s Accounts Payable Manager, conspired to embezzle more than $35 million by issuing company checks to themselves, diverting money from the company healthcare benefit fund into secret bank accounts, charging personal expenses on the company credit card, and concealing the theft of these funds by altering and fabricating the company’s books. See PBS&J Response, at 2-3. In connection with this embezzlement, Mr. DeLoach, Ms. Garcia and Ms. Licata pled guilty to a felony count of conspiracy to commit mail fraud on September 28, 2006. Mr. DeLoach also pled guilty to a felony violation of 2 U.S.C. § 441f, admitting that he knowingly and willfully made $11,000 in illegal contributions to the Martinez for Senate Committee through six straw donors on October 4 and 5, 2004. See Criminal Information, U.S. v. DeLoach et al., 06-CR-20583 (S.D. Fla. Sept. 15, 2006) (Attachment 2). Based on this information, in MUR 5822, the Commission on September 25, 2006, found reason to believe that Mr. DeLoach knowingly and willfully violated 2 U.S.C. § 441f.
In this MUR, Ms. Garcia’s complaint alleges that the 2004 contributions to Martinez for Senate are the proverbial tip of the iceberg. Ms. Garcia claims that PBS&J, through various corporate officers and employees, engaged in a “pattern of decade(s) long illegal campaign violations, including reimbursement of respondent’s employees, friends and spouses for political contributions.” Complaint, at 2. In addition to Mr. DeLoach, Ms. Garcia alleges that Ms. Licata and Richard Wickett, former Chief Financial Officer and Chairman of the Board of Directors, were active participants in the contribution reimbursement scheme. See id. at 3-8. Ms. Garcia alleges that she was instructed by senior managers to reimburse employee campaign contributions by preparing false documents with fictitious descriptions for the disbursements. See id. at 4. Although short on specifics, Ms. Garcia states that in March 2002, PBS&J

