Two computer specialists who formerly were high-ranking U.S. Postal Service officials were convicted yesterday by a federal jury here of operating a massive bribery, bid-rigging and mail fraud scheme involving $2 billion worth of government procurement contracts.
In addition, the jury ordered one of the men, Ronald J. Perholtz, 38, of 1620 Chester Mill Rd., Silver Spring, to forfeit to the government more than $850,000 that it said was money he got illegally through the contract scheme.
A third man was convicted of wire fraud, and the fourth defendant in the case, which U.S. Attorney Joseph diGenova said was the largest government procurement fraud case ever prosecuted here, was acquitted of all charges.
U.S. District Judge Gerhard A. Gesell, who noted that "there is a lot of money unaccounted for," said the three should "come with their bags packed" when they report for sentencing next month.
Perholtz and Franklin W. Jackson, 38, of 10409 Collingham Dr., Fairfax, were convicted of conspiring to operate and operating a racketeering-influenced criminal organization (RICO) and 13 counts of mail fraud. They face a maximum of 20 years in prison and a $25,000 fine on each of the RICO counts and five years in prison and a $1,000 fine on each of the mail fraud counts.
Gregory W. Fletcher, 39, of 4247 S. 35th St., Arlington, was convicted of 10 mail fraud counts. Lloyd R. Root Jr. of Phoenix was acquitted on 10 mail fraud counts.
According to testimony presented during the eight-week trial, Perholtz and Jackson orchestrated a scheme through which they received hundreds of thousands of dollars in kickbacks and bribes on contracts designed to computerize the Postal Service and Small Business Administration. In most cases, the payments were actually made to real or dummy corporations and were routed through other persons or businesses to the men.
Perholtz, described by his lawyer as "a pioneer in his field" who made a "tremendous amount of money" in a "high risk . . . high technology field," dropped his head to his hands as Gesell read the verdict from the jury of seven women and five men who deliberated for eight hours over two days.
Assistant U.S. Attorney Joseph Valder asked that Perholtz be imprisoned immediately, arguing that the seizure of Perholtz's assets and unresolved questions about a recently discovered bank account in the Cayman Islands might tempt him to flee the country.
The bank account, which is in the name of a corporation used to funnel illegal payments to Perholtz and others, at one time contained about $80,000, some of which apparently was transferred there from a Canadian bank, prosecutors said. The account currently contains about $6,000, according to Valder.
Gesell released all three men, but ordered that by Monday Perholtz must pledge his house, worth more than $200,000, as security that he will appear for sentencing. The judge ordered Fletcher and Jackson to post $10,000 surety bonds on Monday.
The men and their attorneys said they had no comment on the verdict.
DiGenova said the verdict, which capped a two-year investigation by Postal Service inspectors and Internal Revenue Service agents, was "very gratifying."
"The magnitude of the scheme underscores the vulnerability of the procurement process," he said, "and counsels vigilance by all government agencies in the monitoring of their procurement processes."
Conley H. Dillon, who was indicted along with the four defendants, pleaded guilty in December to one count of filing false income tax returns and has promised to repay the government $360,000. Prosecutors said Dillon has already repaid more than $100,000.
Among those who testified against the men was John Gentile, a former assistant postmaster general who was given immunity from prosecution in exchange for his testimony. Gentile has agreed to repay $40,000.
The government has also filed a civil suit against the four defendants as well as a man named in the indictment as a participant in the bribery and kickback scheme but who was not charged, and 10 firms, eight of which were controlled or owned by the defendants. The suit is designed to recover more than $1 million obtained fraudulently.
Ashby G. Reid Jr. of Culpeper, the man named in the indictment, has already reached an agreement to repay much of the $143,000 the government claimed he received through kickbacks.
According to testimony, the scheme usually used an "inside man" to provide Perholtz, the "outside man," with information about planned computer projects at the Postal Service and the Small Business Administration. Perholtz, who had consulting agreements with many computer firms, would then design the computers and programs needed for the project and negotiate a "marketing contract" with the computer firm for any sales.
The "inside" man would then steer the contract to the company for which Perholtz had designed the technical package and payments under the marking contracts were made, through circuitous routes, to the "inside" man, Perholtz and others.