Two computer specialists described by their lawyers as "brilliant" men who helped to modernize financial management systems at the U.S. Postal Service and Small Business Administration were involved in a massive bribery, bid-rigging and mail fraud scheme that "corrupt(ed) the federal procurement process" on six major projects at the agencies, a prosecutor told a federal jury here this week.
Ronald J. Perholtz and Franklin W. Jackson, both 38, excelled at "finding people and government agencies and using them and victimizing them to the personal benefit of Mr. Perholtz and Mr. Jackson," Assistant U.S. Attorney Joseph Valder told a U.S. District Court jury Tuesday during opening arguments.
Perholtz, of 1620 Chester Mill Rd., Silver Spring, and Jackson, of 10409 Collingham Dr., Fairfax, are each charged under the racketeering statutes with conspiracy to commit bribery and mail fraud and with bribery and mail fraud. As part of those charges, the government is seeking to recover hundreds of thousands of dollars that it says Perholtz got through illegal activities.
They also are charged, along with Gregory Fletcher, 39, of 4247 35th St., Arlington, and Lloyd E. Root Jr. of Phoenix, with 10 counts of mail fraud.
At issue in the trial, which is expected to last up to three months, is the four men's involvement in "procurement contracts with actual and potential value of millions and billions of dollars," Valder told the seven-woman, five-man jury.
The contracts involve the three Postal Service employe time and attendance record keeping systems; a postal service project to computerize mail window services such as stamp purchases; a sophisticated financial management system, and a nationwide computerized financial management system for the SBA.
Using hidden marketing, royalty and consulting agreements, Valder said, the four men enriched themselves illegally at the expense of the government through these contracts.
The government maintains that Perholtz was paid nearly $800,000; that Jackson received $27,000 and a partnership interest in a Miami condominium; that Fletcher was paid $40,000 and a partnership interest in the Miami condo, and that Root received $143,000.
A fifth man charged in the original indictment pleaded guilty last month to one count of filing false income tax returns and has promised to repay $360,000 to the government.
The government is also expected to file a civil suit against the participants in the alleged bribery, bid-rigging and kickback scheme in an attempt to recover additional funds.
Among the government witnesses will be John Gentile, a former assistant postmaster general who was given immunity from prosecution in exchange for his testimony.
But attorneys for each of the men told the jury that the government had more than "gotten its money's worth" from each of the computer projects and attacked the three main government witnesses as known "crooks" and "thieves" who had made deals with the prosecutors to save themselves from harsh prosecution.
John R. Conroy told the court that his client, Jackson, was a hands-on computer expert who simply did his job and could not have taken part in the bribery and kickback scheme as the government has charged because he did not make "policy decisions."
Jackson "has not profited from all of this. He has not done anything wrong. He is not a criminal," Conroy said.
Steven Schaars described Perholtz as a "pioneer in his field . . . hard-driving and brash" who made a "tremendous amount of money" by being extraordinarily successful in a "high risk . . . high-technology field" that also could have meant "dramatic financial failure."
According to the scheme laid out by the government in its indictment and opening arguments, Perholtz, Jackson and Fletcher have known each other since the early 1970s when they worked together at Arthur Andersen & Co.
By 1977, Perholtz and Jackson both were working at high-level jobs in the Postal Service's accounting division and they and Gentile often ate lunch together and talked about their personal problems.
Perholtz wanted to leave the Postal Service, but worried about how he would support his wife and children. Gentile needed money to supplement his government salary, and Jackson wanted more money, too.
The men agreed that the answer to their problems was for Perholtz to resign from the government, "form his own corporation and get consulting and royalty agreements with private companies" that could meet the Postal Service's growing need for computers, Valder told the court.
Gentile and Jackson agreed to let Perholtz know in advance about the Postal Service needs and in turn Perholtz would assist Jackson in writing bid documents that were tailored to the equipment and computer programs that Perholtz's firms could supply. It was also agreed that the three would split evenly the royalties Perholtz received from the outside companies.
The first effort by the three men to channel Postal Service business to firms Perholtz represented came in 1978 in connection with a payroll accounting problem, but an unrelated court order transferred the entire problem to the Labor Department.
Almost immediately, Perholtz secured a consulting and royalty agreement with Essex Engineering Co. of Essex, Conn., to help develop a computerized system that could be sold to the Postal Service to keep track of employe time and attendance records. Soon the Postal Service issued a request for quotations that was "exactly tailor-made to the product that Essex was able to supply."
In early 1979, Essex was awarded a contract by the Postal Service for 100 units for what was expected to become a 1,200-unit computerized system called ATAP (Automated Time and Attendance Project).
In May of the same year, Jackson left the Postal Service to join International Business Systems Inc., a District firm that his friend Fletcher had joined as vice president of operations a few months earlier. Soon Perholtz, too, had signed on at IBS, as an independent consultant.
At IBS, Jackson became project manager for what soon became a major procurement project for the Small Business Administration.
The project was designed to make information in the SBA's main computer accessible to the agency's field offices, thereby streamlining the record keeping on loans and repayments.
The government contends that at least two sham corporations were eventually set up into which kickbacks were paid to Perholtz and through which payments were made to Perholtz, Jackson, Gentile, Root and Conley H. Dillon.