Owner in probe warned of ‘fraudulent’ business ties
By Tom Beyerlein
Staff Writer Dayton Daily News Posted: 9:00 p.m. Saturday, Oct. 20, 2012
Internal memos seized from the Washington Twp. offices of TesTech Inc. show company President Sherif Aziz worried that his hidden business ties with wealthy developer David C. Oakes would be easily uncovered in an audit and “viewed as fraudulent,” causing what he warned could be “serious legal ramifications” for both men.
Federal transportation agents found the memos in boxes of records seized as part of a July 2011 raid of the civil engineering firm’s offices. Three separate memos were entered into evidence during a closed-door civil hearing in April that resulted with TesTech being ousted from an Ohio Department of Transportation set-aside program for disadvantaged minority business owners.
The Dayton Daily News obtained the 900-page transcript of that hearing through a public records request. The material did not include the actual memos, and transportation officials last week declined to release them, saying they are part of a continuing investigation.
Hiding the true ownership of a company in order to qualify for federal set-aside contracts is a crime carrying penalties ranging from fines and restitution to exclusion from government contracts and imprisonment.
Last January, using internal documents obtained by the newspaper, the Daily News showed for the first time that David Oakes and his wife, luxury home builder Shery Oakes, tried to distance themselves from Aziz as the federal government questioned ties between two Oakes companies and TesTech, which had claimed to be independent of them. The Oakeses are not eligible for the program, which gives special preference to minorities in the awarding of government contracts.
The seized memos were quoted extensively during the three-day ODOT hearing, held in Columbus. In her July 31 followup report, Hearing Officer Stephanie B. McCloud concluded that Aziz “by all appearances” wrote the memos and said they “can only be described as the thoughtful deliberation by the author to legitimize an arrangement that, in its current form, would lead a regulating agency to a finding of fraud.”
Based on the memos and other evidence, McCloud ruled that Aziz wasn’t the independent entrepreneur he claimed to be. Instead, she said, Aziz was “a loyal employee” of David and Shery Oakes who put himself at risk by pretending to own TesTech so the Oakes-controlled civil engineering firm could rake in millions of dollars’ worth of taxpayer-funded government contracts set aside for disadvantaged minority business owners.
Upon McCloud’s recommendation, ODOT decertified TesTech from the federal Disadvantaged Business Enterprise, or DBE, program.
Aziz declined to be interviewed. A phone message to the Oakeses’ attorney seeking comment was not returned. They have declined to comment.
Millions went to company with hidden ties
The ODOT hearing sought to determine whether Aziz, whose company had received millions of dollars in government contracts using its DBE status, actually met the program’s three key requirements. He had to show that he was a member of a disadvantaged minority group, that he wasn’t too wealthy to be eligible and that he owned TesTech and controlled its day-to-day operations.
McCloud said she couldn’t determine whether Aziz’s net worth made him ineligible for the program, in part because he had transferred a portion of his assets to his wife. He was also a partner on some real estate holdings that investigators believe were undervalued to lower his personal net worth.
But transportation officials ruled that Aziz is not a member of a disadvantaged minority group, as defined by the DBE program. Aziz, who was born in Egypt, claimed he is black — and thus eligible for the program — because he can trace his ancestry to an Ethiopian Nubian tribe. The hearing officer rejected that argument.
ODOT also ruled that Aziz did not own and control TesTech, even though he said he did while he obtained millions of dollars in federal highway contracts as a certified disadvantaged business from 2005-2009.
The DBE program, administered by the states, requires that participants be independent of other companies and be majority-owned and controlled by a disadvantaged person. The memos suggest Aziz was worried that regulators would learn about TesTech’s close connections to David Oakes’ companies CESO Testing Technology of Ohio and CESO Inc. of Michigan, both of which did business under the TesTech name.
“The main issue with the current (business) structure is the legal ramification,” according to a seized memo Aziz admitted he authored. “To secure the (DBE) certification, certain information, which can be easily uncovered in an audit, is not disclosed.”
