Profitting from Disaster: Fraud, scandal and greed have crippled the Gulf recovery

by Jordan Green

It had been over three weeks since Katrina made landfall, but when David Bailey and his group of Virginia firefighters arrived in St. Bernard Parish to help, it looked like the storm had only hit days before. “The whole parish is a soup bowl,” said Bailey, battalion chief with Chesterfield Fire and EMS. “It’s under sea level.”

St. Bernard, a mostly white, working-class community immediately east of New Orleans, was hit by the infamous “wall of water” that forced residents to hack through their attics to survive after a storm surge combined with breaches in the Industrial Canal and Mississippi River-Gulf Outlet to inundate the community.

Given the level of destruction, the Virginia volunteers were astonished to discover members of the St. Bernard Fire Department already working full-tilt. Local firefighters, many who had lost their homes, were taking four- or five-day shifts and then rotating out to recuperate and join families evacuated further from the coastline.

“I don’t know how they held up like they did,” Bailey said. “Your family’s devastated and you’re still making the rescues. From what I understand they hunkered down the first couple days. As soon as the wind died down they got out and commandeered boats and started making rescues. They saved a lot of lives.”

But soon after Bailey’s team arrived, another group entered the picture, seemingly out of nowhere. On Sept. 18, the Federal Emergency Management Agency awarded a $5.2 million contract to Gary Heldreth, a West Virginia pastor, and his company, Lighthouse Disaster Relief, based on the company’s assurances that it could set up a base camp within 48 hours to support 1,000 first responders in St. Bernard Parish. The results were disastrous.

“[Lighthouse] billed the entire $5.2 million in advance of beginning work in violation of the contract terms, and upon receipt of the proceeds began spending them at an incredible pace, buying cars and real estate, withdrawing large cash withdrawals, and transferring tens of thousands of dollars to family members,” a federal lawsuit would later allege.

Around Oct. 2 Lighthouse finally opened the camp, but that only happened because FEMA brought in firefighters to help Lighthouse finish the job, the government contends. “Even with this assistance, the base camp was not sufficient to perform the contract,” the government investigators charge. “While the contract provided for a camp able to house and feed 1,000 emergency workers, the camp was never able to support more than 400 people.” The company argues the project’s failure is the result of a mix-up in FEMA’s orders.

How Heldreth and codefendant Kerry Lynn Farmer got into the hurricane relief business remains unclear. “About the closest thing I have done to this is just organize a youth camp with my church,” Heldreth admitted on the PBS program “NewsHour with Jim Lehrer” only two days after the camp opened. While Heldreth insists that his company did nothing wrong, a federal judge has upheld a court order to garnish $1.5 million from Lighthouse bank accounts. Heldreth tried another tack to avoid repaying the government: Following a May 19 hearing, court documents allege, the pastor gave his son a $50,000 Corvette on which he had previously agreed the government could place a lien. Following the transfer government lawyers were led to believe Heldreth and his son were no longer speaking to each other.

Profiteering, big and small

A year after Hurricane Katrina ripped a path of destruction and tragedy across the Gulf Coast, much of the public debate is dominated by reproach toward evacuees and other ordinary people who defrauded the government through false emergency assistance claims.

A recent US General Accounting Office study estimates improper or fraudulent payments related to hurricanes Katrina and Rita might have come to as much as $1.4 billion. According to the New York Times, one hotel owner in Sugar Land, Texas rang up $236,000 in false billings. And then there were the infamous words of Juvenile, a New Orleans rapper: In the first cut on his latest album, after observing that “We starvin’; we livin’ like Haiti without no government,” he says “Everybody need a check from FEMA, so he can sco’ him some cocaine. Get money!”

But opportunism and ill-gotten riches have hardly been the exclusive preserve of gangsta hip-hoppers or small-time scam artists. While the government’s Hurricane Katrina Fraud Task Force has focused attention on fraud by emergency assistance recipients, instances of corporate contract and procurement fraud have been documented at 50 times that amount.

A review of congressional testimony and other documents by Gulf Coast Reconstruction Watch found a total of at least $136.7 million in corporate fraud in Katrina-related contracts. In addition, government investigators have highlighted contracts cumulatively valued at $428.7 million that they found troubling because of lack of agency oversight or misappropriation.

Some of the contractors failed to meet their obligations and charged the government for work that was never performed. Taking advantage of inadequate oversight, others inflated costs. It was also the case that the government, most notably FEMA under the leadership of former Director Michael Brown, withheld crucial resources from the hardest hit areas of the Gulf Coast and failed to establish efficient supply lines and points of distribution for ice, water, Meals-Ready-to-Eat and other essentials. The contractors could lay the blame at the feet of the feds, and vice versa.

