Oakes case drawing scrutiny from state

After a settlement with the federal government over a False Claims Act complaint, local luxury home developer Shery Oakes is getting scrutiny over her connection to a company formed by two former employees who are seeking special status as a disadvantaged business, the Dayton Daily News has learned.

Oakes sold the assets of one of her companies, DHDC Inc., in July 2012 to former employees Mohammed Obaidul Haque, 49, of Springboro and Savvas P. Sophocleous, 47, of Dublin. The two men formed a separate company using the DHDC name and Haque, a native of Bangladesh, applied for Disadvantaged Business Enterprise status that would give the company special preference on taxpayer-funded contracts.

Oakes and her husband, David, were part of a $2.9 million settlement in June with the U.S. Department of Justice over DBE fraud allegations involving the Washington Twp. engineering and testing company, TesTech Inc. The federal government alleged that the Oakeses were the true owners of TesTech and that an Egyptian-American former employee, Sherif Aziz, was used as a front man to qualify for at least $5.07 million in federally-funded contracts under the program between 2005 and 2009.

The Oakeses and Aziz, who also was part of the settlement, admitted no wrongdoing and were not charged criminally.

The state of Ohio is now questioning, just as the federal government did in the TesTech case, whether the new DHDC is truly independent of the Oakeses, who are too wealthy to be eligible for the DBE program.    Citing concerns over an "ongoing business relationship," the Ohio Department of Transportation in March rejected the DBE application filed by Haque and Sophocleous' firm, DHDC Engineering Consulting Services Inc.

“This arrangement is not typical of the sale of an existing company and further symbolizes a relationship that goes beyond a typical business transaction,” wrote Sarah S. Lee, DBE program manager for ODOT, in the March denial letter. Haque has appealed.

The TesTech and DHDC deals both involve a labyrinth of similar-sounding company names and transactions with employees who borrowed money from the Oakeses’ companies, paid what the government alleges were discount prices and then sought preferred-contractor status based on minority ownership.

Haque and Sophocleous bought DHDC’s assets, contracts and trade name from Shery Oakes’ Design Homes & Development Co., the home building company she still owns. DHDC Inc., a division of her company, had since late 2009 offered engineering and surveying services.

Haque and Sophocleous, former employees of DHDC, paid $315,835 for the assets — all of it a loan from Design Homes, sales documents show.

The new owners assumed DHDC’s lease in a Columbus office building and agreed to hire the 10 existing DHDC employees “on substantially similar terms and conditions,” according to the buy-sell agreement.

Lee, the ODOT program manager, noted the involvement of the Oakeses and David Oakes’ company CESO Inc. in the 2012 case that resulted in the decertification of TesTech from the DBE program, as well as similarities in the type of work done by TesTech, DHDC and DHDC Engineering.

“Similar business interests, an intertwining of name similarities and use of former employees indicates a pattern of behavior,” she wrote, that “suggests a close involvement” between the parties involved to obtain DBE certification.

She said that Haque and Sophocleous received a “very generous” deal that would not typically be available to others purchasing a similar company. In addition to the favorable terms, Lee said, the new owners admitted having daily contact with Shery Oakes, received $50,000 in start up money from her and were not penalized for being three months late on their first payment.

Haque also was unable to document most of the $150,000 of his own money he said he had invested, according to Lee.

‘No connection’

In an interview with the Daily News, Haque, who is president and owns 70 percent of the shares of DHDC Engineering, said Shery Oakes “has no connection with the company.”

Sophocleous, too, denied ongoing ties. “We have nothing to do with Shery Oakes, except we’re making our payments every month,” he said.

Sophocleous, who is vice president and a 30 percent owner, said he and Haque turned to Shery Oakes for the financing after they were unsuccessful in getting a bank loan. She could afford to lend them the money, he said, and “had a liking for us.”

“We’re hard-working people,” Sophocleous said. “The opportunity came along to take over. We tried banks. Huntington, we tried everything. We couldn’t get anything.”

DHDC Engineering attorney Luther Liggett said the ODOT denial is “entirely speculative” and “reckless in regard to the facts.”

The Oakeses and Aziz did not return phone calls and through their attorneys’ law firms declined to comment for this story.