“When an audit occurs, the current structure as described above will be viewed as fraudulent and has the potential of severe legal ramifications for both Sherif Aziz and David Oakes,” Aziz wrote, referring to himself in the third person.
The undisclosed information, according to the memo, included “the relationship between TesTech and CESO,” “the flow of the revenues between TesTech and CESO” and “the distribution of the work force working on the government projects.” For example, the memo said CESO Michigan employees “are the ones holding TesTech prequalification with MDOT (the Michigan Department of Transportation) and are performing the DBE work in MI for TesTech.”
Another seized memo sketches out several possibilities for straightening out the ownership structure of the companies so they could withstand regulatory scrutiny by severing their business connections. In one scenario, Aziz would be 100 percent owner of a combined TesTech for five years, after which time David Oakes would have the option to acquire 49 percent. This arrangement, which wasn’t adopted, would “give a chance to get our house in order before David becomes 49 percent owner,” the memo said.
Asked on cross-examination if he worried about a finding of fraud at that time, Aziz asked, “Can I speak to my counsel before answering?” After conferring with his lawyer, he said he was “being probably overzealous” in warning about legal fallout from an audit.
Three companies called TesTech
The transcripts included hundreds of pages of testimony from Aziz, who has said little publicly about his relationship with David and Shery Oakes and the details of his business connections with them.
Aziz’s ties with the Oakeses go back at least two decades.
Born in Egypt in 1962, Aziz came to the U.S. in 1984, earning a master’s degree at Wright State University in 1987. He testified that he came to Dayton because his sister, who is married to Shery Oakes’ brother, lived here.
Aziz relocated to New Jersey, obtaining U.S. citizenship there in 1991, before returning to Dayton to work for David Oakes’ Civil Engineers of Southwest Ohio, or CESO, in 1993. He testified he continued to work for CESO until 2000, three years after he set up TesTech Inc., using the Oakeses’ attorney as the incorporator. Aziz maintains he always was the sole owner of TesTech Inc., which shares the Galleria building at 8534 Yankee St. with CESO and Shery Oakes’ luxury home building firm Design Homes and Development Co. It was that office that was raided in 2011.
In his testimony, Aziz acknowledged he knew that Oakes’ CESO Testing Technology, formed in 1993, already was using the TesTech name, and that later the two companies used the same letterhead. But Aziz said he saw no conflict because CESO Testing Technology was focused on business clients including Walmart, while TesTech Inc. was to pursue government contracts. He testified “we were not going to be in the same market for competing, so I didn’t see that to be a conflict to name the company TesTech Inc.”
In the early days of TesTech, employees were issued work shirts with two logos — TesTech on the front and CESO on the back — and drove trucks bearing the CESO, TesTech and Design Homes logos, federal transportation Senior Investigator George Sullivan testified he was told by a former worker.
Another Oakes company called TesTech was created in 1999, when CESO Inc. of Michigan was incorporated and registered the TesTech trade name there. Aziz testified that David Oakes asked him to be the owner of 21 percent of the new company’s shares, with Oakes owning the other 79 percent. He said he agreed to the arrangement.
“Mr. Oakes came to me and told me that he was going to form a company in Michigan that was called CESO Inc., and for tax reasons he could not own a hundred percent shares of that company and asked me if I could be a minority owner of 21 percent so that he can fulfill the goal of the tax purposes he was going to fulfill,” Aziz testified. He testified he didn’t pay anything for the shares and received no money as a partial owner.
In 1998, the year after TesTech Inc. was incorporated, and again in 2004, Aziz sought DBE certification for the company on the assertion that he is a black American. The program presumes eligibility for most African Americans who meet net-worth requirements, but not Egyptians and people from other north African countries like Libya and Morocco. State officials rejected TesTech for the program both times. But in 2005, Aziz convinced an appeals hearing officer that he is black because he could trace his ancestry to an Ethiopian Nubian tribe through his Coptic Christian religion. TesTech was then granted DBE status and gained access to lucrative federal transportation projects.
