'Kickback' allegations face ex-property exec.

He's accused of having vendors inflate fees, profiting

A former senior property management executive for one of the nation's largest real estate brokerages has been accused of arranging for a handful of service vendors at three major downtown Los Angeles buildings to inflate their charges and kick back more than $6.3 million to a consulting company in which he held a major stake, the Business Journal has learned.

In a suit filed in U.S. District Court in downtown L.A., Cushman & Wakefield Inc.'s insurance company, Waltham, Mass.-based Arkwright Insurance Co., has accused John England, the former senior vice president of C&W's California subsidiary, of funneling more than $2.5 million in "kickbacks" between April 1988 and May 1990 from an asbestos removal/abatement contractor, Barsotti's Inc. of Santa Fe Springs, to his consulting firm in exchange for England's granting contracts for work at the Hyatt Hotel/Broadway Plaza, now known as MCI Center.

C&W's top regional attorney, Joseph J. Cook II, said his firm's former on-site property manager at Broadway Plaza, Denis Charles, also was aware of the payments and received some of the money paid by Barsotti's. But Charles was not named in the Arkwright suit.

The suit was dismissed last week when Barsotti's and its former principal, Scott Barsotti, agreed to give Arkwright a total of $1.4 million. But the insurer still has claims pending against the estates of England and his alleged business partner, Mark Apicella, both of whom have filed for bankruptcy protection.

In a telephone interview with the Business Journal, England denied receiving any money in exchange for making contract assignments. He insisted all contracts he assigned "were always competitively bid to at least three contractors, always awarded to the lowest bidder, and always approved by the (property) owner." He said "there were never any overcharges" and "no property owners were ever damaged" by the contracts he signed.

C&W management learned of the alleged scheme from a former Barsotti's employee after C&W fired England in 1989 for alleged substance abuse problems, according to Cook, C&W's regional general counsel.

England sued C&W for wrongful termination in March 1990 but, according to Cook, dropped his suit in August 1990 when C&W lawyers informed England's attorneys that C&W was compiling evidence on the kickbacks allegations.

In March 1991, C&W reimbursed Broadway Plaza's owners -- a partnership of Japanese investors -- for the $2.5 million the owners were allegedly overcharged under the Barsotti's contract, according to Cook. Arkwright paid C&W for the loss under an employee theft policy and filed suit in March 1992 to recover the $2.5 million from England, Apicella, their firm -- Metro Building Service Consultants Inc. -- asbestos contractor Barsotti's Inc. and its former owner, Scott Barsotti.

Foster Wheeler Inc. of Clinton, N.J., which acquired Barsotti's Inc. after the Broadway Plaza contract was terminated by C&W, had also been named as a defendant. However, Judge Dickran Tevrizian dismissed the complaint against Foster Wheeler in June 1992 because the company bought Barsotti's after the alleged kickbacks scheme was terminated.

Arkwright has claims stemming from the suit pending against England's Chapter 7 bankruptcy estate in New Jersey and Apicella's Chapter 11 estate in California, according to the insurer's attorney, Michael Stern. Neither England nor Apicella has yet filed a formal response to Arkwright's allegations.

On July 6, Tevrizian dismissed the suit against Scott Barsotti and Barsotti's Inc. after attorneys for those two defendants and Stern informed the judge that they had reached a settlement. Stern told the court that Barsotti's Inc. had agreed to pay $1.37 million and Scott Barsotti $25,000.

Meanwhile, Cook told the Business Journal, investigations by C&W, aided through documents provided by Arkwright, have uncovered an additional $3.8 million in alleged improper payments that Metro collected from four other vendors at Broadway Plaza and two other, unidentified properties.

About $3.5 million of those payments involved Broadway Plaza vendors, Cook said, and Metro took in about $282,000 and $16,000, respectively, at the other two properties.

Cook said two of the four vendors have confirmed that improper payments were made to Metro and are cooperating with C&W in plans to reimburse the buildings' owners. These vendors continue to handle some C&W-managed properties, while the two that refused to cooperate no longer serve buildings in C&W's portfolio.

Cook of New York-based C&W, which is partly owned by Rockefeller Group, said C&W has continued to report its findings about the alleged kickback scheme to the U.S. Attorney's office in downtown L.A. for possible criminal action. And he said the U.S. Attorney's office "has reconfirmed to us recently that our investigation's conclusions are not erroneous in any way."

Assistant U.S. Attorney Christine Cleveland said she couldn't officially confirm or deny any ongoing investigation.

England worked at C&W from 1980 to 1989, overseeing Southern California property management operations during those last three years, and was the only employee in the national firm's long history to receive its annual top property management award twice. Court documents indicate England's Southern California property management division was the firm's most productive such unit.

England had authority to approve all contracts with vendors providing services at the 12 million square feet of Southern California properties -- in more than 50 buildings -- under C&W's management.

