Wealthy Enriched by Double-Dipping in Disadvantaged Plan

In April 2003, Piyush Agrawal deleted his son’s name as president of APS Technologies Inc. He replaced it with his own on a hand-written filing with the Florida Department of State.

That made the 66-year-old retired educator the sole officer and director of the firm and separated its management from a medical supply company run by Agrawal’s two sons. Three months later, he followed his sons into a U.S. program that steers government business to the “socially and economically disadvantaged.” It was the Agrawal family’s second time obtaining federal assistance under a benefit that prescribes that immediate family members should participate only once.

The New Delhi immigrants have grown rich on $256 million in government contracts since 1993 through a web of family-owned companies. The Agrawals are still in the nine-year program today, 18 years after first qualifying.

They are among 12 repeat participants that have received $412 million in preferential contracts, and more than $1 billion in total government awards, based on data compiled by Bloomberg. Because of opportunistic entrepreneurs and lax government overseers, even the wealthy profit from a taxpayer-supported program designed to bolster underprivileged segments of society.

“Legitimate small businesses are put at a huge competitive disadvantage when bad actors lie about their small business status and don’t play by the rules,” Representative Sam Graves said in a statement. The Missouri Republican is chairman of the House Small Business Committee. “We owe it to American taxpayers to make sure that contracts intended for small businesses go to small businesses.”

Passport to Contracts

Established by Congress in 1978, the Small Business Administration program accounted for $16.7 billion in contract awards last year, more than the budget of the Commerce Department. Admission to the program, under Section 8(a) of the Small Business Act, gives entrepreneurs a passport to obtain federal contracts that typically aren’t subject to competition. The U.S. targets 23 percent of its $530 billion in buying each year for disadvantaged small companies through an array of assistance, of which the 8(a) designation is only one.

The SBA defines the socially disadvantaged as “those who have been subjected to racial or ethnic prejudice or cultural bias,” such as women, blacks, Hispanics, Native Americans and Asian-Americans. Eligibility in the 8(a) program is limited to U.S. citizens whose net worth can’t initially exceed $250,000 and shouldn’t rise above $750,000 while in the program, with the exception of investments in first homes, the business and retirement accounts.

Multiple Companies

Business owners and members of their immediate families may participate only once, though the SBA spells out exceptions. These include approved mentoring relationships and joint ventures between past and current participants, or if participants are in different lines of business.

The SBA certified multiple companies at a single address more than 100 times since 1990, based on data compiled by Bloomberg. Four companies with overlapping ownership or business interests obtained 23 years of eligibility in the program at one address, the data show.

When firms in the SBA program “were operating at the same address as a previous participant, the companies were affiliated or had commingled resources,” the Government Accountability Office reported in its own investigation in March 2010. At the time, the SBA said it didn’t have the capability to detect businesses enrolled in the program at a common address.

SBA Analysis

The SBA “is conducting an analysis of all 8(a) firms to identify and correct anomalies,” said the SBA’s John Shoraka in a statement. Shoraka, the acting associate administrator of government contracting and business development in Washington, said the agency is improving its capacity to cross-check program records and provide “more intense scrutiny” to applicants while stepping up enforcement against “bad actors.” He declined to discuss specific examples.

Bloomberg analyzed SBA data on more than 8,000 participants in the program and then developed profiles of 12 firms with matching addresses through government contracting databases, state incorporation records, real estate deeds, litigation and interviews.

Wrongdoing Denied

Each of the matching participants contacted by Bloomberg, including the Agrawals, denied any wrongdoing and said they fully comply with government guidelines. The Agrawals declined to be interviewed. In a written response to questions, they said their businesses in the program were separate.

“The Agrawals are distinct and separate entities and have their own families, liabilities and assets. To group them all into one is misleading and inaccurate,” the Agrawals said in the statement.

Akhil Agrawal, 44, and brother Sukrit, 46, run the family distribution company, American Medical Depot, out of offices in Opa-Locka, Florida. The father’s company, APS Technologies, is based in nearby Hialeah. They fulfill contracts for the government together through Allied Joint Venture LLC, an SBA-approved entity registered to the father at the Hialeah office.

The Agrawals live in homes with a combined market value of $3.2 million, including a suite of penthouse oceanfront condominiums in Miami Beach, according to property records, and have donated more than $200,000 to federal political candidates since 2000, according to campaign-finance records.

The family’s medical distribution business was implicated in overbilling a veterans hospital in the 1990s, though the matter was settled. Later, the Agrawals were questioned in a criminal political-corruption probe in Florida related to how American Medical Depot was awarded local contracts for voting machines and medical supplies. No charges were brought.

Repeat Participants

In addition to the Agrawals, repeat participants identified by Bloomberg include:

-- Four Glendale, Arizona, builders who won $142 million in awards for the disadvantaged since 1996 as part of $364 million in total government contracts, all at the same address.

