Defendant Sentenced to 50 Months in Prison for Fraudulent Kickback Scheme

WHITE PLAINS, NY – ROBERT LEES, a former senior executive of Universal Forest Products, was sentenced to 50 months in prison for conspiracy, mail fraud, money laundering, and making false statements in a loan application.

According to court documents, LEES was found guilty by a jury on May 20, 2016, after a seven-day trial. Manhattan U.S. Attorney Preet Bharara said, “Robert Lees, a senior executive at Universal Forest Products, defrauded both HUD and a mortgage lender, causing millions of dollars in losses. With the jury verdict earlier this year and today’s sentence, Lees has been held accountable for his crimes.”

The evidence at trial proved that, in 2009, Michael Barnett, a real-estate developer, hired JK Scanlan Company, Inc. (“Scanlan”), to be the general contractor on Vineyard Commons, a senior housing community in Ulster County. In 2009, Scanlan entered into falsely inflated contracts with Shawnlee Construction, LLC (“Shawnlee”), a subsidiary of UFP for which LEES had responsibility, to be the subcontractor on Vineyard Commons responsible for framing and rough carpentry.

On January 19, 2009, Shawnlee provided Scanlan a final bid to supply labor and materials for Vineyard Commons. In March and April 2009, representatives of UFP – including LEES – Shawnlee, and Scanlan entered into an agreement by which UFP and Shawnlee agreed to provide labor and materials in an amount approximately $865,000 greater than the final bid. LEES and others intended for the approximately $865,000 difference between the final bid and the inflated contract price to be returned to Barnett as a kickback, and further intended that the Mortgagor would unwittingly finance the kickback by disbursing HUD-insured funds on the basis of inflated draw requests.

In early 2009, Scanlan’s owner agreed to provide Barnett and Vineyard Commons with a million-dollar loan. In order to obtain this loan, Barnett informally pledged the anticipated $865,000 kickback to Scanlan’s owner as collateral. In June 2009, Barnett needed additional funds in order to secure HUD-insured financing from the Mortgagor. UFP provided a $650,000 letter of credit to the Mortgagor. Barnett informally pledged the anticipated approximately $865,000 kickback to UFP as collateral, even though it was already pledged to Scanlan’s owner.

On July 2, 2009, Barnett and others provided HUD with a written estimate of the cost of Shawnlee’s work (the “Final Framing Price”) that exceeded Shawnlee and UFP’s actual price for labor and materials by approximately $865,000. Beginning in July 2009, and continuing until January 2012, Barnett and Scanlan submitted contractor’s requisitions (the “Contractor Requisitions”) on forms provided by HUD to the Mortgagor, which the Mortgagor then sent to HUD. These Contractor Requisitions included a certification by a representative of Scanlan that “all the information stated herein, as well as any information provided in the accompaniment herewith, is true and accurate.” Each of these forms set forth the Final Framing Price as the actual cost of rough carpentry. Each month, the Mortgagor disbursed HUD-insured funds on the basis of the Contractor Requisitions. UFP set aside the “extra” from the Shawnlee/Scanlan contract in an accrual account falsely labeled as a rebate accrual.

LEES’ scheme resulted in losses of millions of dollars to HUD and a mortgage lender. His sentence of 50 months in prison demonstrates the commitment of law enforcement to holding accountable those who engage in corrupt practices.

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