reimbursed a $2,000 contribution made by James Breland, a PBS&J executive, to Sen. Max Cleland’s reelection campaign. See id. at 6.
Although the information in the complaint does not support Ms. Garcia’s broad allegation of a “decade(s) long” scheme, additional criminal filings involving the same actors indicate the mechanics and extent of the potential violations. Specifically, on March 8, 2007, criminal charges alleging, among other things, conspiracy to commit mail fraud and making false statements stemming from a corporate reimbursement scheme that began in 1990, were filed against Mr. Wickett and H. Michael Dye, a former PBS&J Chief Executive Officer. See Criminal Information, U.S. v. Dye, 07-CR-20144 (S.D. Fla. Mar. 8, 2007) (Attachment 3); Indictment, U.S. v. Wickett, 07-CR-20145 (S.D. Fla. Mar. 8, 2007) (Attachment 4). These documents allege that in 1990, Mr. Wickett and Mr. Dye instructed their respective secretaries to open bank accounts entitled “PBS&J Out of State PAC,” but not to include the accounts in PBS&J’s financial records. See Indictment, U.S. v. Wickett, 07-CR-20145, at 5 (S.D. Fla. Mar. 8, 2007) (Attachment 4). Mr. Wickett and Mr. Dye then allegedly instructed their secretaries to have any reference to PBS&J removed from the checks issued from these accounts. See id. Thereafter, Mr. Wickett and Mr. Dye would approve corporate disbursements to these accounts, and then use the funds to make contributions to principal campaign committees. See id. at 6-8. In other instances, Mr. Wickett and Mr. Dye would make personal campaign contributions and then authorize PBS&J to make reimbursements through the “Out of State PAC” bank accounts. See id. at 8.
By 2000, the scope of the corporate scheme grew to encompass additional PBS&J employees. According to the indictment, in 2000 and 2001, Mr. Wickett and Mr. Dye arranged for certain PBS&J officers and directors to receive bonuses, but informed them that $10,000 of each bonus had to go to PBS&J’s political action committees. See id. at 8-9. In 2002, Mr. Wickett approached PBS&J Regional Sales Managers and District Directors and asked them to make campaign contributions to specific candidates in amounts ranging from $500 to $2,000. Mr. Wickett then caused PBS&J to reimburse these contributions with notations such as “mileage reimbursement” and “business development expense.” See id. at 9-10. Although the overall scope of the violation is not clear at this time, the transactions detailed in the indictment involve over $20,000 in corporate and reimbursed contributions. See id. at 5-10.
Finally, although it is unclear when Mr. DeLoach, an “up and comer in the company,” joined the contribution reimbursement scheme, he began participating in the broader embezzlement scheme in 1999. See Cynthia Barrett, Culture of Trust, http://www.floridatrend.com (published Mar. 1, 2007). By 2003, Mr. DeLoach, along with Ms. Garcia and Ms. Licata, established a separate “PBS&J PAC” account unrelated to the company and began diverting company funds to this account. See Criminal Information, U.S. v. DeLoach et al., 06-CR-20583 (S.D. Fla. Sept. 15, 2006)) (Attachment 2). Given that Mr. DeLoach has pled guilty to reimbursing $11,000 in campaign contributions in 2004, see id., it is likely that the funds to make the reimbursement came from corporate funds diverted to a personal account.
All told, currently available information suggests that between 1990 and 2004, PBS&J used corporate funds to reimburse over $30,000 in campaign contributions. This amount does not include any contributions made by PBS&J officers or directors as a result of the 2000 and
2001 bonuses or the approximately $44,000 in contributions made to federal candidates by Mr. DeLoach, Ms. Garcia, or Ms. Licata that may also have been reimbursed through the scheme.
PBS&J’s response, which notes the charges filed against Mr. Wickett and Mr. Dye, does not address any of the alleged corporate reimbursements that occurred from 1991 through 2001. Instead, the response claims that PBS&J was unaware of the bank accounts set up by Mr. Wickett and Mr. Dye, and that these accounts were not meant to “influence politics, but rather to launder money for the three embezzlers.” PBS&J Response, at 2. PBS&J does, however, admit that corporate funds were used to reimburse two contributions made in 2002 and 2003, totaling $2,500. See id. at 6. Similarly, Mr. DeLoach’s response does not address the allegations in the complaint, but focuses on his decision to admit his involvement in the broader embezzlement scheme, the level of cooperation he has given both PBS&J auditors and the criminal authorities during the course of their investigations, and the level of restitution made. See generally DeLoach Response.
III. LEGAL ANALYSIS
A. STATUTE OF LIMITATIONS
Despite the significant information available suggesting PBS&J and certain executives and employees may have violated the Act, the complainant and PBS&J raise the statute of limitations as a potential defense. See Complaint, at 2 ; PBS&J Response, at 5. While it is true that all of the activity in the complaint occurred more than five years ago, we believe the doctrine of fraudulent concealment tolled the statute of limitations until April 1, 2005, the approximate date on which PBS&J reported the findings of its internal audit to federal authorities.
In order to toll the statute of limitations based on the doctrine of fraudulent concealment, a plaintiff must prove: 1) successful concealment of the cause of action; 2) fraudulent conduct by the defendant resulting in concealment of the operative facts; and 3) reasonable diligence on the part of the plaintiff to discover the cause of action. See Jones v. Childers, 18 F.3d 899, 909 (11th Cir. 1994) (internal citations omitted); Fitzgerald v. Seamans, 553 F.2d 220, 228 (D.C. Cir. 1977).
In the only case to examine the application of the doctrine of fraudulent concealment to a suit by the Commission alleging a Section 441f scheme, the Ninth Circuit refused to toll the statute of limitations on the theory that the Act's reporting requirements were sufficient to give the Commission notice of facts that, if they were investigated, would have led to timely discovery of the potential cause of action. See FEC v. Williams (“Williams”), 104 F.3d 237, 241 (9th Cir. 1996), cert. denied, 522 U.S. 1015 (1997). In Williams, the defendant participated in a promotion whereby individuals who contributed $1,000 to a campaign committee would receive a ticket to the Super Bowl. See id. at 239. Mr. Williams advanced twenty-two friends and employees $1,000 each to make the required campaign contribution, but, rather than distribute the Super Bowl tickets, resold the tickets to others to recoup the funds used to reimburse campaign contributions. See id. The court reasoned that, based on the false information regarding the conduit contributor contained in the recipient committee’s quarterly reports, the FEC was automatically on notice of the potential violation. See id.
We believe that Williams was wrongly decided and the court placed too high a burden on the Commission, or, at the very least, this matter is distinguishable. As stated by the dissenting judge in Williams:
The majority in effect imposes a duty on the FEC to investigate every report, even though nothing on its face indicates illegal activity, or else risk being barred by
the statute of limitations when a violation comes to light. Here, the very information contained in the report was used to lull the FEC into believing that no single contributor gave more than the $1,000 limit.

