Illinois Man Pleads Guilty to Fraud Charges

UNITED STATES ATTORNEY'S OFFICE
EASTERN DISTRICT OF MISSOURI

RICHARD G. CALLAHAN 
United States Attorney

February 15, 2012
For Immediate Release

ILLINOIS MAN PLEADS GUILTY TO FRAUD CHARGES

St. Louis, MO - The United States Attorney’s Office announced today that Joseph Madlinger pled guilty to a criminal conspiracy involving government contracting fraud and the illegal payment of gratuities to a federal official.

According to court documents, the Service-Disabled Veteran-Owned Small Business Program (SDVOSB Program) was established to help allocate government business to companies owned by service-disabled veterans.  By 2007, the SDVOSB program was emerging as a significant program of emphasis for government contracting and presented a significant opportunity to do business on a preferential basis with the government.  Joseph Madlinger was a civil engineer and project manager engaged in the commercial construction business in the St. Louis area, and his co-conspirator was a contractor doing business through an entity called Gateway Contractors (Gateway).   However, Gateway Contractors could not qualify as an SDVOSB because neither of them were service-disabled veterans.

In order to get around the contracting rules and regulations associated with SDVOSB, Madlinger and his co-conspirator approached a service-disabled veteran, who, although having some experience as a construction inspector, had no experience running a construction company.  The service-disabled veteran (SDV) also had no capital to invest in a construction company. The veteran’s role was merely to be a  nominal owner of an SDVOSB with no additional duties. After getting the SDV’s concurrence, Madlinger and his Gateway co-conspirator subsequently listed him as the owner of CJMS Contracting, LLC (CJMS), a shell company, so that they could get SDVOSB set-aside contracts from VA and other federal government agencies.

Joseph Madlinger, his conspirator and the SDV provided benefits from 2007 until 2010 to a VA employee, now retired, to ensure that a continuous flow of work to be performed at the VA medical center in St. Louis and the Jefferson Barracks cemetery would be directed to CJMS. The benefits included luxury box tickets at sporting events, numerous lunches and numerous interest free loans. CJMS was awarded approximately $3.4 million in government contracts at the VA medical center and the Jefferson Barracks National Cemetery for CJMS.  Gateway received approximately $2.1 million as CJMS’s primary subcontractor on these contracts.

John Brooks, Special Agent in Charge of the Central Field Office, U.S. Department of Veterans Affairs-Office of Inspector General, said, “VA OIG diligently pursues allegations of corruption of VA employees and seeks prosecution of those who offer or accept bribes.  We also have no tolerance for individuals and companies who defraud a program designed to provide preference in gaining government contracts to service-disabled entrepreneurs who have made significant sacrifices in service to our Nation.”

Scott Dennis, Special Agent in Charge of the SBA-Office of Inspector General (SBA-OIG), Central Region, stated, "The SBA-OIG will continue to aggressively investigate all allegations of corruption and bribery in SBA programs. Fraud in the SDVO program in particular continues to be on the rise, which denies our truly service disabled vets from the assistance they deserve after faithful service to their country. It will not be tolerated."  

Special Agent in Charge John Kolze of the U.S. General Services Administration Office of Inspector General Midwest Regional Office stated, "We will not tolerate abuse of GSA programs and operations by contractors who lie to get government contracts that are supposed to go to legitimate small disabled veteran-owned businesses."

Joseph Madlinger, Dupo, IL, pled guilty to one felony count of conspiracy to commit mail and wire fraud involving the payment of gratuities to a federal official before United States District Judge Catherine D. Perry.  Sentencing has been set for May 8, 2012.

He now faces a maximum penalty of five years in prison and/or fines up to $250,000.  In determining the actual sentences, a Judge is required to consider the U.S. Sentencing Guidelines, which provide recommended sentencing ranges.

This case was investigated by the Offices of Inspector General for the Department of Veterans Affairs, the General Services Administration and the Small Business Administration.  Assistant United States Attorney Tom Albus is handling the case for the U.S. Attorney’s Office.