United States v. Brian Ganos, Mark Spindler, Sonag Co.
| Decision Date | 28 February 2019 |
| Docket Number | Case No. 18-cr-62-pp |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. BRIAN GANOS, MARK SPINDLER, SONAG COMPANY, INC., and NUVO CONSTRUCTION COMPANY INC., Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
ORDER ADOPTING JUDGE JONES'S RECOMMENDATION (DKT. NO. 80), AND DENYING DEFENDANT BRIAN GANOS'S MOTION TO SUPPRESS EVIDENCE (DKT. NO. 39)
Defendant Brian Ganos filed a motion to suppress evidence obtained from the execution of two search warrants. Dkt. No. 39. The government filed identical affidavits in support of the two warrants; one warrant authorized the search of the home office of the accountant for the defendant's businesses and the other authorized the search of an office building owned by a holding company owned by the defendant (but used by other businesses). Dkt. Nos. 39-1 and 39-2. In his suppression motion, the defendant argued that the warrants lacked probable cause, and that the affidavits misrepresented the informant's opinions as facts and failed to disclose that the informant took some of the business records summarized in the affidavits without authorization, and possibly at the direction of investigators. Dkt. No. 39 at 1-2. At a hearing in September 2018, Magistrate Judge David Jones denied the defendant's request for an evidentiary hearing, concluding that he had all the evidentiary material he needed to resolve the motion. Dkt. No. 68 at 2. He also concluded that there was no evidence of reckless disregard for the truth, and so found no need for a Franks hearing.1 Id. at 2. In his November 2018 report and recommendation, Judge Jones concluded that the defendant lacked standing to object to the search of some of the areas the agents searched. Dkt. No. 80 at 8-9. To the extent that the defendant had standing to challenge the search of other areas, Judge Jones found that the affidavits provided probable cause for him to sign off on the warrants. Id. at 15. Finally, Judge Jones concluded that even if the affidavits had not established probable cause, the officers who executed the warrants relied on them in good faith. Id. The defendant timely objected to those conclusions. Dkt. No. 84. The court overrules the objection, adopts the recommendation and denies the motion to suppress.
The motion asks the court to exclude "all evidence obtained by the government from the execution of search warrants at 5500 W. Florist Avenue in Milwaukee and W147 N5146 Dolphin Drive in Menomonee Falls that were authorized on July 29, 2016." Dkt. No. 39 at 1.
The warrant applications sought authority to search the two locations for evidence relating to a conspiracy to defraud the United States; falsestatements; major fraud against the United States; fraud by wire, radio or television; money laundering; and offenses against the Small Business Administration (referred to in the application by its acronym, SBA). Dkt. No. 39-1 at 1.2
In the extensive affidavits, the affiant attested that the defendant became the owner and president of Sonag Co., Inc., a general contractor located in Milwaukee, Wisconsin, in 1992. Id. at ¶25. As a Hispanic male, the defendant qualified as a disadvantaged individual for purposes of obtaining government set-aside contracts through the SBA's Section 8(a) Program. Id. at ¶¶12, 25. The affiant attested that when Sonag graduated from the program in May 2003, the defendant—with assistance from project manager James Hubbell—pursued a scheme to defraud the United States by obtaining 8(a) and Service Disabled Veteran Owned Small Businesses (SDVOSB) set-aside government contracts to which he was not entitled. Id. at ¶¶ 25-26. The defendant and Hubbell allegedly did this by recruiting individuals who qualified as disadvantaged individuals to serve as the purported owners of newly formed construction companies. Id. ¶26. The affiant asserted that the defendant and Hubbell controlled these newly-formed companies—Nuvo, Pagasa and C3T—which allowed them to financially benefit from contracts that Sonag Co. Inc. was not eligible to receive. Id. The affiant stated that the defendant, with assistancefrom Hubbell, received 8(a) set-aside contracts valued at approximately $197 million. Id. at ¶29.
The affidavit states that the building on Florist Avenue housed three entities—Sonag, Nuvo and C3T. Id. at ¶28. At the time the affidavit was submitted, the defendant was president and minority shareholder of Sonag and vice-president and minority shareholder of Nuvo. Id. at ¶8A. The affidavit alleges that the building was owned by Sonag I, LLC, a property management company owned by the defendant. Id. at ¶39.
The affiant explained that CS-1 had approached law enforcement in 2014. Id. at ¶31. The affiant represented that CS-1 had worked for Sonag and Nuvo for fourteen years, and that this employment "gave him/her an intimate knowledge of specific contract details, office culture, and financial transactions." Id.
