Regional Meetings Offer a Close Look at an Individual Surety Bond Fraud Case
Since 2016, federal authorities have successfully obtained criminal convictions against certain individual sureties who operated nationally and who placed worthless bonds on numerous federal construction contracts. On July 14, 2016, Alexander Robert Xavier, age 51, was found guilty in the US District Court for the Southern District of Florida of defrauding federal contracting agencies by issuing fraudulent surety bonds on government construction contracts. Among the defrauded federal agencies were the US Department of the Army and the US Department of Labor. The press release from the US Attorney’s Office, Southern District of Florida, states:
According to court documents and evidence introduced at trial, from approximately May 2008 to October 2010, Xavier devised a scheme to unlawfully enrich himself by representing that he was an “individual surety” on various performance and payment bonds–a type of insurance required on major government construction contracts. During the course of the fraud, Xavier pledged millions of dollars in assets to agencies of the United States. In truth, and as Xavier well knew, there were no such assets.
Xavier was sentenced to serve more than 12 years in prison and pay restitution of more than $4,165,000.
Earlier, in April 2016, the US Attorney’s Office, Southern District of Florida pursued the convictions of two other men operating as individual sureties, Brian J. Garrahan, 42, and Kelly A. Spillman, 34, who placed bonds on federal construction projects. Garrahan and Spillman pled guilty on April 21, 2016 to federal fraud counts. Among the defrauded federal agencies were the US Department of the Army, the US Department of Energy, the US Department of Veterans Affairs, the US Department of Housing and Urban Development, the US Department of State, and the US Environmental Protection Agency. The associated press release states:
According to court documents, from approximately June 2008 through June 2013, Garrahan and Spillman conspired with each other and others to obtain payments from government contractors for issuing fraudulent bonds, that is, insurance, for large government contracts. The fraudulent bonds were individual surety bonds, usually signed by Garrahan and two other co-conspirators, a relative of Garrahan, and an individual who had prior experience with government bonds.
Individual surety bonds require collateral. The collateral used was land or cash or cash equivalent assets held in bank accounts. However, Garrahan and Spillman knew that the claims of ownership of land and the claims of possessing funds were false. In addition, the supporting documents related to these assets were fraudulent.
Garrahan and Spillman also knew that a co-conspirator, who was directing them, had a prior fraud conviction. They also knew that this was the reason his name was not included in any of the paperwork.
Garrahan, Spillman and their co-conspirators issued a large number of bonds dealing with over 100 contractors and at least 15 federal agencies, and other entities. Often contracts had “modifications,” that is, contract expansions, that led to more bonds being issued.
Garrahan was sentenced to 30 months’ imprisonment, followed by two years supervised release, while Spillman was sentenced to time served, followed by two years supervised release, including 12 months of home detention. An amended judgement on October 31, 2016 requires both men to pay more than $4,414,000 in restitution.
This year, the US Attorney’s Office, Middle District of North Carolina successfully convicted persons involved in an individual surety bond fraud scheme on two federal construction contracts in North Carolina. Dennis Lyon, his brother, Dan Lyon, and various accomplices placed fraudulent bonds on construction contracts involving the US Department of Veterans Affairs and the US Department of Housing and Urban Development. Dennis Lyon, also known as Robert Joe Hanson, among other aliases, has a long history of acting as an individual surety on public and private construction contracts and has cease and desist orders issued against him in at least 10 different states, including Florida, Oklahoma, and Montana. Dennis Lyon and Dan Lyon were convicted by a North Carolina jury on violations of federal fraud statutes. On May 18, 2017, Dennis Lyon received a sentence of 10 years’ imprisonment, while his brother Dan received a sentence of four years’ imprisonment. Both men were ordered to pay more than $3 million in restitution.
Each NASBP regional meeting this year includes a session with the Assistant US Attorney, Middle District North Carolina and federal investigators who investigated, prosecuted, and obtained the convictions of the Lyon brothers and accomplices, including the construction company principal, on federal fraud charges. The investigators and prosecution team will offer attendees an unprecedented look into the world of the Lyon brothers, revealing their methods and operations and the harm occasioned by their fraudulent schemes on subcontracting businesses in North Carolina. I urge you to attend your regional meeting, so as not to miss this unprecedented look into the world of a convicted individual surety fraudster.