Waste firm fraud alleged Customers bilked, indictment says

August 27, 1993|By Marcia Myers | Marcia Myers,Staff Writer

A major waste-management firm was indicted by a federal grand jury yesterday on charges that it bilked customers out of $3 million with a scheme so well-planned that some managers were trained to carry it out.

Prosecutors said that the scheme cheated hundreds of customers of Eastern Waste Industries Inc. of Annapolis over a period of more than four years. The indictment charges EWI with conspiracy and mail fraud.

Edwin J. Johnson, former vice president of operations at EWI, is accused of having authorized the alleged scheme, going so far as to order training sessions for some division managers "so there would be consistency throughout EWI divisions and less ++ chance of getting caught," according to an FBI affidavit.

Prosecutors said that the practice of overcharging was referred to by company officials as "fluffing" and continued from November 1987 until April 1992. The scheme is alleged to have occurred at EWI divisions including Finksburg, Frederick, Annapolis, Salisbury, Honeybrook and Delmar. Only "roll-off" customers were affected -- those who place rubbish in large containers, which the company picks up, empties at a landfill and returns to the customer, prosecutors said.

Lynne A. Battaglia, U.S. attorney for Maryland, said that the case would be vigorously prosecuted and that the investigation of EWI, one of the nation's largest waste-management firms, and its parent company, Attwoods PLC in England, is continuing.

The 20-count indictment names EWI and eight current or former executives. The indictment charges conspiracy to commit mail fraud and mail fraud. Each charge carries a maximum penalty upon conviction of five years in prison and a $250,000 fine per count for each individual. The maximum fine for the corporation is $500,000.

A separate indictment charges EWI, three of its executives and Montgomery County Sanitation Inc., which EWI purchased in 1990, with scheming to defraud Montgomery County regarding its minority set-aside program.

Prosecutors said that the defendants set up sham subcontracts with shell corporations to convince the county that it had met minority-subcontractor requirements.

EWI released a statement yesterday saying that full restitution had been made to customers who had been overcharged and that those steps began before the company was notified in August 1991 that it was being investigated.

As to the second indictment, the statement said, the contract was administered "to the satisfaction of the municipality and its residents."

"EWI has sought to cooperate fully with the authorities at all times," the statement said.

According to court records, the company cheated customers by falsifying records so it appeared that EWI had picked up more trash than it actually had, and customers were then billed for the excess. Other customers were charged an inflated landfill fee.

When the Frederick division manager, John Kagle, objected to the practice in September 1989 and refused to participate, he was demoted and sent to the Finksburg division, according to statements by colleagues that are included in court records.

During several months in 1990, the company raked in more than $100,000 a month from false billings in the Finksburg division alone, according to court records.

In late 1989 and through the spring of 1990, when customers began phoning to complain about their bills, officials instructed some workers to ignore the complaints or blame the mistakes on computer problems, according to the investigator's affidavit.

Court records also indicate that when one customer began asking pointed questions and demanding explanations for his increased bill, EWI was reluctant to supply answers.

Bruce Baldwin, who was then a property manager for Gorn Management in Baltimore, began asking questions in December after noticing a sharp increase in the company's trash-hauling bill, according to the FBI affidavit.

Mr. Baldwin asked for an explanation, but didn't get one until EWI sent him a letter dated Oct. 24, 1990, explaining that the company's records showed Gorn had been overbilled by $67,000, the affidavit said.

The company invited Mr. Baldwin to review the records at the Annapolis office, but he discovered that those being made available were insufficient and he couldn't adequately check them, according to the affidavit.

EWI sent some customers letters notifying them that "billing problems" existed, and that the company was reviewing the problem and would let customers know the results, the affidavit said.

But only a few customers received refunds or credits that totaled about $90,000, according to court records.

Bob Ernst, who was hired in April 1990 to be division manager in Finksburg, told investigators that when he assumed his duties, co-workers detailed the billing fraud system that their former boss had operated, according to the affidavit.

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