104 F.3d at 242 (Fletcher, J., dissenting). Because the defendant engaged in fraudulent conduct that initially resulted in concealment of the operative facts, Judge Fletcher argued that the statute of limitation should not have begun to run until the date the Commission received notice of a potential violation, which in that matter was the date the complaint was filed. See id. We believe that this analysis is correct, Exemption 5 Exemption 5 Exemption 5
Alternatively, PBS&J’s attempts to hide its campaign contributions could be viewed as a distinguishing factor from Williams such that the statute of limitations should be tolled. While the plaintiff in Williams used the lure of Super Bowl tickets to induce friends and employees to make a $1,000 campaign contribution, which he reimbursed, PBS&J’s alleged conduct suggest a much more extensive scheme that, even with the reporting of the contributor information, the FEC would most likely not have been able to ascertain the true contributor. For example, when PBS&J employees were reimbursed for campaign contributions, some payments were masked with notations such as “mileage reimbursement” or “business development.” See Criminal Information, U.S. v. H. Michael Dye, Crim. No. 07-20144, at 8-9 (S.D. Fla. Mar. 8, 2007) (Attachment 3). Thus, even if the FEC inquired as to the legitimacy of these contributions, PBS&J’s records would have suggested nothing inappropriate. Therefore, even under the due
diligence standard set in Williams, because of the Respondents’ fraudulent conduct in disguising the campaign contributions, the Commission may not have been able to ascertain the nature of the violations even after an investigation. We therefore believe the applicable statute of limitations should expire for all violations on March 31, 2010, or approximately five years after criminal authorities were apprised of the activity.
B. CORPORATE CONTRIBUTIONS
Corporations are prohibited from using corporate resources to engage in campaign fundraising activities. See 2 U.S.C. § 441b(a). A corporation can only act through its directors, officers, and agents, and may be held liable for the acts of an employee within the scope of the employment and that benefit the corporate employer. See United States v. Wallach, 935 F.2d 445, 462 (2d Cir. 1991); 1 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 30 (Supp. 2004). See, e.g., Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1306 (7th Cir. 1987). In addition, section 441b(a) prohibits any officer or director of any corporation from consenting to any expenditure or contribution by the corporation. The Act also provides that no person shall make a contribution in the name of another person or knowingly permit their name to be used to effect such a contribution. 2 U.S.C. § 441f.
1. PBS&J
Available information supports the conclusion that Mr. DeLoach, Mr. Dye, and Mr. Wickett’s activities were part of a concerted effort by PBS&J to engage in campaign fundraising activities. By creating a separate bank account and then funneling corporate funds into the account, PBS&J was able to make thousands of dollars in campaign contributions over a thirteen year period. In addition, as the scheme continued, the apparent scope broadened to include additional officers and members of the board of directors. News accounts and publicly available
information suggest that Mr. DeLoach, an “up and comer in the company,” joined the contribution reimbursement scheme sometime between 1999 and 2004. See Cynthia Barrett, Culture of Trust, http://www.floridatrend.com (published Mar. 1, 2007); Criminal Information, U.S. v. DeLoach et al., 06-CR-20583 (S.D. Fla. Sept. 15, 2006) (Attachment 2). In addition, the scheme broadened again in 2000 and 2001 to encompass selected officers and board members who were told to reserve a part of their bonus for political activity. See Indictment, U.S. v. Wickett, 07-CR-20145, at 5, 8-9 (S.D. Fla. Mar. 8, 2007) (Attachment 4). The number of high-level PBS&J employees and directors indicates a level of corporate malfeasance such that it would be impossible to argue that the reimbursement scheme was simply the act of a few rogue employees.
The criminal proceedings against PBS&J’s former officers and employees suggest that PBS&J knowingly and willfully violated the Act. The knowing and willful standard requires knowledge that one is violating the law. See Federal Election Commission v. John A. Dramesi for Congress Committee, 640 F. Supp. 985, 987 (D. N.J. 1986); see also Federal Prosecution of Election Offenses (6th Ed., 1995). An inference of a knowing and willful act may be drawn “from the defendant’s elaborate scheme for disguising” his or her actions. United States v. Hopkins, 916 F.2d 207, 214-15 (5th Cir. 1990). Not only did PBS&J corporate executives establish separate bank accounts to make political contributions, but they disguised reimbursements to employees by categorizing them as “mileage reimbursements” and “business development expenses.” See Indictment, U.S. v. Wickett, 07-CR-20145, at 5, 9-10 (S.D. Fla. Mar. 8, 2007) (Attachment 4). We therefore recommend the Commission find reason to believe the PBS&J knowingly and willfully violated 2 U.S.C. §§ 441b(a) and 441f.