The company still holds government certification in other minority set-aside programs. In May, the month after the transportation hearing, the Ohio Department of Administrative Services told Aziz it had “completed its review of your company’s ownership status” and “plans no changes to your certification status” for the Minority Business Enterprise and EDGE programs.
But in an email to the Daily News last week, DAS spokesman Molly O’Reilly said the department is now reviewing documents connected with the transportation department’s ruling against Aziz.
TesTech’s public clients have included Dayton International Airport, Dayton Public Schools, the county engineers in Montgomery, Warren and Greene counties, Wright-Patterson Air Force Base and the Dayton Veterans Affairs Medical Center. The company provides environmental assessments and a variety of engineering services at construction sites. TesTech typically has worked as a subcontractor, sometimes for CESO.
One of the seized memos showed how important the DBE status, and the public contracts it unlocked, was to TesTech. The memo projected the company by 2013 would lose $5.75 million without DBE certification.
‘I cannot put myself or my family at risk anymore’
In her July 31 report, Hearing Officer McCloud noted that from the start, “there has been a tremendous amount of overlap, intermingling and/or commingling” between TesTech and the Oakes companies, as CESO sought “to gain an unfair advantage” over competitors by using Aziz to get DBE status.
“The start of this unqualified journey to gain DBE work was pedestrian and careless, most likely because they were not anticipating the level of scrutiny they were now under,” she wrote. “As the Oakeses became more knowledgeable about the system and the lucrative nature of the business, the paperwork became cleaner and more sophisticated.”
There were red flags that TesTech wasn’t independent, McCloud noted. As the Dayton Daily News reported a year ago, CESO Testing Technology held the necessary licenses for radioactive devices used in TesTech’s business, and David Oakes signed correspondence on TesTech letterhead as its president. Evidence in the hearing showed that TesTech used CESO’s human resources and accounting resources and had the same insurance. Key employees moved from one company to another.
As regulators and potential customers raised questions about TesTech’s true ownership, internal memos show, Aziz and Oakes’ company officials were working to restructure the three “TesTech” companies. A 2007 memo from CESO’s controller to the Oakeses’ accounting firm, Brady Ware, shows the Oakeses were concerned that Aziz’s TesTech was having trouble obtaining minority-business certification through the Small Business Administration and wanted to “disassociate” Aziz from the couple.
Acting on a suggestion from Shery Oakes, Aziz in September 2007 sold his shares for $25,000 to another in-law of the Oakeses, Amy Montgomery, who was then 22 and engaged to their son, Peter, internal memos show. Aziz testified he agreed to repay the money to the Oakeses by having TesTech perform $25,000 of services for CESO Inc. in Michigan, free of charge. Without receiving any remuneration, Aziz had to pay capital gains taxes on the transaction, according to testimony.
At the same time, David Oakes hired Brady Ware to explore the possibility of selling TesTech/CESO Testing Technology, but Aziz testified the financial advisers reported that the company’s value wouldn’t meet Oakes’ expectations.
In a seized memo dated September 16, 2008, Aziz wrote, “I cannot put myself or my family at risk anymore. A solution that will permanently fix the current legal structure of the companies needs to be reached. It is important to structure a very transparent situation for TesTech so we have no issues of sharing all documents with government agencies relating to ownership and relationship of TesTech with CESO.”
According to his testimony, that solution came in spring 2009 with the acquisition by TesTech of the assets of CESO Testing Technology for $3.3 million. TesTech borrowed $2.3 million of the purchase price from David Oakes’ CESO Testing Technology, and Aziz testified he used money from Shery Oakes for his down payment on the loan with Fifth Third Bank.
Sullivan, the federal transportation investigator, testified that the sale was a “sham to clean up what had taken place previously.”
Aziz acquired his down payment money when Shery Oakes, in a negotiated sale whose terms were redacted from the transcript, bought his interest in a real estate venture they shared from WXYZ LLC, a holding company established in 2006 by Aziz and his wife, Dr. Nancy Zaki. But Sullivan testified that details of the sale raised questions about whether properties held in WXYZ were undervalued on its balance sheet so Aziz’s net worth would appear to meet eligibility requirements for set-aside programs.