In truth, both parties are part of the same machinery – a system where players move in and out of government, awarding contracts as government officials one moment, and the next acting as high-powered consultants for the companies pursuing work with those same agencies. When Katrina laid waste to the Gulf Coast, the government agencies and private contractors seemed to occupy the same insider Washington milieu, where human suffering rated an abstraction and tending to the relationships of the private-public trough claimed first priority.

Fiddling while the contractors fail

“I am most haunted by what the [New Orleans] Superdome became,” FEMA public affairs officer Marty Bahamonde told the Senate Homeland Security Committee on Oct. 20. “It was a shelter of last resort that cascaded into a cesspool of human waste and filth. Imagine no toilet facilities for 25,000 people for five days. People were forced to live outside in 95-degree heat because of the horrid smell and conditions inside. Hallways and corridors were used as toilets, trash was everywhere, and amongst it all, children – thousands of them. It was sad, it was inhumane, and it was so wrong.”

But FEMA was unable to help at the Superdome. That’s because the agency’s personnel withdrew on Thursday, Sept. 1, when the National Guard warned of an impending riot and said they could not ensure their safety.

The tragedy at the Superdome was exacerbated by the failure of evacuation buses to show up for six days. Brown said he did not request the buses until Tuesday or Wednesday. Landstar, a Florida-based trucking company, had been awarded an emergency transportation contract worth at least $284 million, according to Taxpayers for Common Sense. But the buses wouldn’t show up until Saturday.

Despite the death and deprivation experienced by Katrina evacuees at the Superdome and later at the Convention Center as they waited for the buses to arrive, the US Department of Transportation applauded Landstar’s performance. “The drivers, dispatchers and other employees of Landstar are among the unsung heroes of Katrina,” National Response Program Manager Vincent Pearce told Congress. “In a chaotic environment, they brought thousands of buses and trucks when and where they were asked to. They have earned the thanks and appreciation of the Department of Transportation and, we hope, yours as well.”

New Orleans was not the only place where hurricane survivors were let down by private contractors and their government backers. By Wednesday night, FEMA employees discussed how, despite earlier promises, deliveries of ice and other commodities to Camp Shelby near Hattiesburg, Miss. were expected to fall woefully short – less than 15 percent of amounts requested by state emergency responders, congressional investigators later discovered.

A Georgia company, Americold, had been tasked by FEMA three days before Katrina made landfall with moving ice from a warehouse in the Atlanta suburbs to various other warehouses across the Gulf, earning $26 million dollars. A Government Accountability Office report the following March found that FEMA ordered double the amount of ice needed, and did not have enough distribution points established to get it to people in need.

Tonda Hadley, a Homeland Security auditor in Dallas, found that Alabama-based Clearbrook overcharged the government by $3 million while contracted to provide food and lodging at seven base camps for first responders across Louisiana.

The Shaw Group, a Baton Rouge company with close connections to the Bush administration, charged the government three times as much as an Alabama competitor, Ystueta, for work covering damaged homes with tarps as part of the US Army Corps of Engineers’ “blue roof” program, according to a report by the New Orleans Times-Picayune. The Army Corps of Engineers program cost taxpayers a total of $330 million.

The Shaw Group has earned more than half a billion dollars from Katrina-related work from contracts awarded by the Army Corps of Engineers and FEMA. The company, a major contractor in the Iraqi reconstruction, acted fast after Katrina made landfall. On Sept. 21 the Shaw Group hired Charles Hess to head its hurricane recovery program and oversee its indefinite delivery/indefinite quantity FEMA contract. Hess had recently left a position as head of the Army’s contracting office for Iraqi reconstruction. He had also directed FEMA’s emergency response division.

More help came from Joe Allbaugh, a former FEMA director and director of Bush’s 2000 election campaign, who helped the company develop contract bids for Katrina reconstruction jobs, The Hill and other media outlets have reported.

Bypassing Gulf business

Other instances of fraud and overcharging appear to have taken place because the government awarded advance contracts to large, out-of-state companies that had little notion of how to do business in areas hit by the hurricane.

Immediately after Katrina struck the Gulf, Paul Adams, a Yazoo City businessman who specialized in setting up temporary classrooms, called his suppliers and the Mississippi Department of Education, anticipating that students would be displaced. Told by the department that FEMA would supply temporary trailers to house the students, he eventually discovered that the Army Corps of Engineers was obligated to give the work to Akima, an Alaska native corporation.

Adams alleges in a lawsuit that he tracked down 450 temporary classrooms and as a subcontractor submitted a bid to Akima, which in turn used the information to win a contract with the Army Corps of Engineers. Later Akima Senior Project Manager Al Cialone went to Florida to inspect the trailers – and then purchased them directly, cutting Adams out of the deal, according to the lawsuit.