2. CORPORATE EMPLOYEES
As discussed in the preceding section, the information currently available suggests that the reimbursement of campaign contributions with PBS&J funds was corporate activity. From the very beginning, the reimbursement scheme involved Mr. Dye, who in 1996 became the chief executive officer, and Mr. Wickett, who became Chief Financial Officer in 1993. Although initially it may have been possible to characterize the reimbursements as the actions of “rogue” employees acting with the assistance of lower level employees, by the time the activities expanded to include Mr. DeLoach, who ultimately became Chief Financial Officer, and further expanded to additional officers and board members who were granted bonuses with the condition that a portion of the bonus was to be used to make campaign contributions, this potential description was no longer applicable. See Indictment, U.S. v. Wickett, 07-CR-20145, at 9 (S.D. Fla. Mar. 8, 2007) (Attachment 4).
As was the case with PBS&J, currently available information indicates that these violations by the corporate employees were knowing and wilfull. PBS&J’s employees and executives used separate bank accounts, fraudulent reimbursements, and annual bonuses to hide the fact that PBS&J was making campaign contributions. See id. at 5-9. We therefore recommend that the Commission find reason to believe that Maria Garcia and Richard Wickett knowingly and willfully violated 2 U.S.C. §§ 441b(a) and 441f, and that William DeLoach knowingly and willfully violated 2 U.S.C. § 441b by consenting to the use of corporate resources to make campaign contributions. We also recommend that the Commission find reason to believe that Rosario Licata and H. Michael Dye knowingly and willfully violated 2 U.S.C.
§§ 441b(a) and 441f by consenting to the use of corporate resources to make campaign contributions.

