Hot Contract: City bribery scandal tied to influential father and son

By Van Smith

Published in City Paper, Jan. 26, 2005

Mark Sapperstein owns 113 W. Hamburg St., an 8,000-square-foot commercial building in Sharp-Leadenhall. The South Baltimore property, though devoid of signs, houses Allstate Boiler Service, a company owned by Gilbert Sapperstein, Mark’s 73-year-old father.

On Jan. 7, Allstate Boiler’s bookkeeper and office manager, Ida Marie Beran, pled guilty in a bribery case involving the company’s contract with the city to provide boiler services for municipal agencies. Also pleading guilty was Cecil Thrower, a city Department of Public Works employee since 1984 who worked at the Back River Wastewater Treatment Plant in Essex.

The case ties an established name in Baltimore’s business and political class—that of the Sapperstein family—to an ongoing criminal investigation.

In the statement of facts filed in the case, which was brought by the Office of the State Prosecutor, Beran and Thrower admitted that they conspired together to inflate invoices under Allstate Boiler’s contract with the city. While Thrower received somewhere between $1,500 and $2,000 for his part in the scheme, Beran received nothing—though her employer received “well over” $120,000 in excess payments as a result of the fraudulent bills, according to case documents.

The court record further explains that the conspiracy began in approximately 1998, at which point “Mr. Thrower was approached by the business owner who employed Ms. Beran [who] suggested to Mr. Thrower, ‘From time to time you could do something for us and perhaps we could do something [for] you.’ . . . [O]n more than one occasion, while acting at the instruction of and in concert with her employer, Ms. Beran prepared the envelopes containing cash for Thrower and provided them to other employees for delivery to Thrower.”

The case documents make no mention of Allstate Boiler or the Back River plant. Department of Public Works spokesman Robert Murrow, however, confirmed for City Paper that the city contract defrauded in the scheme has been held by Allstate for “like 20 years” to provide boiler work for any city agency that needs such services, and that the inflated bills were for work at Back River.

Allstate, which has been in business since 1965, also holds the boiler contract for the Baltimore City Public School System, according to city schools spokeswoman Vanessa Pyatt, though she says the contract is “set to expire in February.”

State prosecutor Robert Rohrbaugh confirms that, “absolutely, this is a continuing investigation,” though he could “neither confirm nor deny” that the investigation continues to focus on Allstate Boiler or the Sappersteins. Rohrbaugh’s reticence aside, the record makes clear that Allstate, not Beran, benefited from the longstanding bribery scheme.

Mark Sapperstein acknowledged to City Paper that Allstate Boiler Service is located at his property, but he declined comment about the company or the bribery scandal. Gilbert Sapperstein did not return calls for comment left at Allstate, and contact information for Beran could not be found. Thrower’s phone at his West Baltimore residence has been disconnected.

Mark Sapperstein is a major player in local real-estate circles. He’s a partner in Silo Point, a $200 million proposal to convert a derelict grain elevator in Locust Point into a residential-retail development. On Jan. 13, the Baltimore Development Corp. awarded development rights to a city-owned parcel at Calvert and Lombard streets to Mark Sapperstein and his partners, who planned to turn it into a $71 million apartment complex called Cityscape. In 2002, he and his partners constructed a $13.5 million parking garage at Calvert and Lombard. Last spring, Sapperstein purchased 200 acres on North Point in eastern Baltimore County, where he plans to build luxury single-family homes on the Bauer Farm tract, where British troops in the War of 1812 marched en route to face Baltimore militias.

Gilbert and Mark Sapperstein, through their respective companies, have been active as donors to campaigns of elected officials. Since the fall of 1999, the two, along with Mark Sapperstein’s wife and several Sapperstein companies, gave at least $33,270 to the campaign committees of various elected officials.

Of the total, $9,650 went to Mayor Martin O’Malley (D), $8,000 went to Baltimore County Executive Jim Smith (D), and $4,250 went to Gov. Robert Ehrlich (R). Nearly all of the rest went to legislators representing Baltimore City and Baltimore County. At the federal level, Gilbert Sapperstein donated $250 each to U.S. Rep. C.A. “Dutch” Ruppersberger (D-2nd District) and the Republican National Committee. Mark Sapperstein gave $1,000 to U.S. Sen. Joseph Biden (D-Del.) and $500 each to Ruppersberger, U.S. Sen. Barbara Mikulski (D), and Virginia Congressman Eric Cantor (R-7th District). Mark Sapperstein’s wife also gave $500 to Cantor.

