Status of S.C. Road Projects Unclear In Wake of Massive Federal Fraud Case

September 13, 2013

Investigative Reports

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Road WorkLast month, state Sen. Nikki Setzler of Lexington County announced during a local chamber of commerce meeting that the S.C. Department of Transportation had signed contracts for a $93 million project to widen a 10-mile stretch of Interstate 26 in Lexington and Calhoun counties.

The announcement by the Democratic Senate minority leader came about a month after a federal grand jury in Charlotte indicted one of the reported contractors for the widening project – Boggs Paving Inc. of Monroe, N.C. – and six co-defendants in what court papers, reviewed this week by The Nerve, described as a 10-year scheme to fraudulently obtain more than $87 million in federally and state funded contracts for road projects in South and North Carolina.

The 29-count indictment cites seven examples of S.C. DOT contracts in which Boggs Paving, related companies and unnamed affiliated businesses collectively received more than $630,000 from 2006 through 2009, allegedly paid by Boggs employees who handled a bank account of a minority subcontractor used by Boggs to obtain DOT contracts but who typically did little actual work.

The indictment, filed on July 24 in U.S. District Court in North Carolina’s Western District in Charlotte, alleges that between January 2003 and December 2012, more than $7 million was deposited by Boggs Paving in the bank account of the minority subcontractor, Styx Cuthbertson Trucking Co. Inc. of Monroe, N.C.  – which also was indicted – and of that amount, $6.3 million was funneled back to Boggs and related and affiliated companies. The remainder of the $7 million went to the Styx trucking company as kickbacks and to other subcontractors, according to the indictment.

The Nerve on Thursday attempted to contact Setzler, an attorney, at his West Columbia law office, but  Alisa Painter, a spokeswoman for Setzler at his Senate office, said he was preparing for a court hearing today.

As for Setzler’s announcement last month about the I-26 widening project, Painter said in an email response: “The only information he had when he made the announcement was that a contract was awarded. He did not know who the contractor was.”

The Nerve on Wednesday sent a list of written questions to S.C. DOT spokesman Pete Poore, who referred the questions to the agency’s legal office as a state Freedom of Information Act request. No answers were received by publication of this story.

Among other things, The Nerve’s request seeks:

  • How much Boggs Paving and its related companies, as well as the Styx trucking company, have been paid in recent years for work in South Carolina;
  • Whether any current contracts with the Boggs or Styx companies, including the I-26 widening project, are affected by the indictment;
  • Whether DOT plans to make any changes to its “disadvantaged business enterprise” (DBE) program, which, according to the indictment, certified the Styx trucking company as a DBE; and
  • Whether the removal of the authority of DOT’s Office of Chief Internal Auditor to investigate fraud within the agency, as reported by The Nerve in July, will make it harder for the department to detect future fraud cases.

One of the lawyers for Boggs Paving is S.C. Rep. Bakari Sellers, D-Bamberg, who works at the Columbia-based Strom Law Firm. He declined comment when contacted Wednesday by The Nerve,referring questions to the lead lawyer for Boggs Paving, Pete Strom, the founder and managing partner of the Strom Law Firm.

Strom, a former U.S. attorney for South Carolina, declined to comment on specifics of the indictment when contacted by The Nerve, but issued the following written statement Thursday:

“What this case is about is whether Boggs construction used correct accounting in reporting the use of required minority participation in their construction projects. Boggs acted in good faith when using their accounting method.

“Boggs paving is a regional contractor and has been the low bidder on dozens of paving contracts, and has saved the taxpayers tens of millions of dollars. Boggs is not accused of doing substandard work or overcharging for their projects.”

Besides Boggs Paving and the Styx trucking company, the indictment also names Carl Andrew “Drew” Boggs III, president of Boggs Paving; three other Boggs executives; and John “Styx” Cuthbertson, president of the Styx trucking company, as defendants.

The indictment accuses Boggs executives and Cuthbertson of making “false and misleading statements” in contract bids with the S.C. DOT and N.C. DOT, and on applications and quarterly reporting forms for the states’ DBE programs, which are aimed at increasing participation of minority businesses in federally funded transportation projects.

“As a result of its fraudulent and deceptive conduct, Boggs Paving obtained profits from lucrative NCDOT and SCDOT contracts that it was not entitled to receive and thereby unjustly enriched itself; deprived USDOT, NCDOT and SCDOT of controlling how their money should be spent; deprived legitimate DBEs of the profits from subcontracts that were designated for their benefit; and deprived other general contractors from obtaining the profits from lucrative NCDOT and SCDOT contracts,” the indictment alleges.

Boggs employees performed “numerous clerical functions” in the name of the Styx trucking company, including creating false invoices; and “often treated Styx trucks as if they were Boggs Transport trucks,” according to the indictment. At times, magnetic decals with the Styx company logo were placed over the logos on Boggs trucks to “create the appearance that Styx was performing more hauling work on contracts than was true,” the indictment said.

The indictment charges include wire and mail fraud, money laundering and conspiracy. Penalties range from a maximum five-year prison sentence for conspiracy to a maximum 20 years in prison on each fraud count, plus a $250,000 fine on each charge, according to a press release from the U.S. Attorney ‘s Office in Charlotte, which did not respond to The Nerve’s request for comment.

The case was investigated by the FBI’s Charlotte Division, the Office of Inspector General of the U.S. Department of Transportation, and the Internal Revenue Service’s Criminal Investigation Division. Online court records list no trial date, though under federal law, defendants have to be tried within 70 days of an indictment unless the court grants a continuance.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.