Dennis Shaw, 42, bought a desert estate for $3.1 million and reported a net worth of $13.4 million in 2007, two years after graduating from the program, property records and court documents show. His company, EPC Corp., was the first of four at the same address to enter the program. He also held options on the successor firm, Candelaria Corp., according to his personal financial statement. That company’s owner, Reggie Candelaria Jr., 42, paid $2.4 million for a Tuscan-style residence with eight bathrooms while in the program.

Shaw said in a telephone interview that the companies continued to participate through joint ventures and mentoring agreements. Candelaria blocked a reporter’s entrance to the property by padlocking the front gate.

“No comments today,” he said.

-- Two Ocilla, Georgia, modular-building sales companies that had different minority owners with the same white managers. They supplied Army barracks and temporary shelter to Hurricane Katrina victims among others.

Roscoe Allen Jr., a disabled black former Marine, is listed with the Georgia Secretary of State as chief executive officer of Roscoe Allen Co., which obtained $81.4 million in business for the disadvantaged from 1999 through 2008, out of total government business of $105 million, U.S. records show.

‘I Don’t Know’

“I don’t know nothing about $100 million of business, I don’t,” Allen, 52, said in a telephone interview.

Allen’s former financial manager, D.W. Harper, and former general manager, Walter Harper, both white, declined to comment for this story. Decade-old snapshots of Allen’s website identify the men’s relationship with the former Marine, who confirmed it.

Harper and Hudson are also identified as officers or employees of Hispanic-owned Marteen Inc., a current SBA program participant at the same address, according to state and federal records. Martin Hurtado, who is listed with the secretary of state as chief executive officer, couldn’t be reached during a reporter’s visit to the property or via repeated phone calls over two months.

Harper, 51, was listed as Marteen’s primary contact in the federal government’s Central Contractor Registration database as recently as December. After Bloomberg contacted the firm, the contact’s name was changed to Hurtado. Harper lives in a house with a helicopter pad and owns a $1 million oceanfront condominium in Florida, according to property records.

By comparison, the black former Marine lives in a house with a market value of $90,140 and the Mexican-American business owner Hurtado is listed at a residence with an $11,607 market value, according to property records.

-- An 87-year-old African-American widow and her daughter who operated two cleaning companies at the same address in Philadelphia. The mother’s company, Watts Window Cleaning & Janitorial Co., won $6 million in sheltered contracts through 2001. The daughter’s company, Watts Industries Inc., then obtained certification as disadvantaged and lined up $609,403 more, government contracting records show.

The daughter, Yvette Watts, 48, who is listed with the Pennsylvania Department of State as an officer of both companies, didn’t respond to requests for comment. Her mother, Priscilla, said by telephone that she was unfamiliar with the SBA program for the disadvantaged.

“What’s that?” the elder Watts said.

Akhil and Sukrit Agrawal enrolled their company, American Purchasing Services Inc., in the SBA program in February 1994. It does business as American Medical Depot. Their father, Piyush, borrowed from credit cards to help finance the business, said Karl Sidman, a former controller of American Medical Depot, in an interview. The Agrawals also obtained $298,000 in SBA-guaranteed loans, federal records show.

Jeb, George Bush

Soon, they were socializing with politicians, including Florida Governor Jeb Bush at Christmas parties. His Republican administration named American Medical Depot the state’s Minority Business Enterprise of the year in 2002.

Akhil and his father posed for a photograph with President George W. Bush at a $2,000-a-plate fundraiser in Fort Lauderdale in September 2003. Six weeks later, the family visited the White House to celebrate the Indian festival of lights.

By then the Agrawals had been a focus of two government investigations, one recently ended and the other beginning.

American Medical Depot overcharged a veterans hospital in Albuquerque, New Mexico, in 1998 and 1999 under a contract reserved for the disadvantaged business program, according to a report by the Department of Veterans Affairs Inspector General. The company increased the hospital’s costs by $1.1 million rather than delivering $400,000 in promised savings, wrote John Ames, the VA Inspector General’s director of contract review and evaluation, in an April 2000 report.

23 Percent Markup

Akhil Agrawal and a hospital contracting officer structured the contract so that American Medical Depot bought the hospital’s inventory of medical and surgical supplies at cost and then sold it back for 12.5 percent more, without the products ever leaving the shelf, investigators found.

American Medical Depot also tacked on 23 percent to the direct vendor price of products it supplied to the hospital, the probe found. Investigators characterized as “grossly inaccurate” a report by hospital personnel “that purported to show that the contract had been cost-effective,” and recommended that the VA discontinue the relationship.

The contract was dissolved in October 2001, according to a “Settlement and Release of Claims Agreement” the Agrawals provided. The accord says the VA paid American Medical Depot $3.25 million, without specifying what the money was for. Jean Schaefer, a VA spokeswoman in Phoenix, said the agency had no comment.

Local Florida Contracts

The Agrawals also generated millions of dollars in revenue through local-government contracts that didn’t come through the SBA program. In Florida, two of the deals got the family subpoenaed as prosecutors probed an influential black Republican named Dorsey Miller Jr., who worked as a consultant for American Medical Depot.