Gilbert Sapperstein, according to several sources familiar with the workings of the Baltimore City Board of Liquor License Commissioners, is known as a go-to guy for prospective liquor licensees looking to break into the bar business. As a secured creditor for bars that fail, he assumes control of properties and liquor licenses and thus can procure opportunities for new entrepreneurs. According to liquor board documents, for example, Sapperstein was a secured creditor in a March 2003 license transfer for Mary’s Place in West Baltimore. Often, sources say, bar owners who are indebted to Sapperstein, who has been in the poker-machine business for years, agree to keep his poker machines in their establishments.

Both Sappersteins have had run-ins with the law for gambling-related charges. Gilbert, whose Star Coin Machine Co. is housed at 113 W. Hamburg with Allstate Boiler, faced 107 gambling-related charges in state courts in the 1980s and ’90s relating to Star Coin’s poker machines, though prosecutors declined to prosecute nearly all of them. In two cases, he received probation before judgment and was fined $1,475. Mark Sapperstein was charged with four gambling-related counts in 1989, though prosecutors chose not to pursue the cases. State records indicate that Mark Sapperstein’s poker-machine company, Mark’s Vending, has been inactive for more than a decade.

In 1984, Gilbert Sapperstein faced 18 housing-code violations for properties he owned in the city, receiving probation before judgment for 16 of them while prosecutors declined to pursue the remaining two charges. In 2003, Gilbert Sapperstein was charged with 10 housing-code violations in connection with a rowhouse he owned at 3203 Fleet St., receiving probation before judgment and $170 in fines. He sold the property shortly afterward.

Last April, Gilbert Sapperstein sold one of his properties in the Hollins Market neighborhood—the former Tom Thumb/Gypsy’s Café property, which in 2000 collapsed amid ill-conceived renovations. Two of his other properties in the same Southwest Baltimore neighborhood on Carrollton Avenue—one of which housed the Club Medusa, a hipsters’ after-hours social club, in the 1990s—are for sale. In July, he sold a property at 1600 W. Baltimore St., which houses a tavern called Good Times.

Currently for sale in the 800 block of West Cross Street is the property that housed Foul Ball Bar and Grille, which is owned by 2001 Eastern Ave. LLC, one of Gilbert Sapperstein’s companies. The Fells Point address the company is named after houses the Colonial Inn (owned by the same company). In Baltimore County, Gilbert Sapperstein owns 9727 Pulaski Highway, a large restaurant currently under renovation, and 2123-25 Sparrows Point Road, a strip club and bar.

The list of Sapperstein properties—many of them with liquor licenses attached—could go on and on.

In the 1990s, Mark and Gilbert Sapperstein were named, along with dozens of other parties, in a civil Racketeer-Influenced and Corrupt Organizations (RICO) lawsuit brought by Donald D. Stone, a self-described surfer dude who alleged that the Sappersteins, their business partners and lawyers, and the law-enforcement bureaucracy in Maryland and Florida conspired to keep him from shedding light on their allegedly corrupt schemes. The case, which was filed separately in federal courts in Maryland and Florida, went nowhere. That outcome has not kept Stone from posting potentially libelous statements about the Sappersteins and others on the internet—though, so far, Stone says he has not been sued.

Part of Stone’s investigation into the Sappersteins focused on an Anne Arundel County deal for cell-phone towers that led to a lawsuit against Mark Sapperstein and his business partners by George and Mary Jane Chamberlain, who moved from Annapolis to New Hampshire before filing the complaint in 1999. The lawsuit, which has since been settled, alleged that Mark Sapperstein and two partners, both of whom also sat on the Anne Arundel County Economic Development Commission, stole the couple’s idea for dominating the communications-tower industry. The terms of the settlement are confidential, though the amount paid to the Chamberlains—$40,000—later leaked out. The lawsuit was filed shortly after Mark Sapperstein sold his communications-tower companies to a Florida company for $8 million in 1998.

Investigators are keeping mum about where they might be headed as they scour the books. Only time will tell whether the Sappersteins are in the clear or headed for more trouble as the case progresses.

 

Cashed Out: South Mountain Creamery’s Bank Account Seized as Part of Money-Laundering Crackdown

By Van Smith

Published by City Paper, Apr. 18, 2012

South Mountain Creamery, the Frederick County dairy farm and food-distribution company, is a fixture of Baltimore-area farmers markets, particularly the Waverly market on Saturdays or the one on Sundays, downtown under the Jones Falls Expressway. South Mountain co-owner Randy Sowers is now in the hot seat with the feds, because in late February, the Internal Revenue Service’s Criminal Investigations Division (IRS-CID) used a federal anti-money-laundering statute to seize the contents of a PNC bank account Sowers says was the depository of cash earned by his company’s farmers-market business.

