Trial Set Figures in New Orleans Scandal; U.S. Attorney Says Johnson Controls Duped

[Update: January 17th 2007 — The trial apparently is off! Kerry DeCay, Stanford Barre and Reginald Walker all pled guilty to the charges against them.–Ed.]

In January of this year, Bruce Murphy of Milwaukee Magazine chided the Milwaukee Journal Sentinel for a series of articles applauding the work of Milwaukee-based Johnson Controls, Inc. in rebuilding New Orleans, where it had held an $65 million-plus contract with that city to improve building energy efficiency. The contract predated the flood in the Crescent City, and the administration of Mayor Roy Nagin. Murphy’s gripe was that the daily paper did not mention a scandal surrounding figures involved in the contract, including Terry Songy, Johnson Controls’ since-fired project manager, who pled guilty to a federal indictment and faces 10 years in prison and a $500,000 fine. Five others have also pled guilty in the scandal that dates to the administration of Marc Morial, now head of the National Urban League. The contract was the largest issued by his administration, yet lacked governmental or public scrutiny. According to a news account, “… Morial, ordinarily eager to trumpet the major initiatives of his administration, never mentioned it in public. Likewise, he never briefed the City Council on the contract.”

The story, however, remains a robust one in New Orleans, where thanks to the news coverage, Johnson Controls is more of a household name than it is in Milwaukee. According to the Times-Picayune newspaper, “… the breadth of the graft and greed alleged in the indictment is breathtaking, even by the standards of a city inured to public corruption.” It’s been front-page news for almost two years now; the federal investigation dates to around the time Morial left office in 2002.

Since indictments were handed down last January, the U.S. Attorney in New Orleans, Jim Letten, has secured six convictions in the wide-ranging case. In September, Letten issued additional charges of “conspiracy, mail fraud, extortion, obstruction of justice, false statements and money laundering,” against four defendants in a superseding indictment, with trial set for January 16th, 2007.

Letten took care in the indictments to portray Johnson Controls, Wisconsin’s largest publicly-traded company, as an innocent victim of the complex scheme. “Institutionally, Johnson Controls was in the position of having been victimized,” Letten said. Songy, for example, pled guilty to depriving “Johnson Controls of his honest and faithful services and to defraud the City of New Orleans of property…”

The contracts were “premised on achieving energy savings for the City sufficient to pay for the cost of the contracts.” This is standard operating procedure for JCI, which has provided such services for buildings including The White House, a government-0wned housing project located at 1600 Pennsylvania Ave., N.W., Washington, D.C.

Of course, New Orleans being New Orleans, millions of the Johnson Controls contract were paid from capital improvement funds obtained from bond issues, an easy source of cash having nothing to do with the project at hand.

According to the U. S. Attorney’s press release about the indictment, “This case involves charges of kickbacks and fraudulently inflated invoices which allegedly cost the City of New Orleans more money than the value it received from the contract. For instance … while [JCI subcontractor Stanford] Barre was being paid by Johnson Controls to help manage its subcontractors, he was being paid hundreds of thousands of dollars from one of them, Moss Creek. The indictment goes on to allege that Barre would then share the money he received from Moss Creek with [city project manager] Kerry DeCay and the Johnson Controls project manager, Terry Songy.”

Moss Creek, it turns out, was owned by Reginald Walker, another JCI subcontractor who was also charged. Walker had done work under the Johnson Controls contract at a building that had no energy savings component. That work was authorized by DeCay and benefitted Barre, who holds the concession contract for the New Orleans Cultural Center, a city-owned property. Somehow, DeCay even got a free Johnson Controls thermostat for his house, along with a Viking refrigerator, an ice maker and a pool pump.

The company is not accused of complicity in the entire sordid affair, and is happy playing the dupe. Its treasury took in revenues from sources having nothing to do with the project, despite contract provisions requiring otherwise. It paid out hundreds of thousands of dollars in no-work contracts, authorized by verbal invoices. Furthermore, that so many of the subcontractors involved were cronies of Morial seems suspicious. According to one news report, “in 2002, Morial said the choice of subcontractors ‘was totally up to Johnson [Controls]’ adding that he “played no role in it” and “didn’t even know who the subs were.” It is most curious that Johnson Controls never bothered to defend itself against that preposterous claim.

This article was originally published by Milwaukee World.