Posted on Friday, December 17, 2010
Of all the city programs that have ever gone wrong in New York, few could compare to CityTime, an automated system meant to streamline employee timekeeping.
Mayor Michael R. Bloomberg has called the project a “disaster,” and perhaps with good reason: the project’s cost has exceeded $600 million, nearly 10 times over budget, and is six months past its due date. Meanwhile, consultants who were hired to oversee putting the project into effect have been paid nearly $50 million — $46 million more than they were initially supposed to receive.
And on Wednesday, federal prosecutors in Manhattan charged several of the consultants with an $80 million fraud scheme that began in 2005, accusing them of manipulating the city into paying out expensive contracts to businesses that they controlled, and then redirecting some of that money to enrich themselves. They even submitted false time sheets, the authorities said.
“The issue is that here we had somebody that we trusted, or one of our contractors trusted, and that trust was misplaced,” Mr. Bloomberg told reporters. “And we just have no tolerance for this whatsoever.”
Prosecutors said the scheme originated with Mark Mazer, a consultant who was hired by the city to oversee quality assurance on the project. Instead, he awarded contracts to people he had ties to and took nearly $25 million in kickbacks, prosecutors charged.
Mr. Mazer, his colleague Scott Berger, and the men whose companies he steered business toward, Dmitry Aronshtein and Victor Natanzon, also submitted false time sheets for consulting work, the authorities said.
Mr. Mazer’s wife, Svetlana, and his mother, Larisa Medzon, were also arrested and charged with money laundering for funneling the kickbacks through a series of shell companies, prosecutors said.
The indictment raises questions of the city’s oversight of the CityTime project, and how the Office of Payroll Administration, a hybrid agency of the mayor’s and comptroller’s offices, lost control of the project under the office’s executive director, Joel Bondy.
Before taking over the payroll administration office in 2004, Mr. Bondy worked as a subcontractor on the CityTime project for Spherion, the quality assurance consultant that hired Mr. Mazer and Mr. Berger.
Although he was a subcontractor, Mr. Mazer held an informal position of authority in the city’s payroll administration office, with direct access to Mr. Bondy and the power to shape and approve contracts and work orders, the authorities said.
At a City Council hearing last December that was dedicated to CityTime, Mr. Bondy testified that Mr. Mazer and Mr. Berger “have proven themselves in the past and currently to be highly capable and competent at their jobs.”
“The reasons why they are working in these positions,” he added, “is because of that competency.”
Mr. Bloomberg declined to speak about Mr. Bondy or any other individuals until the investigation was complete, saying only, “We have zero tolerance for any corruption.”
Mr. Bondy did not respond to a telephone message seeking comment.
Rose Gill Hearn, the commissioner of the city’s Department of Investigation, said in a statement, “The supposed experts hired and paid well to protect the city’s interests were exposed as the fox guarding the hen house, secretly pocketing millions and purchasing expensive homes and cars.”
The department, which teamed with the United States attorney’s office in Manhattan, began the inquiry in June after learning that a CityTime consultant was being paid by an unauthorized company, DA Solutions, instead of the primary contractor, Science Applications International Corporation, according to a criminal complaint filed in court.
Investigators learned that Mr. Aronshtein owned DA Solutions. Prime View, another company that many CityTime consultants said had paid them, was owned by Mr. Natanzon, the complaint said.
Mr. Mazer hired both of those companies. DA Solutions and Prime View were paid more than $76 million, the authorities said, but it was unclear whether the money was for legitimate services. The companies kicked back more than $24.5 million to Mr. Mazer, who routed it through a series of shell companies owned by his mother and wife, the authorities said.
In addition to the kickbacks, Mr. Mazer received more than $4.4 million as part of his contract with Spherion, the authorities said.
Spherion first came onto the project in 2001, signing a three-year, $3.4 million contract to supervise the quality assurance. Spherion’s deal has been amended 11 times, and the company has been paid more than $49 million, the authorities said.
The repeated investments into the CityTime project and renewal of contracts drew the ire of the city’s comptroller, John C. Liu, who wrote a letter to the mayor in March asking that he freeze all business with the “endless money pit.”
After a contentious debate over the renewal of Science Applications’ contract, a deal was reached in September in which the software developer agreed to have all 165,000 city employees on CityTime by June 30. Only then will the city pay Science Applications another $32 million. For every month that the company is overdue, $3 million will be docked from the final payment.
After the indictment was announced, Mr. Liu called for an emergency session of the payroll administration office’s board of directors. “These charges will be another stain on the checkered history of the CityTime project,” he said. All six defendants appeared before Magistrate Judge Henry B. Pitman on Wednesday evening and were scheduled to be released later on bail. Mr. Mazer’s bond was set at $2 million, Mr. Aronshtein’s bond was set at $1 million, and both Mr. Natanzon and Ms. Medzon were required to sign $500,000 bonds. Mr. Berger’s bond was set at $400,000, and Ms. Mazer’s was $250,000.
After the proceeding, Mr. Natanzon’s lawyer declined to comment, but lawyers representing the other defendants asserted their innocence.
Gerald Shargel, who represented the Mazers and Ms. Medzon said, “My clients steadfastly deny the charges.”
David W. Chen and Colin Moynihan contributed reporting.NYT