ALBUQUERQUE – Jose Diaz, 58, a businessman from El Paso, Texas, pleaded guilty today in federal court in Albuquerque, N.M., to participating in a fraudulent scheme to defraud the United States out of millions of dollars through contracts involving the now defunct Big Crow Program Office at Kirtland Air Force Base in Bernalillo County, N.M.
Diaz entered his guilty plea to three counts, a conspiracy charge and two fraud charges, of the 46-count Indictment in which he is charged. Diaz’ plea agreement, attached to this press release, includes a nine and a half page admission of facts in which he acknowledges and accepts responsibility for the criminal conduct attributed to him in the indictment.
Diaz remains on conditions of release pending his sentencing hearing, which has yet to be scheduled. His sentencing exposure on the charges to which he pleaded guilty, is discussed below. Under the terms of the plea agreement, the United States will move to dismiss the remaining charges against Diaz after his sentencing hearing.
Summary of the Indictment
Diaz and three co-defendants, Milton Boutte, 72, of Moriarty, N.M., George Lowe, 56, of Fort Washington, Md., and Arturo Vargas, 55, of El Paso, Texas, were indicted in Nov. 2017, in a 46-count indictment charging them with perpetuating a fraudulent scheme to defraud the United States from Oct. 2004 through Feb. 2009, in Bernalillo County, N.M., and elsewhere. The indictment generally alleged that the defendants perpetuated their scheme by submitting fraudulent invoices to federal agencies and fraudulently participating in a government program intended to promote minority-owned small businesses. According to the indictment, beginning in fall 2004, Boutte, who was then the Director of the Big Crow Program Office, and Lowe, a lobbyist, conspired and schemed with Diaz and Vargas, owners of minority-owned small businesses who had contracts with the Big Crow Program Office, to pay lobbyists, consultants and contractors with funds fraudulently obtained from the United States. The defendants allegedly did so even though the Big Crow Program Office was not authorized to lobby or to expend appropriated funds for lobbying activities under the contracts they were operating under.
The indictment alleged that the defendants facilitated their fraudulent scheme by exploiting a U.S. Small Business Administration (SBA) program intended to promote the development of small businesses owned by socially and economically disadvantaged individuals by making them eligible to obtain sole-source contracts from government agencies without competitive bidding. In April 1995, Diaz enrolled his company, Miratek, in the SBA program and in 2004 Miratek received a sole-source contract to provide technical and managerial support for the Big Crow Program Office. After the sole-source contract was awarded to Miratek, the defendants allegedly conspired fraudulently to misapply funds to pay Lowe and other lobbyists for lobbying on Big Crow’s behalf, allegedly diverting at least $529,000 of the contract funds to pay Lowe and his firm, Broadcreek Associates. This allegedly violated the conditions of the SBA program and of Miratek’s contract because lobbying services were not within the authorized scope of work and because Lowe was not an employee of Miratek. In furtherance of their alleged frauds, the defendants allegedly disguised the nature of the claims for services purportedly provided by Lowe and other lobbyists.
The indictment alleged that, in April 2004, after Miratek’s eligibility for the SBA program expired, the defendants created a joint venture to take its place in the fraudulent scheme. According to the indictment, Diaz and Vargas created a joint venture known as Vartek, LLC, to afford Diaz the ability to continue to have access to sole-source contracts under the SBA program and to enable the defendants to continue to perpetuate their scheme to defraud the United States. The indictment alleges the SBA relied on the promises and representations of Diaz and Vargas and approved the Vartek joint venture on Dec. 20, 2005. Vartek was awarded two sole-source contracts, valued at approximately $3,209,116 and $3,847,939, respectively, to provide technical and analytical support for the Big Crow Program Office similar to the contracts previously awarded to Miratek.
The indictment further alleged that Diaz and Vargas misappropriated funds authorized under the Vartek contracts to pay Lowe and other unauthorized lobbyists, consultants and contractors at Boutte’s direction. Diaz and Vargas allegedly submitted fraudulent invoices to the U.S. Army Contracting Agency containing claims for payment for services purportedly provided by Lowe and other lobbyists, consultants and contractors. To conceal and disguise the nature of those payments, the defendants allegedly misrepresented in those invoices that Lowe and other lobbyists, consultants and contractors were Vartek employees. To further disguise the diversion of large sums, the defendants allegedly made fictional claims for work purportedly performed under the contracts by other persons. The defendants allegedly fabricated the hours that those purported employees worked on the contracts. Diaz and Vargas allegedly falsely represented that the lobbyists and consultants were “project managers” and billed the government at or near the highest rate allowed under the contracts. In aggregate, the defendants fraudulently claimed and obtained payments under the Vartek contracts totaling more than $5,800,000 for lobbyists, consultants and unauthorized contractors, of which at least $506,000 was diverted and paid to Lowe and his firm, Broadcreek Associates. Diaz also falsified and fabricated the hours that he himself worked under those contracts.
The indictment includes forfeiture provisions requiring that the defendants forfeit to the United States any property, real or personal, which constitutes or is derived from proceeds of their crime if the defendants are convicted of the offense of conspiracy to commit wire fraud.
Statutory Penalties for Charges in Indictment 17-CR-3338-JB
Count 1 charges Boutte, Diaz, Vargas and Lowe with conspiracy to defraud the United States with respect to claims, in violation of 18 U.S.C. § 286, and carries a maximum penalty of ten years of imprisonment and a fine of not more than $250,000 or twice the pecuniary loss or gain.
Count 2 charges Boutte, Diaz, Vargas and Lowe, with conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and carries a maximum penalty of 20 years of imprisonment and a fine of not more than $250,000 or twice the pecuniary loss or gain.
Counts 3 and 4 charge Boutte, Diaz and Vargas with fraud against the United States, in violation of 18 U.S.C. § 1031, and aiding and abetting such fraud, in violation of 18 U.S.C. § 2. Each charge carries a maximum penalty of 20 years of imprisonment and a fine not more than $5,000,000 if the loss is less than $500,000, but not to exceed $10,000,000 in the aggregate.
Counts 5 through 46 charge certain of the defendants with making false, fictitious and fraudulent claims, in violation of 18 U.S.C. § 287, and aiding and abetting the making of such claims, in violation of 18 U.S.C. § 2. Each charge carries a maximum penalty of five years of imprisonment and a fine of not more than $250,000. Counts 5 through 9 charge Boutte, Diaz and Lowe; Counts 10 through 22 charge Boutte, Diaz, Vargas and Lowe; Counts 23 through 24 charge Boutte, Diaz and Vargas; and Counts 25 through 46 charge Boutte, Diaz and Vargas.
Charges in indictments are merely accusations and defendants are presumed innocent unless found guilty in a court of law.
The case was investigated by the Major Procurement Fraud Unit of the U.S. Army Criminal Investigations Command, Defense Criminal Investigations Services, Defense Contract Audit Agency – Investigative Support, and U.S. Small Business Administration Office – Office of Inspector General, and General Services Administration – Office of Inspector General. Assistant U.S. Attorneys Timothy S. Vasquez and Jeremy Peña are prosecuting the case.
Information from Department of Justice