4:12-cr-00862
N.D. Cal.Jul 23, 2015Background
- Defendants Brian Federico (Imperial Shotcrete manager) and Kevin Laney (Matrix senior project manager) were tried in a bench trial for conspiracy and substantive mail fraud involving kickbacks funneled through bogus subcontractor invoices; three co-conspirators pleaded guilty and testified.
- Matrix discovered that project managers approved inflated or fabricated subcontractor invoices submitted to Imperial; Imperial then paid those bogus vendors (fake companies controlled by conspirators), which in turn distributed funds back to the project managers and Federico. Matrix reimbursed clients over $1.3 million after discovery.
- The scheme used fabricated companies (e.g., Rogue Consultants, APL, Hourmouzus & Sons, Burnette Engineering Resources, CEMS) to funnel Matrix payments downstream; Laney created Rogue and received substantial kickbacks; Federico created CEMS and APL and received large payments.
- Defendants admitted document authenticity but argued their intent was to recover alleged owed profits (Federico claimed a secret profit-sharing arrangement with Imperial’s owner) or to help a friend (Laney claimed a finder’s fee), and that Matrix received fair market value so it suffered no loss.
- The court found defendants not credible, concluded the scheme depended on deceptive concealment from Matrix (so Matrix was the intended victim), and traced specific transactions supporting convictions on conspiracy (Count One) and multiple substantive mail fraud counts (Counts Two and Three), while acquitting Federico on Counts Four and Five.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants conspired to commit mail fraud (intent to defraud victim) | Defendants knowingly participated in a scheme to deceive Matrix so funds would flow from Matrix through Imperial to bogus vendors and to conspirators | Defendants lacked intent to defraud Matrix; payments were to settle private debts or owed profits and/or legitimate fees | Guilty as to conspiracy (Count One); court found specific intent to defraud Matrix proven and defendants not credible |
| Whether substantive transactions constituted mail fraud (material misrepresentations causing deprivation) | Specific inflated/false invoices and downstream payments show material misrepresentations and deprivation of Matrix’s right to fair, informed contracting | Market-value defense: Matrix received fair value for work, so no deprivation of money/property | Guilty on Counts Two and Three; court held concealment of material facts deprived Matrix of ability to assess value and would have prevented payment |
| Mailing element (use/foreseeability of mail) | Mailings (checks mailed from Matrix to Imperial) were foreseeable steps in the scheme and used in furtherance of fraud | No meaningful challenge after stipulation to mailed checks | Mailing element satisfied for all mail-fraud counts and conspiracy |
| Sufficiency as to specific projects (Counts Four and Five re: Zembrycki/Plains All-American) | Government: similar scheme evidence tied to these projects | Defense: no evidence tying Matrix project manager to bogus companies or material misrepresentations; single small payments insufficient | Not guilty on Counts Four and Five as government failed to prove material misrepresentation or tie to Matrix project manager |
Key Cases Cited
- United States v. Bonallo, 858 F.2d 1427 (9th Cir.) (intent to defraud victim can be established where defendant’s conduct effectively harmed the institution that reimbursed customers)
- McNally v. United States, 483 U.S. 350 (1987) (mail fraud targets deprivation of money or property by trick or deceit; statute reaches schemes involving money/property)
- United States v. Utz, 886 F.2d 1148 (9th Cir.) (mail fraud requires either actual deprivation or intent to defraud victim of money/property)
- United States v. Treadwell, 593 F.3d 990 (9th Cir.) (definition of ‘‘deprive’’ in fraud context—taking away property; focus on deprivation of victim’s property rights)
- United States v. Montgomery, 384 F.3d 1050 (9th Cir.) (mailing element satisfied if defendant knew or reasonably could foresee mail use in ordinary course of business)