LOS ANGELES – The owner of a business that operated parking lots has agreed to plead guilty in a 15-year bribery scheme that allowed him to defraud the U.S. Department of Veteran's Affairs out of more than $13 million that should have been paid in relation to the operation of parking facilities on the VA's Los Angeles medical campuses.
In a plea agreement filed today in United States District Court, David Richard Scott, 58, the owner of Westside Services LLC (WSS), agreed to plead guilty to conspiracy and wire fraud.
Scott, who has been in custody since his arrest in November, is expected to appear in court on Thursday to formally enter his guilty pleas.
The scheme, which resulted in the payment of nearly $300,000 in bribes to VA contracting officer Ralph Tillman, cost the VA more than $13 million it should have received under a contract with WSS to operate parking lots on the campuses of the VA Greater Los Angeles Healthcare System (VA GLAHS). The vast majority of the activity authorized under the contract took place at the West Los Angeles VA Medical Center near Westwood and included parking for UCLA baseball games, the Wadsworth and Brentwood theaters, and the PGA golf tournament at the Riviera Country Club.
For approximately 18 years, Scott had a contract to operate parking lots at VA GLAHS that required him to pay 60 percent of the gross revenues from the parking lots. Scott was required to submit annual reports detailing revenue generated by parking fees, as well as improvements and services his company provided that could be used to offset payments due to the VA.
Scott maintained at least two sets of financial books, according to the plea agreement filed today. The numbers reported to the VA contained false revenue and expense statements, while a second set of books maintained by Scott's bookkeeper/tax preparer contained the actual revenues and expenditures, except for unreported cash.
Scott “intentionally failed to satisfy obligations and services placed upon him by the contract, and intentionally underreported revenue and inflated expenses so that it would appear that the VA owed WSS significant payment,” according to the plea agreement. Scott's “goal was to pay the VA as little as possible.”
As part of the scheme to defraud the VA, Scott began bribing Tillman in 2003 and continued to bribe him on a regular basis until Tillman abruptly retired in 2014 after he was confronted by federal agents. Scott continued making “hush money” payments to Tillman after his retirement to continue the scheme and attempt to avoid termination of his parking contract. Scott used cash collected at the parking lots – cash revenue he rarely reported to the VA – to pay Tillman at least $286,000 in bribes.
“This bribery and fraud scheme directly harmed our nation's veterans by depriving them of revenues that could have been used to provide important services and medical care to the brave men and women who served in our armed forces,” said United States Attorney Nicola T. Hanna. “The bribery payments to a public official are disturbing because they compromised our trust in government, allowed the scheme to operate for years and led to this defendant pocketing millions of dollars that should have gone to the Department of Veteran's Affairs.”
Over the course of the scheme, Scott underreported at least $4.6 million in revenues and failed to report an unknown amount of cash collected at the parking lots, according to the plea agreement. Additionally, Scott avoided making payments to the VA by marking up expenses associated with the parking lots – in some cases, up to 600 percent – and claiming to have spent $11.6 million to improve and maintain the facilities. For example, Scott told the VA he spent nearly $5.97 million on repairs and maintenance, while his bookkeeper's records showed he spent only $1.4 million for paving, fencing and other services associated with the parking lots.
“Between 2003 and 2016, defendant Scott utilized WSS business bank accounts to pay for approximately $740,000 in travel, $413,000 in meals and entertainment, defendant Scott's salary of $3.1 million, and countless personal expenses and owner's draws totaling at least $13.9 million,” according to the plea agreement. While Scott installed signs at one parking lot claiming that “proceeds go toward helping veterans in need,” Scott admitted in the plea agreement that the money generated at this lot funded his lavish lifestyle and the bribe payments.
As a result of the long-running scheme to defraud the VA, Scott amassed considerable wealth, including three condominiums in Santa Monica, with a cumulative estimated value of $7 million; numerous high-end collectible cars, including several classic Corvettes and three Ferrari automobiles; a Cigarette “Top Gun” racing boat; and bank and brokerage accounts contained more than $1 million. When he was arrested, authorities seized more than $213,000 from Scott's residence – cash that had been skimmed from the VA parking lots.
As part of his plea agreement, Scott and his wife have agreed to forfeit all of these assets. Scott has agreed to pay approximately $12,619,693 in restitution, a figure that takes into account some money already repaid to the VA.
The plea agreement calls for Scott to serve a sentence of 70 months in federal prison. The final decision on the appropriate sentence will rest with United States District Judge R. Gary Klausner. If Judge Klausner decides to impose another sentence, either party has the option of withdrawing from the plea agreement.
Tillman, who cooperated in the federal investigation, pleaded guilty in February to charges of making false statements to VA criminal investigators and subscribing to a false tax return. Tillman is scheduled to be sentenced by Judge Klausner on August 27.
“Veterans Affairs employees who engage in collusive relationships with contractors will be aggressively pursued by the Office of Inspector General and prosecuted to the full extent of the law,” said Special Agent in Charge A.E. Pleasant, U.S. Department of Veterans Affairs, Office of Inspector General, Criminal Investigations Division, Western Field Office.
The cases against Scott and Tillman are the result of an investigation by the United States Department of Veterans Affairs, Office of Inspector General; the Federal Bureau of Investigation; and IRS Criminal Investigation.
The prosecution of these cases is being handled by Assistant United States Attorney Ruth C. Pinkel of the Public Corruption and Civil Rights Section.
Component(s): USAO – California, Central
Contact: Thom Mrozek Spokesperson/Public Affairs Officer United States Attorney's Office Central District of California (Los Angeles) 213-894-6947
Press Release Number: 18-077 Updated May 14, 2018
Central District of California DOJ / 18-077 / May 14, 2018