The deal troubled the GAO, and it reported to Congress in May that “the Corps accepted Akima’s proposed price of $39.5 million although it had information that the cost for the classrooms was significantly less than what Akima was charging’…. We believe the Corps could have, but failed to, negotiate a lower price.”

David Machado, a staff engineer with Necaise Brothers Construction Co. in Gulfport, also expressed frustration about getting cut out of reconstruction work in his home state of Mississippi in testimony before the House Government Reform Committee.

“We have all felt the injustice,” he said. “From truck drivers to chainsaw operators, we have had to scrape and claw to be afforded an opportunity to rebuild the very place we call home.”

Necaise Brothers is one of about a half dozen subcontractors that have filed suit against AshBritt, complaining that the politically connected Florida company withheld payment or “looted” work from smaller firms. AshBritt has been sued for a total of at least $9.5 million by companies that have crossed its path in the hurricane reconstruction zone along the coast of Mississippi. Perhaps that should come as no surprise considering that the company landed contracts valued at more than a half billion dollars from the Army Corps of Engineers between September 2005 and March 2006.

AshBritt appears to have benefited from the fact that local companies that would otherwise have been given preference for federal contracts under the Stafford Act – passed in 1988 to revitalize communities struck by disaster by using local businesses to clean up debris – were demobilized by the hurricane.

The company also enjoyed some help from high-placed friends. Among them was Mike Parker, a lobbyist who had formerly served as assistant secretary of the Army Corps of Engineers, according to The Hill. The company has also engaged the lobbying services of Barbour Griffith and Rogers, a lobbying firm founded by Mississippi’s Republican governor, Haley Barbour, according to a report by the Washington-based Center for Responsive Politics.

Bottom of the contracting chain

If local companies suffered a disadvantage in the scramble for reconstruction work, immigrant workers – many of whom have been drawn to the Gulf Coast prior to Katrina to do the most dangerous welding jobs in the shipyards that stretch from New Orleans to Mobile, Ala. – fared much worse.

As a result of a shaming campaign, the Mississippi Immigrant Rights Alliance in Jackson recovered more than $700,000 in back wages owed to immigrant workers by companies contracted to rebuild the Mississippi coast. When the alliance traced the withheld wages up through several tiers of subcontracting, they found that two companies, Mississippi-based WG Yates & Sons and Houston-based KBR (then a division of Halliburton Co.) together managed the majority of the jobs where immigrants were exploited.

“What happens a lot of times with the contractors is they do not speak Spanish, so they get someone who’s bilingual to be crew leaders,” said Bill Chandler, executive director of MIRA. “The workers think they’re contractors. The crew leaders – generally, they’re the ones who have not been paid. Oftentimes they’re just as abandoned as anybody else.”

Some contracts are subcontracted three or four times, each company in the middle taking a cut – and creating an environment ripe for abuse. “There’s usually a whole series of contractors,” Chandler said. “Halliburton doesn’t actually do any work. There are several layers of subcontractors. From our standpoint, they have to pay the workers; it’s up to them to recover the monies up the food chain.”

The alliance helped recover $430,000 in back wages for workers employed in projects overseen by WG Yates & Sons. The company has won $2.6 million in Katrina-related contracts from the Army Corps of Engineers. Members of the Yates family gave $15,000 to Republican candidates during the 2004 election cycle and during the early months of 2005. Among the top recipients were the Republican Party of Mississippi and the state’s two US senators.

Another is Houston-based KBR, a company that has ironically also been contracted by the Army Corps of Engineers to expand immigrant detention facilities. MIRA recovered $141,000 in back wages for 106 workers for a project that involved KBR on Feb. 22. KBR’s parent company at the time, Halliburton, has long thrived on political connections. An oil-services company formerly headed by Vice President Dick Cheney, Halliburton favored Republican candidates by a ratio of 9 to 1 in the 2004 election, pouring $189,000 into Republican races.

“It’s blatant racism,” Chandler said. “Here you have Latinos and other immigrants who are people of color, they don’t speak English and they may not be familiar with the ins and outs of laws. Further, if they’re undocumented they’re afraid to say anything, and the contractors know this.”

When Hurricane Katrina hit the Gulf Coast it did more than expose poverty, environmental fragility and compromised infrastructure; it laid bare a national system of political patronage that enriched a handful of powerful corporations and deepened the despair of those on society’s margins.

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This investigation appeared in “One Year after Katrina: The State of New Orleans and the Gulf Coast,” a report published by Gulf Coast Reconstruction Watch, a special project of Southern Exposure/Institute for Southern Studies. For more information, visit