Aziz testified that WXYZ is “where all my main assets are located.” A balance sheet for 2007 and 2008, obtained by the Daily News, shows WXYZ held Aziz and Zaki’s interests in 14 companies, most or all of which are real estate ventures associated with the Oakeses.
He said the WXYZ company, which was valued at $650,000 in 2008, was formed for “asset protection” and estate management.
Sullivan testified that the structure of the company raises concerns that Aziz was trying to hide assets so he could qualify for lucrative government contracts.
Aziz put up 80 percent of the assets when WXYZ was formed, Sullivan testified, but arbitrarily assigned himself only a 10 percent interest in the company while his wife got 90 percent.
Staff writer Lynn Hulsey contributed to this report.
The investigation
The Dayton Daily News has been investigating the ownership of the Washington Twp. civil engineering firm, TesTech Inc., for more than a year.
In October 2011 the newspaper reported that the company won millions of dollars in transportation contracts through the Disadvantaged Business Enterprise program, even though it was controlled by wealthy developer David Oakes and his wife, luxury home builder Shery Oakes, who are not eligible for the program.
In response to that story, the U.S. Small Business Administration and the Ohio Department of Administrative Services said they would investigate TesTech’s compliance with similar minority set-aside programs overseen by them.
Citing new information — including many of the findings included in the Daily News investigation — .the Ohio Department of Transportation denied TesTech’s application to continue certification in the DBE program. TesTech filed lawsuits against both ODOT and DAS to continue participating in the programs.
In January 2012, the Daily News reported that the Oakeses attempted to restructure one of their companies to remove any business ties with TesTech owner Sherif Aziz, whose company was supposed to be independent from the Oakes companies as a condition of the DBE program. “What we are trying to accomplish is to disassociate Sherif from the Oakeses,” an Oakes employee was quoted in one of the emails obtained by the newspaper.
In August, following a three-day closed-door hearing, ODOT removed TesTech from the DBE program, ruling that the Oakeses deceived the government to obtain the taxpayer-funded contracts. In her followup report, Hearing Officer Stephanie B. McCloud said Aziz was a “loyal employee” of the Oakeses who pretended to own TesTech for the purpose of qualifying for the government set-aside contracts.
Riverside will sign over land to developer Riverside officials meet to finalize next step for new subdivision.
By Steven Matthews, Staff Writer
10:07 PM Sunday, April 22, 2012
RIVERSIDE — City of Riverside officials are scheduled to meet today with DDC, LLC, and at that time, could turn over close to 20 acres of property to the developers in what is the next step in creating the Brantwood Subdivision.
The city owns the land —18.95 acres — and will sell it to DDC, LLC for $56,800, or nearly $3,000 per acre. If the property transaction doesn’t take place today, it will by the end of the month, said Riverside City Manager Bryan Chodkowski, who noted that all terms need to be agreed upon before the property is signed over.
City council passed a resolution earlier this month approving the Brantwood Tax Increment Financing and infrastructure development agreement between the city and DDC, LLC.
“This project is progressive,” Chodkowski said. “We’re at a time in our economy where development is hard to come by — let alone housing development — and this deal clearly demonstrates we have some very unique characteristics here in our community that present more favorable conditions than other communities. It shows we want to see stuff happen in the city, and we’re willing to be aggressive to get things moving.”
The proposed site is near the intersection of Brandt Pike and Haldeman Avenue, and the agreement is expected to result in about 60 single-family homes being built.
Construction by Ryan Homes is expected to begin the latter part of this year after the road improvements are completed. The road enhancements, including construction of the roads and sidewalks, are estimated to cost $1.7 million. That project will start in June.
“It’s been long in the making,” said Bob Murray, the city’s director of planning and economic development. “It’s a huge benefit to the city. I look forward to this being a huge success and creating quite a neighborhood over there.”