“They’re just trying to put it all behind them,” said the Oakeses attorney, David Reed of Taft, Stettinius & Hollister in Dayton.

Lee’s letter to Haque rejecting the company’s DBE application came three months before the government settlement in the TesTech case.

Fred Alverson, spokesman for Southern District of Ohio U.S. Attorney Carter M. Stewart, declined to comment on whether his office was aware of the DHDC sale or ODOT’s concerns over the DBE application when the plea deal was reached.

Whistleblower lawsuit

TesTech came under government scrutiny in 2008 when the U.S. Department of Transportation Inspector General began questioning the true ownership of the company. In published reports as early as 2006, Shery Oakes had said she was the owner. That contradicted claims by Aziz, who said he founded the company in 1997 and had been the sole owner since then.

According to federal transportation department documents obtained by the newspaper in July, Aziz warned in a Sept. 16, 2008, memo that TesTech "can no longer be part of the Oakes family of companies" and needed to be restructured. He wrote that a government audit would easily reveal the connection between TesTech and the Oakeses, which "will be viewed as fraudulent and has the potential of severe legal ramifications for both Sherif Aziz and David Oakes," according to the memo.

Ryan Parker, who had worked for four companies under the Oakes banner since 1996, including TesTech and Shery Oakes’ DHDC, began cooperating with the federal government in the fall of 2009, according to a search warrant affidavit made public after the settlement.

In November 2010, Parker and the government filed the False Claims Act complaint under seal against the Oakeses, Aziz, TesTech Inc. and three Oakes companies: CESO Inc., CESO International LLC and CESO Testing Technology. Parker continued working for DHDC until February 2012.

TesTech’s troubles came to light publicly on July 7, 2011, when agents for the U.S. Department of Transportation and the FBI raided the Washington Twp. offices of TesTech and the Oakeses’ companies. The Daily News in October 2011 published an investigation showing that David and Shery Oakes, rather than Aziz, controlled TesTech. The article also questioned Aziz’ eligibility for the DBE program.

The Daily News last month obtained a January 2010 memo from Shery Oakes to Centerville City Manager Greg Horn that refers to the “sale” of TesTech, suggesting that TesTech had been owned by the Oakeses until it was sold to Aziz in 2009.

In the memo, Oakes wrote, “DHDC, Inc. is a new division of my company due to the separation of CESO and the sale of TesTech, Inc.”

In the False Claims Act complaint, the Justice Department laid out its case for why it believed that the Oakeses, not Aziz, were calling the shots at TesTech. Among the allegations never before made public:

“Shery and David Oakes would then write off the credit card charges as business expenses without paying taxes on them and the recipients of the credit card ‘bonuses’ did not have to claim the bonus as income on their taxes,” the complaint said.

Documents show investigators also questioned terms of the transaction between Aziz and the Oakeses when Aziz took control of TesTech in June 2009. Aziz paid nearly $3.3 million using a $2.03 million loan from CESO Testing Technology and a bank loan, according to his sworn testimony at an April 2012 ODOT hearing on his decertification from the DBE program.

“Shery and David Oakes created the appearance that they had sold the assets of CESO Testing Technology, Inc. to Aziz while they really sold Aziz ownership of TesTech,” according to the complaint.

The complaint also says Aziz bought TesTech from the Oakeses for a “grossly undervalued price.” It notes that the Oakeses explored selling the company for $15 million just a year earlier.

In early 2009, Aziz withdrew from the DBE program and reapplied to ODOT in September, after the sale was completed. When TesTech was readmitted a year later, the Ohio Inspector General opened an investigation into that approval, but closed it after learning of the U.S. Justice Department investigation.

As part of the nearly $2.9 million settlement, Parker will receive $562,370 for his cooperation. In the settlement agreement, signed by the attorneys for the Oakeses and Aziz, the government stated that the defendants “falsely” represented that Aziz owned TesTech at the time it was receiving millions of dollars in federally funded airport and highway construction projects in Ohio, Kentucky, Indiana and Michigan.

Parker declined comment on the settlement.

The civil settlement does not preclude future criminal charges, but Alverson said, “At this point the settlement agreement has resolved all the allegations contained in the civil complaint.”