Sowers has not been charged with a crime, and says he expects to learn soon whether or not he will be. As for getting his money back—nearly $70,000, a fraction of the nearly quarter-million dollars in cash deposits the feds say Sowers laundered between May and December last year—well, based on the experiences of others in his position, he’ll likely not see it again, at least not all of it.

Baltimore County Police officer Michael Aiosa, who has been detailed as an IRS-CID task-force member since October 2010, signed the six-page affidavit used to get the seizure warrant to empty the account, of which Sowers and his daughter-in-law, Karen Sowers, are co-signatories. The affidavit says cash deposits were broken down into increments of under $10,001 each, causing PNC to not generate required “currency transaction reports” (CTRs) that financial institutions must file with regulators when they receive or disburse more than $10,000 in a single cash transaction. Under 31 U.S.C. 5324, federal law prohibits such conduct, which is called “structuring.”

Sowers, who did not seek publicity about his predicament but spoke to a reporter after the search warrant in the court records came to City Paper’s attention, says he deposited the cash he’d made in the increments in which it had been earned. If the deposited amounts often ended up being a little under $10,001, he explained, that’s just the way it worked out and he no intention of breaking the law.

“We had no idea there was supposedly a law against it—we were just doing it the way we figured we were supposed to, making deposits every week,” Sowers explains. “We weren’t laundering money,” he adds. “We’re farmers, we struggle every day to pay bills. We don’t know what else to do. Now we just feel like putting [our cash] in a can somewhere.”

Sowers’ attorney, David Watt, says his client “probably shouldn’t have said anything” when contacted by City Paper, and declined to comment further, saying, “We don’t want to act like we’re trying to influence the goings-on” by talking with the press.

Historically, the anti-structuring statute has been used by prosecutors as an ancillary charge with other accusations of nefarious behavior, such as drug dealing or terrorism. And it still is. But over the last few years, prosecutors have started to use it more regularly as a standalone charge—an observation noted by defense attorneys that Maryland U.S. Attorney Rod Rosenstein confirms.

Syracuse University’s Transactional Records Access Clearinghouse, a data center about federal court cases, reports that in fiscal year 2011 Maryland brought 14 of the nation’s 99 structuring cases, making it the top state for such prosecutions. Nationally, the numbers have been rising; the 2011 figures are up 8.8 percent from the year before and up 57.1 percent from five years ago.

Greater prosecutorial emphasis on enforcing the anti-structuring statute has resulted in a rise in money seizures, civil-forfeiture cases, and criminal charges against small businesses and the people who own them. Typical targets handle a lot of cash, and in Maryland gas stations, liquor stores, and used-car dealerships have landed in expensive trouble, losing money through seizures, criminal penalties, and legal bills.

South Mountain is not the first seasonal-produce market to find itself targeted for structuring recently. Taylor’s Produce Stand, on the Eastern Shore, was stung last year after the feds seized about $90,000 from its bank accounts. In December, pursuant to a civil-forfeiture settlement agreement after no criminal charges were filed, the stand’s owners got back about half of the seized money.

Two members of the defense bar who handle structuring cases, Gerard Martin and Steven Levin, both former Maryland assistant U.S. attorneys, say they have noticed the anti-structuring enforcement trend emerging in Maryland over the last several years.

“The emphasis is on basically seizing money, whether it is legally or illegally earned,” Levin says. “It can lead to financial ruin for business owners, and there’s a potential for abuse here by the government, where they use it basically as a means of seizing money, and I think we’ve seen that happen.”

“South Mountain Creamery!” Martin exclaims when contacted by phone. “They’re going after South Mountain Creamery! That’s an icon. That’s like going after mom and apple pie.” Then he settles in to ruminate on the general trends, saying cases typically arise because financial institutions “are required to tell the government about it” when they suspect a pattern of structured cash deposits. Then, “the government gets a search warrant and takes every nickel out of the guy’s bank account,” Martin continues, adding that “structuring is generally an indication that there is something going wrong, but the government doesn’t always find another crime,” such as drug dealing or tax evasion.

“There are a lot of legitimate reasons why a liquor store or a gas station would be depositing $9,500 in cash a day,” Martin says. “Sometimes the numbers just work out that way. But it is usually not an accident that it is happening.”

Rosenstein says that anti-structuring efforts “are an increasing area of emphasis for the Justice Department, and there has been an influx of resources” to investigate and prosecute it. Thus, he says, “I’d be disappointed if there wasn’t an uptick” in prosecutions, given the additional resources.

Post-Sept. 11 changes to banking laws, Rosenstein continues, have prompted financial institutions to report suspicious financial doings more vigilantly, and as a result, investigators and prosecutors now have “a treasure trove of information” about transactions, which provides them with “potential leads for finding criminal activities.” Structuring is often a red flag for other crime since, Rosenstein says, “typically people who go through all those lengths” to make multiple cash deposits of just under $10,000, sometimes at multiple bank branches on the same day, are trying to hide something. But, he continues, “There’s a possibility that somebody did it innocently, and we are always open to that.”