3. CONDUIT CONTRIBUTORS
Based on currently available information, it appears that several PBS&J employees and their family members contributed to federal campaign committees with an assurance that PBS&J would reimburse their contributions, which it did, in some instances, by making reimbursements disguised as “mileage reimbursement” or “business development.” Consequently, these individuals knowingly permitted their names to be used to effect contributions in the name of another in violation of 2 U.S.C. § 441f. Because the employees’ job descriptions suggest they exercised significant managerial authority, and therefore were not arguably susceptible to pressure to participate in the reimbursement activity by their superiors, reason to believe findings are warranted. See MUR 5765 (Crop Production Services, Inc.) (finding reason to believe high-level managers violated section 441f by receiving reimbursements for contributions). We also recommend the Commission make reason to believe findings as to the spouses of these employees because, as with the employees, they were not arguably susceptible to pressure to participate in the reimbursement scheme. See MUR 5871 (Noe) (finding reason to believe as to spouses of primary conduits).
Accordingly, we recommend that the Commission find reason to believe that Shannan Ighodaro, Sybil Thomas, Lourdes Fernandez, Reinaldo Fernandez, Ana Quinones, Victor Quinones, James Breland, and Larry Boatman violated 2 U.S.C. § 441f by permitting their names to be used to effect contributions in the name of another. To the extent we are able to determine additional conduit contributors during the course of our investigation, we will make recommendations to the Commission as to these individuals based on their knowledge of the contribution reimbursement scheme and perceived sophistication with regard to campaign finance law. See MUR 5849 (Bank of America) (Commission did not make reason to believe findings as to conduit contributors who were victims of corporate officer who requested employees make campaign contributions).
IV. PROPOSED INVESTIGATION
Given the similarities between this matter and MUR 5822, we recommend the Commission merge MUR 5822 into MUR 5903 in order to enable us to conduct a single investigation regarding all allegations concerning violations of sections 441b(a) and 441f by PBS&J and its current and former employees. We recommend authorizing the use of interrogatories and subpoenas for the production of documents and testimony, if necessary, in order to determine: (1) the role of PBS&J and its executives in the apparent reimbursement scheme; (2) the extent of the contribution reimbursement scheme in terms of the number and amount of reimbursed contributions; (3) what, if anything, the recipient committees knew about the reimbursed contributions; (4) how the embezzlement and reimbursement schemes became known; (5) the level of Respondents’ cooperation with DOJ and the size of any criminal penalty; and (6) the identity and level of culpability of all conduit contributors. Exemption 7(D) Exemption 7(D) Exemption 7(D) Exemption 7(D) Nonetheless, we believe we can conduct a focused investigation by seeking information from PBS&J, Mr. DeLoach, Ms. Garcia, Ms. Licata, and other individuals, as necessary.
V. RECOMMENDATIONS
1. Merge MUR 5822 with this matter;
2. Find reason to believe that PBS&J Corporation knowingly and willfully violated 2 U.S.C. §§ 441b(a) and 441f;
3. Find reason to believe that H. Michael Dye, Maria Garcia, Rosario Licata, and Richard Wickett knowingly and willfully violated 2 U.S.C. §§ 441b(a) and 441f;
4. Find reason to believe that William S. DeLoach knowingly and willfully violated 2 U.S.C. § 441b(a);
5. Find reason to believe that Shannan Ighodaro, Sybil Thomas, Lourdes Fernandez, Reinaldo Fernandez, Ana Quinones, Victor Quinones, James Breland, and Larry Boatman violated 2 U.S.C. § 441f;
6. Authorize the use of compulsory process;
7. Approve the attached Factual and Legal Analyses; and
8. Approve the appropriate letters.


_________________________
Date Thomasenia P. Duncan
General Counsel



Ann Marie Terzaken
Acting Associate General Counsel
for Enforcement



Julie K. McConnell
Acting Assistant General Counsel



Adam J. Schwartz
Attorney


Attachments
1. 7(D)
2. 7(D)
3. 7(D)
4. Indictment, U.S. v. Wickett, 07-CR-20145 (S.D. Fla. Mar. 8, 2007)
5. PBS&J Factual and Legal Analysis
6. Maria M. Garcia Factual and Legal Analysis
7. Rosario Licata Factual and Legal Analysis
8. Richard Wickett Factual and Legal Analysis
9. H. Michael Dye Factual and Legal Analysis
10. William DeLoach Factual and Legal Analysis
11. Sybil Thomas Factual and Legal Analysis
12. Shannan Ighodaro Factual and Legal Analysis
13. Lourdes Fernandez Factual and Legal Analysis
14. Reinaldo Fernandez Factual and Legal Analysis
15. Ana Quinones Factual and Legal Analysis
16. Victor Quinones Factual and Legal Analysis
17. James Breland Factual and Legal Analysis
18. Larry Boatman Factual and Legal Analysis










Exemption 2