He said the first $1.5 million payment has been made and the rest is due in October.

Possible penalties

The civil settlement does not prevent Aziz or the Oakeses from continuing to get taxpayer-funded contracts. However, various arms of the state and federal government are moving to possibly penalize the Oakeses, Aziz and their companies in the wake of the civil settlement, putting at risk their professional licenses and ability to do business with government agencies.

ODOT is moving to revoke the CESO and TesTech’s “pre-qualification” status, which would eliminate the companies’ ability to do any ODOT-funded work, according to ODOT spokesman Steve Faulkner. That rare action could also lead to debarment for the individuals who own the companies, he said.

Last year ODOT spent $1.6 billion on construction around the state and 9.1 percent of the work went to DBEs, Faulkner said.

The Small Business Administration said it is reviewing TesTech’s certification for the federal 8(a) business development program, which gives a leg up to small, disadvantaged businesses. SBA spokeswoman Tiffani Shea Clements said that a civil settlement of False Claims Act violations can be grounds for debarment from government contracts.

In addition, the Ohio Board of Registration for Professional Engineers and Surveyors voted on July 16 to open an investigation of Aziz and David Oakes and their companies to see if they violated ethics or other rules required by their professional licenses. If violations are found, disciplinary action could include reprimand, suspension or license revocation, said John Greenhalge, executive director of the board.

“If there is action against the individual owner and the company, basically they both lose their license to practice in Ohio,” Greenhalge said.

Aziz and David Oakes also hold engineering licenses in Kentucky, which has reciprocity with Ohio and would likely investigate them if Ohio disciplines them, said Jonathan Buckley, general counsel for Kentucky’s licensure board.

The Ohio Department of Administrative Services informed Aziz on July 15 that it will revoke TesTech’s Minority Business Enterprise and Encouraging Diversity Growth & Equity (EDGE) certifications, saying that the company had “misrepresented material facts regarding control and ownership” of the company since 1998.

Aziz has until mid-August to appeal.

Partnering with DBEs

Government officials believed Shery Oakes continued to attempt to gain from the DBE program after Aziz took control of TesTech from the Oakeses, interviews and documents newly obtained by the Daily News show.

Shery Oakes formed DHDC Inc. on Nov. 3, 2009. A month later, she met with Donald Branch, an African-American who previously dated Oakes' daughter, and provided him with a DBE application, according to a search warrant affidavit in the TesTech case.

The affidavit, written by Jacquie Wente, an investigator for the federal transportation department's office of inspector general, said Shery Oakes told Branch in a subsequent meeting that "DHDC would perform the work on any of (the) jobs he was awarded through his DBE certification. In return, Shery Oakes would pay Donald Branch a commission based on the profit earned on specific jobs."

Branch obtained the DBE certification from ODOT in April 2010. A month later David Reed, who is also the attorney for David and Shery Oakes, filed incorporation papers for Branch’s Consulting LLC.

The DBE program requires that the disadvantaged business be independent of any other company and is not intended to help wealthy individuals like Shery Oakes.

According to the False Claims Act complaint, Shery Oakes conspired with the owners of both Branch’s company and Start 2 Finish Excavating of Clayton to use their DBE status to gain work for DHDC on ODOT highway projects.

In July 2010, Branch obtained a DBE subcontract for soil compaction testing and surveying as part of the $2.4 million federally funded widening of Indian Ripple Road in Beavercreek. The prime contractor was Springboro-based Kelchner.

Beavercreek City Engineer Jeff Moorman said Kelchner wanted to hire Start 2 Finish because Branch wasn’t certified to do all of the work as a DBE. But Start 2 Finish didn’t employ the necessary licensed surveyor for the job, so owner Julia Frazee said she brought in DHDC.

Frazee, who met the Oakeses when she did work at their $2.3 million private home in Washington Twp., said this was her first DBE contract and that DHDC officials had told her the company’s lawyer cleared the arrangement.

Wente, the U.S. Department of Transportation investigator, told Beavercreek officials that DHDC was not allowed to do the work of a DBE. City officials put a stop on the surveying part of the project after discovering DHDC workers on the job site.

