Two General Services Administration office supply store managers and two officers of a Maryland office supply firm pleaded guilty yesterday to defrauding the federal government in a GSA bribery scheme that cost taxpayers $1.7 million in just three years.
The office supply firm, Hilles Associates of Westminister, Md., paid $1.3 million in bribes - cash, jewelry, appliances and other things - to managers of GSA office supply stores in federal buildings throughout the Washington area, according to Assistant U.S. Attorney Daniel M. Clements.
In return for the bribes, the GSA store managers approved $1.7 million in GSA payments to the Hilles firm for office supplies that were never delivered to GSA, prosecutor Clements said in proceedings in federal court here for the four men who pleaded guilty.
The Hilles firm kept the $391,000 difference between the $1.7 million it fraudulently received from GSA and the $1.3 million it paid in bribes to the GSA store managers, Clements said in court.
The chairman of Hilles Associates, H. David Levyne, 44, and the firm's vice president, Charles H. Oertel, 55, pleaded guilty yesterday to defrauding the government, as did William E. Eason, 62, who ran the GSA supply store at the Navy's Arlington Annex, and Robert M. Rawes, 58, who until his indictment last week was manager of the GSA supply store in the Jefferson Plaza federal office building in Arlington.
The four convictions are the first in the ongoing federal investigation of the GSA supply stores, which provide office supplies for federal workers, and many more indictments are expected, according to prosecutors.
Meanwhile, federal prosecutors in Washington are investigating a pattern of corruption in the manner that GSA managers of federal buildings contract for repairs and maintenance. Prosecutors in other cities are probing still other aspects of GSA's nationwide operations as the landlord and supply agency for the federal government.
GSA special counsel Vincent Alto, who was brought into the agency to coordinate internal investigations, estimated at a congressional hearings on Tuesday that corruption in GSA had cost taxpayers as much as $100 million a year.
The corruption "goes much higher than managers of supply stores," Alto said. "What we've seen is just the beginning."
In pleading guilty yesterday, GSA store manager Eason admitted that he had received from Hilles Associates automobile tires, a lawn mower, wood paneling and a "loan" in return for his certifying that GSA had received from Hilles hanging file folders that were never delivered.
"When this all started," the slightly built defendant explained to federal Judge Joseph H. Young. "I was approached by Oertel [the Hilles vice president] and told, 'You do this because it won't be a problem and they're doing it upstairs'" at GSA.
Oertel contended in court that the GSA store managers instigated the scheme. "The company gave them cash, TV sets, rings and items as you [the prosecutors] decribed," said Oertel, who was neatly dressed in a navy blue jacket and gray slacks.
Prosecutor Clements told the judge that the scheme was a "two-way street," in which the Hilles firm sometimes offered bribes and GSA store managers sometimes demanded them in exchange for seeing that GSA paid Hilles for more merchandise than it delivered.
"The testimony [that would have been given at trials] is based on the simple premise that Hilles could not sell to GSA what they did not buy," Clements told Judge Young.
For example, Clements said, Hilles was paid by GSA during the three years ending in 1977 for 4.5 million hanging file folders, but the firm purchased only 993,000 folders from its supplier. Hilles also was paid by GSA for 323,000 containers of glue, but had purchased only 127,888 from its suppliers.
When GSA store managers desired particular gifts, Clements said, they called Oertel or one of two Hilles secretaries who instructed them to get the items at stores where Hilles had made credit arrangements. At the same time, Clements said, the GSA store managers provided the Hilles employes with a GSA order number that Hilles later used to bill GSA for goods never delivered.
Hilles spent $125.000 at Sears stores to provide GSA store managers with microwave ovens, stereo sets, diamond rings, watches, and clothes, the court was told. Hilles spent $235.000 on GSA store managers at George Rosen Co., a Baltimore appliance store, the same amount at Pier One, a Columbia, Md., clothing store, and $301.213 at Keegan's Appliances in Washington, the prosecutor said.
Keegan's also was used to provide the GSA store managers with more than $100.000 in cash, which was delivered by the store to Oertel for distribution to the store managers, Clements said in court.
In the case of GSA store manager Eason, the scheme to pay Hilles for goods never delivered was aided by employes of the Social Security Adminstration and two units of the Navy who were trying to use up money left over at the end of the fiscal year so Congress would not reduce their agencies' budget, Clements said.
They allowed Eason to charge their agencies for supplies the agencies never received, according to Clements, which provided Eason with enough GSA money to pay Hilles for goods never delivered to GSA.
Eason provided the other federal employes with color television sets, Clements said.
The Baltimore investigation began when a former girlfriend of a Maryland GSA store manager informed GSA's Office of Investigation that the manager had been receiving gifts from office supply firms. GSA turned the information over to the FBI and the U.S. attorney's office here issued subpoenas for Hilles' records and those of the firms Hilles purchased its supplies from.
During yesterday's court proceedings, Hilles chairman Levyne, a baldish man dressed in a three-piece brown suit and yellow shirt, stood with eyes lowered as the charges against him were read to U.S. District Judge Alexander Harvey II in another court room.
Prosecutor Clements said that, in return for cooperation already given and expected in the future in his office's continuing investigation of GSA, he is recommending reduced sentences for the four who pleaded guilty yesterday.
He recommended a jail sentence of no more than two years for Levyne and Oertel and of no more than 15 months for Eason and of a year and a day for Rawes. The maximum penalty is five years in jail and a $10,000 fine.
Sentencing in the cases was delayed until next spring because the defendants are cooperating with the prosecutors.