Huge Penna. affirmative action fraud unfolds over 15 years

It was one of the nation's largest affirmative-action frauds - $119 million spent on 336 bridge projects, from eastern Pennsylvania interstates to SEPTA's Market-Frankford Line.

The conspiracy unfolded over 15 years, unchecked by regulators, as a white-family-run concrete business in Schuylkill County used a Filipino man's minority status to win contract after contract. The sham company, operated from a Connecticut basement, became Pennsylvania's greatest recipient of the U.S. government's disadvantaged-business program.

Things began unraveling in 2007, as federal agents pursued a former employee's tip. Soon coconspirators began ratting one another out. By this summer, all defendants save one had pleaded guilty.

But what happened next surprised almost everyone involved. On the eve of trial, a judge named Rambo ordered a man named Fink to testify against his wishes.

In an extraordinary order granting "judicial immunity," the judge chose one defendant's Sixth Amendment right to a fair trial over another's Fifth Amendment right against self-incrimination.

The case involves the confluence of a highly unusual set of facts and legal issues, the kind more often found on a law school exam than in a real courtroom - a messy family squabble, a massive fraud, and a conflict between constitutional rights.

The defense has cited cryptic notes in a journal as its best evidence. The prosecution has invoked The Sopranos to illustrate a key point.

"It's a fascinating, cutting-edge issue," said Ellen Brotman, the Philadelphia lawyer defending Ernest Fink Jr.

U.S. District Judge Sylvia Rambo's ruling has put the trial on hold while a federal appeals court in Philadelphia ponders the key question:

Should Fink be forced to fink?

The Rambo order is the latest twist in an investigation that sullied the legacy of one of Schuylkill County's most prominent families.

The story begins in the late 1940s, when a revolutionary bridge technology - prestressed concrete - arrived in the United States from Europe. By laying steel cables inside concrete beams, engineers found they could build stronger structures with shorter and lighter materials.

The first such U.S. bridge was built in Philadelphia.

Construction on the Walnut Lane Memorial Bridge began in 1949. According to the webzine StructureMag.org, within years this "transformed the construction industry."

One hundred miles to the west, in rural Cressona, a descendant of German immigrants, W. Joe Nagle, established a prestressed-concrete business. He called it Schuylkill Products Inc. and built a thriving family business.

When Nagle died in 1980, his son Gordon took charge and expanded the business. Annual revenue neared $25 million, and the company became one of the county's largest employers.

"Schuylkill Products was a driving force in the region and had a very good reputation," said Hank Bonstedt, a prestressed-concrete trade association executive.

Gordon Nagle was a hands-on but well-liked boss, and it was not unusual for employees to stay with the company for 20 or 30 years. Nagle became a community leader and philanthropist.

Nagle was politically active, a Republican who forcefully preached the gospel of free enterprise.

"He was very strong-willed, and he opposed government interference in the business world," said Champ Holman, a longtime state Senate aide.

Nagle died of a heart attack in 2004. He was not accused of any wrongdoing, though prosecutors say the fraud began in 1992, 12 years before his death.

Ironically, the scam that triggered the company's downfall involved one of the meddlesome government programs that friends say Nagle so detested.

The Disadvantaged Business Enterprise, or DBE, program, is an affirmative-action project established in 1983 by the U.S. Department of Transportation. It requires 10 percent of every federal highway, bridge, and mass-transit construction project to be contracted to small or minority-owned companies. In a DBE company, 51 percent of the investors must be nonwhite.

In 1992, a struggling Connecticut engineer, Romeo P. Cruz, a U.S. citizen born in the Philippines, struck a secret deal with two Schuylkill Products executives, Timothy G. Hubler and Dennis F. Campbell: Cruz's minority-owned company, Marikina Construction Corp., would use its DBE status to win contracts, and Schuylkill Products would do all the work.

"In essence, Schuylkill Products . . . rented Marikina's name and DBE status to obtain lucrative government contracts that were slotted for small and disadvantaged businesses," prosecutor Bruce Brandler said at a court hearing.

Schuylkill Products employees performed virtually every task. They negotiated DBE deals for Marikina, delivered and installed concrete beams, and funneled payroll through Marikina. They even slapped Marikina signs on the Schuylkill Products trucks they drove to job sites.

Campbell, 62, and Hubler, 60, also took a 25 percent kickback from Cruz, 61, according to court records.

This went on for 15 years, according to court records.

In all, Marikina received 336 taxpayer-funded DBE subcontracts in Pennsylvania worth about $119 million. The U.S. Department of Transportation Inspector General's Office, which investigated the case with the FBI and Labor Department, says the case is the largest DBE fraud ever perpetrated against the transportation agency.

One major project was a $12 million DBE contract with SEPTA for renovation of the Market-Frankford Street El.

There is no allegation that any work performed was substandard or posed a threat to the public.

After Gordon Nagle died in 2004, family members squabbled over succession.

Fink, who started at the factory in 1970 and married Nagle's sister, controlled 49 percent of the company.

Nagle's estate controlled 51 percent. His son, Joseph W., who had been living in Florida, returned and got involved in the dispute.

After much acrimony, Fink, 64, and Joseph Nagle, 49, worked out a tense power-sharing agreement. They were both running the company when the FBI and Transportation and Labor Department agents raided Schuylkill Products in 2007.

Cruz, Hubler, and Campbell were indicted in 2008, pleaded guilty, and agreed to cooperate. They await sentencing.

Nagle and Fink were indicted in 2009 and vowed to go to trial.

Fink changed his mind in July, shortly after a court ruling that calculated the total fraud amounted to $119 million. The figure was so high that, under sentencing guidelines, Fink could face more than 25 years in prison if he went to trial and lost. If he pleaded guilty, he likely faced five years or less. He pleaded guilty, but, unlike the others, refused to cooperate with the government investigation.

"Mr. Fink did not want to be viewed as a fink," the prosecutor explained in a filing.

As Nagle proceeded to trial, his attorneys, Michael Schwartz and Kristin Jones, filed a long-shot motion, asking the judge to grant Fink immunity, forcing him to testify. Usually, grants of immunity are conferred by prosecutors, not judges.

Citing Fink's journal, the lawyers argued: "Mr. Fink is the only person who can explain one of the reasons why Mr. Nagle did not know about, and did not willfully join, the conspiracy: The strained, if not dysfunctional, family relationship between Mr. Nagle and Mr. Fink."

The prosecutor countered that the feud was irrelevant. "As anyone who watched The Sopranos knows . . . many coconspirators don't get along, and even hate each other." He added: "Judicial immunity is reserved for rare and extraordinary cases. . . . This case would set a new standard - conferring use immunity - without knowing in advance what the witness will say."

Fink's attorneys, Brotman and Mark Sheppard, argued that forcing him to testify would be unprecedented and unfair because he has yet to be sentenced. Several disputed facts, most notably the size of the fraud, could affect his sentence.

In her ruling last week, Rambo reasoned that Fink's testimony was "essential evidence" that would help jurors answer a central question: How could Nagle, president of a medium-size, family-owned company, not know about such a fraud?

If Fink testifies, it could make all the difference, she wrote. The only remaining question, the judge noted, is about what he will say.