TesTech owners pay $2.9 million to settle fraud case

Prominent Washington Twp. developers David C. and Shery Oakes, along with their former business partner Sherif Aziz, have agreed to pay the U.S. government nearly $2.9 million to settle civil claims that they defrauded the government by making false statements about a civil engineering company called TesTech to obtain millions of dollars in federally funded transportation contracts.

Federal prosecutors allege the Oakeses and Aziz submitted false claims for payment for airport and highway projects in Ohio, Kentucky, Indiana and Michigan from April 2005 to June 2009. They did it, prosecutors say, by holding out Aziz as TesTech’s owner and president to qualify for a federal minority set-aside program while the company actually was owned and controlled by the millionaire Oakeses.

The Oakeses’ attorney, David N. Reed of Dayton, said the couple would have no comment. David Oakes owns a civil engineering company called CESO Inc. and Shery Oakes is owner of luxury home builder Design Homes and Development Co. Their company and TesTech are all located in Washington Twp. Aziz’s attorney, William E. Hunt of Cincinnati, did not return a phone call seeking comment.

In a settlement agreement released to the Dayton Daily News on Thursday by federal officials, the Oakeses and Aziz admit no liability and the government reserves its right to bring criminal charges. The parties agree that the government has a valid claim against the defendants for more than $5 million, and the government can go after the full amount if the defendants try to avoid their obligation to pay the settlement amount of $2,883,946.30.

According to the settlement agreement, it was reached “to avoid the delay, uncertainty, inconvenience and expense of protracted litigation.”

Federal transportation investigators built a case showing that the Oakeses were the real owners of TesTech Inc., even though Aziz, who is Egyptian-American, represented himself as owner and president on paper in order to convince the government that TesTech was eligible for special federal contracting preference under the Transportation Department’s Disadvantaged Business Enterprise program.

The Oakeses don’t qualify for the lucrative DBE designation, which is reserved for small businesses majority-owned and operated by certain minorities and other disadvantaged people who meet income eligibility requirements. DBE businesses are required to be independent of other businesses. Aziz, who is related to Shery Oakes by marriage, got into the program by claiming he is “African-American.” Rules state Egyptians are not disadvantaged minorities.

DBE fraud can occur when ineligible contractors hire front men claiming to be the actual owners.

In July 2011, federal transportation agents raided TesTech’s offices in the Galleria Building at 8534 Yankee Street, which also houses the Oakes companies, seizing business records pursuant to a search warrant. The Daily News in October obtained a 900-page transcript of a closed-door Ohio Department of Transportation hearing that referenced some of those records. They included internal memos showing Aziz worried that his hidden business ties with David Oakes would be easily uncovered in an audit and “viewed as fraudulent,” resulting in what he warned could be “serious legal ramifications” for both men.

Hearing Officer Stephanie B. McCloud concluded last year that Aziz’s memos “can only be described as the thoughtful deliberation by the author to legitimize an arrangement that, in its current form, would lead a regulating agency to a finding of fraud.”

Upon her recommendation, ODOT ousted TesTech from the program last year. ODOT administers the federal DBE program in Ohio.

Evidence in the ODOT hearing also included findings of a months-long Daily News investigation published in October 2011, which uncovered numerous ties between TesTech and the Oakeses. Among them: David Oakes’ CESO and Aziz’s TesTech appeared interchangeable in official documents and shared equipment and staff. Based partly on the Daily News findings, McCloud ruled that David Oakes claimed ownership of TesTech when it suited his purposes, but used Aziz, who had been his employee, to give the appearance of minority ownership to obtain government contracts.

The settlement agreement and the complaint that preceeded it were filed under seal in U.S. District Court in Columbus, but unsealed by court order Wednesday. Under the agreement, Ryan Parker, a former TesTech vice president and longtime Oakes employee, is to receive $562,370 of the $2.9 million for cooperating with the government in its investigation.

“This was not a vindictive thing in any way,” Parker said of his cooperation. “I just felt it was the right thing to do.”

He declined to comment further about the case.

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