DHDC was never authorized to do work on the project and should not have been there, said former construction inspector John Woltja, now superintendent of public administration for the city.

Frazee said she canceled the contract “as soon as I found out that what I was doing was wrong.”

Branch declined to comment as did a spokeswoman for Kelchner.

‘We’re independent’

To be certified as a DBE and therefore be able to compete for lucrative set-aside contracts through the state transportation department, the owners of DHDC Engineering will have to show it is an independent company.

The newspaper investigation revealed that one of those owners, Savvas P. Sophocleous, was previously known to ODOT regulators because of a rejected DBE application from his fomer employer, Lee Testing & Engineering of Hilliard. Ironically, that denial led to Sophocleous working for Shery Oakes.

Lee Testing was owned by Verna Lee, a black businesswoman, while Sophocleous directed field operations. But ODOT questioned whether Sophocleous, who is not a minority, was actually in charge. The denial was overturned on appeal in 2010, but Lee said the delay caused her to lose valuable public contracts and she had to close her business in August 2010. She filed a civil action against ODOT, which is still in litigation.

After Lee Testing closed, Sophocleous and other employees of the engineering and testing company went to work for Oakes’ DHDC.

“My entire workforce went to DHDC and all of my contracts,” Verna Lee said. “They got a free company, basically.”

DHDC also is seeking Minority Business Enterprise status, which provides state set-asides for minority owners, from the Ohio Department of Administrative Services. Although she wouldn’t comment on the application, Beth Gianforcaro, spokeswoman for the department, said terms of a sale are part of any MBE review.

DHDC Engineering is in the EDGE program and has minority set-aside certifications from the cities of Springfield and Columbus and from Columbus city schools. The company website lists multiple public projects and it currently has a small testing services contract with Kettering under a non-minority set aside contract originally signed with Shery Oakes’ DHDC.

Liggett, DHDC Engineering’s attorney, believes the company’s appeal will result in a reversal of ODOT’s denial of DBE certification, which would give the company preference on lucrative highway and airport contracts.

Added Sophocleous: “We have no connection with anything that has to do with the Oakeses or TesTech or anything else. We’re independent.”

DBE fraud cases in 2013

July 11: Trucking company owner Benjamin Marshall agreed to pay $12,000 to settle False Claims Act allegations that he performed DBE work at Detroit Wayne County Airport when a non-DBE company actually did the work.

June 17: Kleinberg Electric Co. agreed to pay the government $936,000 to settle a civil False Claims Act case after admitting it caused the prime contractor on a New York public transit project to submit false certifications that a DBE firm performed work that was performed by Kleinberg.

June 6: TesTech defendants agree to pay $2,883,947 to settle False Claims Act case to resolve allegations that they fraudulently used DBE status on federally funded transportation projects.

May 17: Madeline Pepe, owner of MS Construction Corp. of Staten Island, N.Y., was sentenced in U.S. District Court in Manhattan to two years' probation on mail and wire fraud charges. She was the third person sentenced in a DBE fraud conspiracy. Co-conspirator Richard Schultz was sentenced to six months of home confinement, followed by three years' probation and 100 hours of community service. Another contractor got three years' probation, a $50,000 criminal fine and 100 hours of community service. All three were subject to cash forfeitures.

May 16: A federal grand jury in Boise, Idaho, returned an indictment charging Elaine Martin, president of Marcon Construction, with making false statements, conspiracy, mail and wire fraud and obstruction of justice in connection with an alleged DBE fraud scheme. A minority shareholder also was charged. The government is seeking a forfeiture of more than $9 million. The indictment alleges Martin took fraudulent steps to lower her net worth to obtain more than $6 million in public projects in Idaho and Utah.

March 21: Yona Jimenez, president and owner of the DBE-certified Global Marine Construction Supply of White Plains, N.Y., pleaded guilty to mail fraud. She served as a "pass-through" DBE, receiving a kickback for pretending to be a subcontractor when non-DBE companies actually performed the work.

Feb. 22: Anthony Cappello was sentenced to six months of home confinement in federal court in Chicago for mail fraud. He admitted he defrauded the government of $2.3 million in contracts by falsely claiming that his wife's DBE company performed work for the Chicago Department of Aviation when his company actually did the work.