CS-1 reported that the defendant had approached Jorge Lopez, a Sonag project manager, when Sonag was graduating from the 8(a) program and asked Lopez to become president of Nuvo. Id. ¶32. At the time, Lopez was suffering personal financial hardship and "may have been on the verge of losing his residence" and agreed to become president. Id. According to the affiant, Wisconsin Department of Financial Institutions (DFI) records showed that in March 2001, Lopez changed the name of Insulation Masters, Inc.—a company he owned—to Nuvo, and the defendant had become a 15% minority owner. Id. at ¶33. When Lopez submitted Nuvo's initial SPA 8(a) program application, theaffiant attested Lopez said that he had an 85% ownership interest and that 100% of his hours were devoted to the firm. Id. at ¶34.
The SBA allowed Nuvo to bid on 8(a) projects based on a business plan listing Lopez as the 85% owner and full-time manager with an annual salary of $48,000, while reflecting that the defendant, as 15% owner, received no salary at all. Id. at ¶35. Although the program materials listed Lopez as Nuvo's president, majority owner and full-time manager, Hubbell managed the company's affairs. Id. at ¶¶ 34-65. CS-1 reported that shortly after Nuvo received its 8(a) status, Lopez moved to Worthington, Minnesota with his family. Id. at ¶40. The affiant reported that the government's investigation had corroborated that Lopez lived in Minnesota and worked for another company while he purported to the be the manager of Nuvo. Id. at ¶41. Lopez's tax returns confirmed that he moved to Minnesota in 2004; his 2007, 2009 and 2010 tax returns listed Worthington, Minnesota as his address. Id. at ¶42. His Minnesota license and renewal applications in 2006, 2010 and 2014 reported his home address as Worthington, Minnesota. Id. at ¶43. Employment and telephone records confirmed that he worked for another employer in Minnesota. Id. at ¶¶44-46.
The affiant explained in detail how financial records indicated that Lopez hid income from his Minnesota employer by transmitting it through Nuvo's business checking account. Id. at ¶47. From 2005 to 2012, as part of Nuvo's annual reports to the SBA, Lopez reported compensation from Nuvo but none from his other employer. Id. at ¶49. The affiant stated that CS-1 reported Lopezexercised no control over Nuvo and rarely visited but kept personal effects and papers on his desk in Milwaukee so that it would look like he was controlling Nuvo. Id. at ¶52. CS-1 explained that Hubbell—not Lopez—managed Nuvo. Id. at ¶54. A second former Nuvo employee, who had worked at Nuvo from late summer 2013 to spring 2014, corroborated CS-1's statements. Id. at ¶53. Although SBA forms indicated that the defendant received no income from Nuvo and had no access to Nuvo's bank accounts, IRS and property records indicated that the defendant and his wife received a salary from Nuvo and that Nuvo paid for lakefront property and remodeling projects at their residence. Id. at ¶¶59-65.
According to the affiant, CS-1 reported that after establishing Nuvo, the defendant and Hubbell wanted to create a SDVOSB to benefit from the government set-aside contract program through the V.A. Id. at ¶71. They placed Telemachos Agoudemos, a service-disabled veteran, to serve as president and majority owner of C3T, Inc. Id. at ¶71. The DFI reported that the defendant owned C3T until April 3, 3006, when he transferred—for free—51% of the company's stock to Agoudemos and 49% to Hubbell as vice president. Id. at ¶74. In April 2006, Hubbell registered C3T as a self-certified SDVOSB, which allowed the company to bid on set-aside government contracts. Id. at ¶75. Although Agoudemos was listed as the owner of C3T, the affiant stated that the company was controlled by the defendant and Hubbell. Id. at ¶¶ 71-98. Like Sonag and Nuvo, C3T was located in the Florist Avenue office building. Id. at ¶72. From 2006 through 2016, C3T received about $197 million in SDVOSB set-aside contracts. Id. at ¶99. As of July 2016, the company still was participating in the SDVOSBP and was being awarded government set-aside contracts. Id. at ¶102.
According to the affiant, the defendant, as a former participant in the 8(a) program, could not be a majority owner of a different 8(a) company. Id. at ¶105. The defendant chose Odessa Millan, an Asian-Pacific American woman who meets the social and economic requirements to be a Section 8(a) participant (and was a former project manager for C3T) to be president and purported owner of Pagasa Construction Company, Inc. Id. at ¶106. To establish the required work history to gain Section 8(a) status, Sonag, Nuvo and C3T listed and paid Pagasa for subcontractor work that the three companies performed themselves. Id. at ¶¶111-15. Pagasa obtained its Section 8(a) certification in September 2015; as of July 2016, it had not been awarded any Section 8(a) set-aside federal government contracts. Id. at ¶117. In the fall of 2015, Pagasa moved into the Florist...
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