Massive Fraud Alleged in City of Industry

LOS ANGELES (CN) - A former mayor of the City of Industry fraudulently billed the Los Angeles suburb for $219 million, much of it for bogus maintenance contracts over two decades, the city claims in court.

The City of Industry sued Zerep Management dba Municipal Maintenance, City of Industry Disposal Company, Valley Vista Services, Vincent's General Services, Grand Central Recycling & Transfer Station, and David Perez, his four nephews and brother's estate on May 26 in Los Angeles Superior Court.

The city accused Perez, who was mayor from 2001 to 2012, of profiting from "lucrative" city contracts for maintenance and miscellaneous services, which were first awarded to his company Zerep in 1980.

Though Industry's population and geographical size did not increase dramatically over the past two decades, the city claims, Zerep's profits did.

Zerep more than tripled the value of its maintenance contract with the city, Industry claims, "overcharging for goods and services throughout the Perez family's dominance and control of the city's affairs."

A lawyer for the Perez family said the complaint was filed by those who want to preserve the political status quo in the city, and the timing, just before local elections, is very suspicious.

"It is obvious this lawsuit is nothing more than another politically motivated hatchet job against the Perez family orchestrated by individuals desperate to preserve their power," said Stephen Larson, attorney for the Perez family. "We find the timing of this lawsuit especially suspicious coming less than one week before the city election."

The City of Industry, whose residential population is less than is 300, is a heavily industrialized enclave in the San Gabriel Valley.

City payments to Zerep and its defendant affiliates totaled $219 million from 1995 to 2014, "much of which" went to the former mayor, his brother and nephews, the city says in its complaint.

The city claims the Perez family inflated invoices for unnecessary work and submitted false invoices for unauthorized services or services that were never performed.

"Throughout the years that defendant Perez served as mayor, he profited personally by abusing his position of trust and responsibility, and, by acting in concert with his companies and family members, he achieved exceptional growth of Zerep and related entities through a series of fraudulent activities, including, without limitation, the submission of false invoices for unauthorized services, for services that were never performed, and inflated invoices for services that were unnecessary," the 26-page complaint states.

Zerep, formed in 1970, provides refuse collection, waste disposal and maintenance services. David and Manuel Perez, who died in April, co-owned the company, which acts as parent and affiliate to the co-defendant entities.

Industry claims it agreed to multiple amended contracts with Zerep, which eventually included vehicle maintenance and repair and subcontractor services, hourly labor rates, and equipment rental costs.

In 2008, payments to Zerep allegedly reached a high of $7.5 million. Industry says it paid the company $40.7 million for 1.2 million hours of labor time from 2003 to 2014.

But Zerep "did not employ or provide the number of full time equivalent employees to support the labor hours that Zerep charged the city," the complaint states.

During that span, Industry says, it paid Zerep $28 million for 1.2 million vehicles and rental hours, though the city "could have purchased and owned a considerable number of the same or similar vehicles several times over."

Perez resigned as mayor midterm in 2012, citing health issues and a desire to spend time with his wife.

Industry claims he continued his "corrupt" practices as a private contractor.

"Perez is currently attempting to regain control over the city by supporting candidates for City Council over which he exercises and will continue to exercise undue include and control," the complaint states.

Industry was home to 2,500 businesses and 80,000 jobs in 2010, but only 219 residents. It has a total area of 12.1 square miles.

Industry seeks restitution and disgorgement and punitive damages for fraud, breach of fiduciary duty and violation of the False Claims Act.

It is represented by Daphne Anneet with Burke, Williams & Sorensen, who declined to comment.

Stephen Larson, attorney for the Perez family companies, questioned the timing of the suit.

"It is obvious this lawsuit is nothing more than another politically motivated hatchet job against the Perez family orchestrated by individuals desperate to preserve their power," Larson said. "We find the timing of this lawsuit especially suspicious coming less than one week before the city election."

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