Source: U.S. Department of Transportation Office of Inspector General

Case timeline

December 1987: The predecessor to Shery Oakes' Design Homes & Development Co. is created.

December 1993: David Oakes' CESO Testing Technology is established. It performs engineering and technical work at construction sites, sometimes going by the name TesTech.

February 1997: TesTech Inc. is incorporated. Although Sherif Aziz, related to Shery Oakes by marriage, is listed as president, the Oakeses sometimes say they own and run the company. Aziz quickly begins seeking certifications for TesTech as a disadvantaged, minority-owned business, giving it preferential treatment in obtaining public contracts.

2005: After two rejections, Aziz is certified as a Disadvantaged Business Enterprise after convincing an appeals officer that he is an "African-American", even though Aziz is Egyptian-American, an ethnicity that's specifically barred. The DBE is a key to receiving lucrative federal highway and airport contracts.

September 2008: Aziz states in a memo that he's worried about repercussions because customers and a competitor are asking questions about the true ownership of TesTech. Saying "I cannot put myself or my family at risk anymore," he outlines proposals to sever business ties with the Oakeses so TesTech could withstand an audit.

November 2008: The U.S. Department of Transportation's inspector general is investigating ties between TesTech and the Oakeses, who are not eligible for the DBE program.

June 1, 2009: Aziz's TesTech buys the assets of CESO Testing Technology for $3.3 million, most of which is loaned to him by CESO Testing Technology.

November 2009: Shery Oakes launches DHDC Inc., a company performing services similar to TesTech.

April 2010: Shery Oakes tells black businessman Donald Branch that DHDC would perform any work Branch received under his DBE certification and Branch would receive a "commission," according to an affidavit on behalf of a search warrant filed by federal transportation agents. A federal lawsuit says DHDC also approached Start 2 Finish Excavating Inc. about using its DBE status to perform work.

August 2010: A Columbus company called Lee Testing goes out of business after being denied DBE status by state transportation officials. Staffers from Lee, including project director Savvas Sophocleous, immediately go to work for Shery Oakes' DHDC Inc.

January 2011: Mohammed Obaidul Haque joins DHDC as director of geotechnical and construction materials testing services. Haque later reports to the IRS that he earned $52,072 in 2011.

July 7, 2011: Federal agents raid the Washington Twp., headquarters of the Oakes companies and TesTech, seizing financial records.

April 2012: Haque and Sophocleous register the name DHDC Engineering Consulting Services Inc. with the Ohio Secretary of State's office.

June 2012: DHDC Engineering Consulting Services Inc. purchases the assets of DHDC Inc. for $315,835, paying entirely with a 5 percent interest loan from Shery Oakes' Design Homes and Development Co., which holds all the new company's assets as collateral. DHDC Engineering soon begins applying for minority set-aside programs.

August 1, 2012: TesTech loses Disadvantaged Business Enterprise certification after an Ohio Department of Transportation appeals hearing officer says the Oakeses, not Aziz, owned and controlled TesTech.

March 15, 2013: Ohio transportation officials deny DHDC Engineering's DBE application, saying Haque and Sophocleous failed to demonstrate they are independent from Shery Oakes. DHDC's appeal is pending.

June 6, 2013: Aziz, Shery and David Oakes and their companies agree to pay the federal government nearly $2.9 million to settle DBE fraud allegations.

July 15, 2013: The Ohio Department of Administrative Services notifies Aziz that it plans to strip TesTech of two other set-aside certifications — the Minority Business Enterprise and the Encouraging Diversity, Growth & Equity programs.

MyDaytonDailyNews.com

DOCUMENTS: To see the False Claims Act settlement agreement under which Sherif Aziz and David and Shery Oakes agreed to pay the government nearly $2.9 million, plus other documents involving their cases, go to our new subscriber website, MyDaytonDailyNews.com

Staying with the story

The Dayton Daily News fought to obtain important public records, some under seal for nearly three years, to bring you this story about the federal fraud investigation involving TesTech Inc., Washington Twp. developers David and Shery Oakes, and their business partner Sherif Aziz.