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Three men found guilty in New York City payroll fraud case

By Nate Raymond and Joseph Ax

NEW YORK (Reuters) - A U.S. jury convicted three men on Friday in a massive kickback and fraud scheme while implementing a new payroll system for New York City that eventually cost more than $600 million.

Mark Mazer, 50, who was accused of playing a central role in the fraud, was found guilty on all six counts including conspiracy to defraud the city, wire fraud, and conspiracy to commit bribery.

The jury also convicted Dimitry Aronshtein, 53, Mazer's uncle, and Gerard Denault, 52, a former employee at lead contractor Science Applications International Corp, on charges including conspiracy to commit money laundering.

The government accused Mazer and a network of relatives and other conspirators of masterminding a fraud that netted more than $40 million.

Five other defendants had already pleaded guilty to aiding the scheme, including Mazer's wife, mother and cousin, while two others charged in the fraud remain at large and are considered fugitives.

During the trial, prosecutors said Mazer, Aronshtein and Denault pocketed millions of dollars while managing the CityTime payroll project, an initiative intended to modernize the city's payroll system that was originally budgeted at $63 million.

Costs ballooned to more than $600 million as a result of the scheme, prosecutors alleged. Mazer steered business to consulting firms controlled by his co-conspirators and used shell companies to launder and conceal the payments, the government said.

"The jury has found what this office alleged from the outset: these defendants were at the heart of a conspiracy to steal from New York City and its taxpayers," Manhattan U.S. Attorney Preet Bharara said in a statement. "Awarded a lucrative contract to design a streamlined payroll system for the city, instead they built a money-making machine for themselves."

The government recovered most of that money after SAIC, the project's primary contractor, agreed in March 2012 to forfeit more than $500 million to avoid prosecution.

Defense lawyers had argued that the three men never took any steps to deceive the city while managing the project.

"The size and the enormity of the dollars is not a substitute for evidence," Gerald Shargel, Mazer's attorney, said during closing arguments. "It's not a substitute for proof."

The jury convicted Aronshtein, who owned subcontractor D.A. Solutions, Inc., on four counts including a charge that he paid bribes and illegal kickbacks to Mazer, a CityTime consultant who served as the principal agent on the project.

The jury meanwhile found Denault, a project manager at SAC, guilty on all but one of the seven counts against him, conspiracy to commit bribery.

Shargel said on Friday he was "obviously disappointed." He and lawyers for the other defendants said they planned to appeal.

U.S. District Judge George Daniels scheduled sentencing for March 12 and ordered the defendants to home confinement in the meanwhile.

The case is U.S. v. Mazer et al., U.S. District Court for the Southern District of New York, No. 11-121.

(Reporting by Nate Raymond and Joseph Ax; Editing by Doina Chiacu)

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