 

Sowers spoke at length about being targeted for structuring. In essence, he thinks the government used an exotic legal gimmick to suck hard-earned money out of his business just as he’s facing bills for hay and other spring-time expenses farmers incur—but he admits that, if there’s a law against what he did, “well, it looks like we did break the law,” even if he didn’t mean to.

The seizure and the resulting legal limbo as he awaits the prosecutor’s charging decision has “scared us to death,” he says. And the banking headaches that resulted from an emptied account have been never-ending, including bounced checks, mucked-up automatic withdrawals, and the resulting overdraft fees.

“It makes me look bad,” Sowers says.

Milked: Feds Nail South Mountain Creamery for Talking to City Paper

By Van Smith

Published by City Paper, June 20, 2012

Randy Sowers is not the only Maryland farmer recently targeted by federal money-laundering investigators for illegally depositing cash his business earns in increments of $10,000 or less, in order to avoid triggering bank-reporting requirements. But Sowers, whose South Mountain Creamery (SMC) dairy farm in Middletown, near Frederick, is a popular fixture at Baltimore-area farmers markets, is the only one to exercise his First Amendment rights and talk to the press about it.

For that, Sowers’ lawyers say, the Maryland U.S. Attorney’s Office (USAO-MD) has made him pay—an assertion that U.S. Attorney Rod Rosenstein denies, despite an e-mail sent to Sowers’ attorney by the chief of Rosenstein’s asset forfeiture and money laundering section, Stefan Cassella, that appears to state exactly that.

As City Paper reported in April, nearly $70,000 of Sowers’ money was seized by federal law enforcers from his bank account in late February (“Cashed Out,” Mobtown Beat, Apr. 18), on suspicion that he had been illegally “structuring” deposits of cash from SMC’s farmers market business. City Paper reached Sowers by phone for the article, and he granted an interview—though his attorney, David Watt, said at the time that Sowers “probably shouldn’t have said anything,” since “we don’t want to act like we’re trying to influence the goings-on” in the case.

A day after the article was published with quotes from Sowers, the USAO-MD filed a civil-forfeiture lawsuit seeking to keep Sowers’ seized funds (The News Hole, Apr. 20). According to Watt, Cassella told him over the phone that day that he filed the lawsuit because Sowers talked to the press.

Initially, Cassella said these words were “routine in forfeiture actions to protect the agents” who investigated the case from personal liability. Watt countered that in another structuring forfeiture filed last fall against money seized from Taylors Produce Stand, an Eastern Shore farming business, no such language appeared in the settlement agreement.

“I have a hard time explaining to my client why he is being treated differently,” Watt wrote, “especially where your initial concern was that the government agents not be liable for any claims for the seizure,” an issue Watt contended was addressed in another section of the agreement.

Cassella, in what Watt and Kamenar say was the last communication from Cassella in the matter, responded with one sentence: “Mr. Taylor did not give an interview to the press.”

CP shared the relevant e-mails with Rosenstein, asking for comment, and he e-mailed that if Watt and Kamenar “had any objection to the terms of the settlement,” they “should have raised it to my attention” before signing it. He also asked if Sowers and his attorneys “dispute” that “Sowers admitted that he ‘intentionally’ kept his cash deposits under $10,000 to avoid throwing up red flags.”

Kamenar says, “We were squeezed for time” by the time Cassella, on the same day the agreement was signed, revealed why he was insisting on language that was not in the Taylor agreement. He adds that, despite Sowers’ admission that he knowingly avoided red flags by depositing less than $10,000 at a time, “there was no intent by Randy to violate the structuring laws.”

Cassella, for his part, wrote in an e-mail to Rosenstein, which the USAO-MD shared with CP, that “the point is that the Sowers settlement was routine, not a punishment for exercising his First Amendment rights.”

“That’s an absolute falsehood,” says Kamenar, insisting that “this clause is not routine—see the Taylor settlement.” Cassella’s e-mail speaks for itself, Kamenar continues, and “you can’t put lipstick on that pig.”

“We’re not done with this, yet,” Kamenar says, adding that “Randy does not shy away from asserting his rights, and we think there should be more done to expose this kind of abuse.” Kamenar says he intends to send a letter to Rosenstein, demanding that there be “corrective action” in which Cassella is “disciplined” for the way Sowers’ case was handled.

“This is just another example of government overreach,” Kamenar continues, “this heavy-handed forfeiture going after people like the Sowers, and then penalizing them for talking to the press.”