Aggregate supply, hauling contract fraud nets hefty fine, lengthy sentence

Sources: U.S. Department of Justice Criminal Division; U.S. District Court for the Eastern District of California, Fresno Division

A U.S. District Court judge has sentenced Chester L. Neal, Jr. of Bourbon Oak, Mo., to a 57-month jail term and ordered him to pay $3.735 million in restitution following a guilty plea to one count of mail fraud. Admissions in connection with the plea indicate a July 2008–December 2017 scheme during which the defendant landed contracts to purchase and transport rock, gravel and other raw materials to federal agency sites. 

“After winning these contracts, Neal fraudulently induced subcontractors to perform the required work,” the Justice Department notes. “But when paid by the government for his subcontractors’ work, he did not pay his subcontractors.” In a December 2017 indictment, Justice attorneys contended that the defendant:

  • Pursued federal contracts through two namesake entities, plus Elska Peninga LLC, Phoenix Construction and Phoenix Underground Construction;
  • Engaged a California crushed rock and trucking service provider, along with at least 35 other small- or medium-sized businesses across the U.S.—all dubbed “victim vendors”—to act as subcontractors on contracts he and his businesses entered into with federal agencies;
  • Through an online, reverse-auction service, FedBid Inc., or bids submitted directly to contracting offices, secured more than 100 aggregate supply and delivery or related materials contracts with the U.S. Air Force, U.S. Army, Bureau of Reclamation, U.S. Fish & Wildlife Service and National Park Service;
  • Made misrepresentations to induce victim vendors to perform contract work or extend him credit without providing collateral;
  • Led certain victim vendors to believe he was an Army private, on the federal government payroll, or an employee of a Yosemite National Park benefactor;
  • Secured contract payments by arranging transfer of federal funds to bank accounts he controlled; and, 
  • Defrauded victim vendors of at least $2.6 million by not paying for goods provided and services rendered to the federal agencies awarding the contracts. 

Two counts of mail fraud outlined in the indictment stemmed from the mailing of invoices the defendant instigated in conjunction with a contract involving the California crushed rock supplier and Yosemite Conservancy. A Justice Department announcement on the sentencing and fine reveals a depth of inquiry into Neal’s scheme. In addition to U.S. Attorney’s Offices and Federal Bureau of Investigation staff, the case involved the Air Force Office of Special Investigations’ Office of Procurement Fraud Unit; Army Criminal Investigation Command’s Major Procurement Fraud Unit; Defense Criminal Investigative Service; and, Interior Office of Inspector General.