Akhil Agrawal retained Miller in October 2001, two months before his company won an $878,375 contract to assemble and warehouse new voting machines for Broward County. The equipment replaced malfunctioning perforated-card machines that produced the “hanging chad” controversy in the 2000 presidential election. Broward County’s Office of Economic Opportunity required that 10 percent of the contract go to minority-owned businesses.

In July 2002, American Medical Depot paid Miller a $27,535 finder’s fee for the voting-machine contract, according to state investigators’ records. In December 2002, the Agrawals amended Miller’s contract to pay him $3,500 a month plus 33 percent of gross profit from other business he brought the company.

Kickback Inquiry

John Hanlon Jr., a former assistant state’s attorney, said in an interview that he was investigating whether Miller or others were paid illegally to steer the voting-machine contract to American Medical Depot, which had never worked on election machines before. Hanlon granted the Agrawals immunity for their testimony. They didn’t implicate Miller in any wrongdoing, according to transcripts of the testimony.

By 2002, the Agrawals were also selling medical supplies to the North Broward Hospital District, where Miller was the board chairman and a member of its Minority Business Enterprise Committee, according to sworn testimony in the criminal probe. The district paid American Medical Depot $340,000 in 2002, rising to $3 million in 2003, investigators’ records show.

“The AMD proposal added cost to the NBHD supply chain,” Mickey Victores, the hospital district’s director of purchasing, wrote in a memo to the organization’s top management in January 2004. His memo rebutted American Medical Depot representations that it saved the district money. Victores declined to comment.

No Indictment

Miller publicly recused himself from the American Medical Depot decisions. He left the board in 2005. In an interview with Bloomberg, Miller called the probe a “witch hunt.”

After three years and seven interviews with the father and sons, a grand jury in December 2006 declined to indict Miller.

It was after American Medical Depot’s eligibility in the SBA program expired February 2003 that the father Piyush wrote in his name as president of APS Technologies, replacing Sukrit. A few months later he registered in the SBA program at the same address as American Medical Depot.

The Allied Joint Venture partnership he formed between American Medical Depot and APS in December 2007 retained a contract to supply surgical and medical products to the Navy that the family had held since 1999, according to state and federal records. This allowed his sons to continue a relationship that generated sales to the Navy of $39.4 million in gauze, tape, catheters, syringes and lubricated condoms through early 2011, according to the Defense Logistics Agency. A follow-up award to Allied last year could be worth $40 million more through 2015, the agency said.

Sole Qualifier

Contracts sometimes were written so that the Agrawals were identified as the sole qualified vendors.

“American Medical Depot has been determined to be the only responsible source and no other supplies or services will satisfy agency requirements,” wrote Thomas Sidor, a Defense Logistics Agency contracting officer, in the award notice for a $3.7 million contract in early 2009. In early 2010, Sidor said the company was “the only medical/surgical prime vendor that is currently geared to meet the needs of the Navy” to fulfill a $3.2 million extension. Sidor declined to comment.

Since July 2007, a fourth company eligible for federal contracting preferences has been located in the Agrawals’ offices. Tidewater Management LLC, registered to former Marine Thomas “Tommy” Jefferson Summerour III, 26, qualifies for business set aside for companies owned by veterans disabled while in the service. He is the son of American Medical Depot Vice President Jeff Summerour Jr., 55.

Service-Disabled Veteran

Government records show that Tidewater, operating out of a cubicle at the Agrawals’ Hialeah office, has won $14 million in federal contracts providing the same service as American Medical Depot, distributing surgical and medical supplies.

The younger Summerour “rents space in the building, and American Medical Depot helps him where possible,” the Agrawals said in their statement. “So far, he is barely making a living.”

The Summerours didn’t respond to requests for comment.

Mike Cline, a former sales executive for American Medical Depot, filed an employee breach of contract and whistle-blower lawsuit against the Agrawals, American Medical Depot and APS in state court in February 2010. The complaint alleges that the Agrawals overbill the government through inflated fees and a non-existent third-party vendor that the suit doesn’t identify.

“There’s four or five businesses in there that just shift around money and headcount and costs, using personnel in each of the businesses,” Cline said in an interview. The Agrawals have denied his allegations in court filings.

Chair Through Wall

At least four financial executives and several bookkeeping employees have quit or been fired by the Agrawals over the past five years, according to former employees. One of them, a former controller named Bill Riska, said he quit in late 2009 after Akhil Agrawal threw a chair through his office wall.

“Although they said they wanted a controller, they really didn’t,” said Sidman, another former controller. “They were looking for somebody to make sure the bills were paid timely, that receivables were collected on a regular basis, and anything else dealing with financial statements, they just did not want you to see.”

Former employees also said in interviews that they don’t believe the distinctions the Agrawals make between their companies. American Medical Depot and APS shared offices, personnel and accounting, according to interviews with Riska, Sidman and others.

Tiffany Marquez, who worked for APS from 2007 until early 2010, says the elder Agrawal once told her, “APS stands for Akhil, Piyush and Sukrit.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE