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$12 Million Whistleblower Settlement Spotlights Cheating in Chicago’s Minority Programs

Posted on May 2nd, 2014 by Cindy Tsai

Construction Giant McHugh Used Sham Subcontractors to Funnel Money Away from Women and Minority-Owned Firms

CHICAGO, 5/1/14 – A politically-connected construction giant used half a dozen of the biggest recent public works projects in Chicago as part of a multi-year scam to siphon off government money intended for the City’s women and minority-owned businesses, a 2008 whistleblower suit unsealed today showed.

With promises to help local women and minority-owned businesses, Chicago’s McHugh Construction landed major contracts like the new North Avenue Bridge, the Chicago Transit Authority’s Red Line and Brown Line expansion projects, and new viaducts for the Kennedy and Dan Ryan Expressways.

Funded with over $150 million in federal and state grants, the contracts were supposed to provide big opportunities for women and minority-owned business to get a foot in the door of the clout-driven world of major public construction.  But the money never made it to the intended businesses.

According to the whistleblower suit unsealed today by the Chicago federal district court, McHugh used two sham companies – ASI, Inc. and Perdel Contracting – to divert almost $40 million in funds that it had agreed to earmark for minority and women owned-firms.

The United States Attorney and Illinois Attorney General today announced that McHugh will pay $12 million to settle the whistleblower case. These prosecutors used federal and state False Claims Acts to take down the politically-connected contractor.  The whistleblower, Ryan Keiser, and his lawyers, Loevy & Loevy Attorneys at Law, had also sought to recover treble damages for the City of Chicago under its false claims act ordinance.

Keiser came forward after McHugh managers insisted that he create false paperwork to cover-up the sham.  “What angered me the most was that McHugh’s managers were so matter-of-fact about cheating the WBE and DBE programs,” he said. Keiser explained that the cheating was visible to anyone who wanted to put a stop to it.

“It happens right out in the open.  So many of the prime contractors are doing it and all of them know what’s happening.  The suppliers have to play along to get the business.  And none of them has any concern that they will get in trouble. The City of Chicago’s leaders and similar politicians throughout the country just don’t seem to care.  That’s why I had to blow the whistle.”

Keiser turned to Loevy & Loevy, a law firm representing plaintiffs in whistleblower and civil rights cases nationwide, to help him bring McHugh to justice.  Attorney Mike Kanovitz guided him through the whistleblower process for six years, culminating in today’s $12 million settlement.

“If not for Ryan’s strength to stand up for what’s right and the outside intervention of the U.S. Attorney’s Office and the Illinois Attorney General’s Office, this major fraud would not have come to light, let alone been stopped,” said Kanovitz.  “I hope this settlement encourages other construction industry insiders and City of Chicago employees to step forward and expose more of this rampant cheating, cheating that passes for business as usual in the world of big public construction contracts.  That would be a good start.”

Keiser and Kanovitz will continue a second portion of the suit that alleges McHugh forced Keiser out of his job after he refused to go along with the fraud.  “Whistleblowers should be honored for the serious contribution they make to our society.  Instead, Ryan was black-balled from a line of work that he loves. That’s not right, and we won’t stand for it,” Kanovitz said.

Copies of the 2008 lawsuit that led to today’s $12M settlement are available here:  08CV2443–McHugh Construction-Keiser


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