In documents filed in the Arkwright case, Arkwright attorney Stern claimed that England arranged for vendors to inflate fees charged to building owners -- and billed through England's department -- by as much as 15 to 20 percent beyond standard charges to cover "commissions" paid to Metro.

Metro was a consulting firm which allegedly paid profits to England, Apicella, Charles and two other individuals whom Cook wouldn't specifically identify.

Apicella also was principal owner of United Security Industries Inc., which was a contractor at several C&W-managed properties. Indeed, according to one C&W manager, USI was given favored treatment on contracts at C&W-managed properties.

Apicella filed for Chapter 11 bankruptcy protection in July 1991. In that filing Apicella stated he was a partner in Metro, and listed its address at 14328 Sunset Blvd. in Pacific Palisades. According to the bankruptcy filing documents, Apicella has since sold USI to an affiliate of Wells Fargo Guard Services.

He did not return calls made to his local office by the Business Journal seeking comment on the Arkwright suit.

According to a statement filed in the Arkwright suit by Barsotti's Inc. attorney Frank Silane, a deposition of Metro's and Apicella's bookkeeper, Kathleen Walker, states that England and C&W's Broadway Plaza property manager, Denis Charles, shared in Metro's profits.

C&W attorney Cook said Charles was terminated in November 1990 "for failing to ensure that (C&W's) policies were followed relative to bidding on contracts at Broadway Plaza." The C&W investigation conducted from November 1992 to April 1993 -- which identified Metro's partners and the other properties and vendors involved with Metro -- also revealed that Charles "was sharing in Metro's profits," according to Cook.

He added that England and Charles were the only C&W employees who knew about the alleged scheme while it was in progress.

Susan Jane, an attorney representing Marathon National Bank, one of Charles' creditors, told the Business Journal that private investigators have concluded that Charles is in Europe.

Attorneys for Barsotti's Inc. and Scott Barsotti filed statements denying that anyone at Barsotti's knew England shared in Metro's profits. They also said Barsotti viewed the payments as "introduction fees" paid to Apicella for introducing the Barsotti's firm to England.

However, former Barsotti's employee Chris Kirschenheuter claimed in a deposition filed in the Arkwright case that Scott Barsotti stated to Kirschenheuter repeatedly that he, Barsotti, "negotiated Metro's fees with England."

Kirschenheuter also quoted Barsotti as stating to him in private conversations that the Metro contract was legal if England's participation in Metro remained secret. Kirschenheuter also claimed Barsotti's typically calculated a "proper" bid with a reasonable profit margin built in, then simply added twice the amount of Metro's commission -- splitting that excess with Metro.

As for the additional $3.8 million allegedly paid by four vendors to secure service contracts at Broadway Plaza and two other properties, Cook said C&W has notified owners of the two other properties. He said C&W is working with two of the four vendors on a plan to reimburse the property owners and has filed additional insurance claims with Arkwright in connection with these alleged losses.

Cook did not identify the other two properties or the vendors allegedly involved, nor did he contend that representatives of all these vendors knew England had an interest in Metro when the payments were allegedly made.

However, in court records, attorneys for Barsotti's noted that Metro bookkeeper Walker's deposition identified Pedus Industries and Century Parking as having made improper payments to Metro to secure Broadway Plaza contracts.

A deposition from Robert Lichtenstein, C&W's regional property management director, indicates C&W canceled Broadway Plaza contracts with those two firms and Apicella's security guard firm in the wake of C&W's investigations.

Spokesmen for Century Parking and Pedus Industries said new contracts were drawn up and those two vendors are again providing services at Broadway Plaza and other C&W-managed properties. A Century Parking spokesman confirmed that payments were made to Metro, but said Century officials were unaware any C&W employee would benefit from the payments.

A Pedus spokesman said that firm's current management is cooperating with C&W in its investigation of issues relating to a former C&W employee, and does not believe Pedus has done anything improper in its dealings with C&W.

Meanwhile, Julie Priest-Kleinick, C&W's property manager at Shuwa Investment Corp.'s 1900 and 1901 Ave. of the Stars highrises in Century City during the late 1980s, told the Business Journal that England made it clear that Apicella's USI was to be the security contractor at C&W-managed Southern California properties -- with no need for competitive bidding.

While she also said she and other England employees were "very aware that we were limited in which contractors we could choose," she said she had no personal knowledge of any kickbacks at any properties. And she emphasized that England was not representative of the quality of C&W management.

C&W attorney Cook stated that C&W believes it has identified all vendors and payments allegedly made to Metro and all the properties involved.

He declined to identify two of the other three individuals that allegedly shared in Metro's profits, according to evidence he said was uncovered through investigations by C&W, Arkwright and others.

Lichtenstein testified in a deposition that Apicella told him that England was a "direct equity owner" of Metro and received 40 to 45 percent of the "fees" Metro collected from vendors. England said this statement by Apicella -- who England confirmed had been a close friend -- is not true.