Six construction bids for the public infrastructure were received, ranging from $1.34 million to $1.66 million. City council is expected to award a contract at its May 3 meeting.
DDC, LLC will pay for the road improvements, and the TIF fund set up will be to pay off the city’s loan. Representatives from DDC, LLC could not be reached for comment.
The average selling price of each home is expected to be $180,000, with the year-end tax revenues distributed to the Mad River Local School District, the Brandt Pike TIF District and the city of Riverside via income tax.
Contact this reporter at (937) 225-2281 or [email protected].
By Steven Matthews, Staff Writer
10:07 PM Sunday, April 22, 2012
RIVERSIDE — City of Riverside officials are scheduled to meet today with DDC, LLC, and at that time, could turn over close to 20 acres of property to the developers in what is the next step in creating the Brantwood Subdivision.
The city owns the land —18.95 acres — and will sell it to DDC, LLC for $56,800, or nearly $3,000 per acre. If the property transaction doesn’t take place today, it will by the end of the month, said Riverside City Manager Bryan Chodkowski, who noted that all terms need to be agreed upon before the property is signed over.
City council passed a resolution earlier this month approving the Brantwood Tax Increment Financing and infrastructure development agreement between the city and DDC, LLC.
“This project is progressive,” Chodkowski said. “We’re at a time in our economy where development is hard to come by — let alone housing development — and this deal clearly demonstrates we have some very unique characteristics here in our community that present more favorable conditions than other communities. It shows we want to see stuff happen in the city, and we’re willing to be aggressive to get things moving.”
The proposed site is near the intersection of Brandt Pike and Haldeman Avenue, and the agreement is expected to result in about 60 single-family homes being built.
Construction by Ryan Homes is expected to begin the latter part of this year after the road improvements are completed. The road enhancements, including construction of the roads and sidewalks, are estimated to cost $1.7 million. That project will start in June.
“It’s been long in the making,” said Bob Murray, the city’s director of planning and economic development. “It’s a huge benefit to the city. I look forward to this being a huge success and creating quite a neighborhood over there.”
Six construction bids for the public infrastructure were received, ranging from $1.34 million to $1.66 million. City council is expected to award a contract at its May 3 meeting.
DDC, LLC will pay for the road improvements, and the TIF fund set up will be to pay off the city’s loan. Representatives from DDC, LLC could not be reached for comment.
The average selling price of each home is expected to be $180,000, with the year-end tax revenues distributed to the Mad River Local School District, the Brandt Pike TIF District and the city of Riverside via income tax.
Contact this reporter at (937) 225-2281 or [email protected].
Developers tried to distance themselves from partner
By Lynn Hulsey and Tom Beyerlein
Staff Writers
Updated 5:06 PM Sunday, January 29, 2012 Dayton Daily News
Internal documents obtained by the Dayton Daily News show for the first time that Washington Twp. developers David and Shery Oakes tried to distance themselves from their business partner, Sherif Aziz, as the federal government questioned ties between an Oakes company and Aziz’s TesTech Inc.
The documents, obtained in a public records request to the U.S. Department of Transportation, reveal how deeply the Oakeses’ CESO Inc. was involved in Aziz’s financial affairs, and what company officials did to craft a separation.
“What we are trying to accomplish is to disassociate Sherif from the Oakes,” wrote CESO Inc. Controller Tina Gunter in an Aug. 10, 2007, email to CESO’s accountant, Tom Gmeiner, tax director for Brady Ware, a Dayton financial services company.
With the U.S. Small Business Administration questioning Aziz about potentially improper business ties with the Oakeses, Aziz sold his shares in CESO to Amy Montgomery, then 22 and engaged to the Oakeses’ son Peter. In her email, Gunter said the idea was suggested by “SBO,” an apparent reference to Shery B. Oakes.
Aziz and the Oakeses are part of federal and state investigations into the true ownership of TesTech, a Washington Twp. engineering firm that has raked in millions of dollars’ worth of federally funded transportation contracts as a Disadvantaged Business Enterprise, or DBE. Aziz also has gained entry into several similar government programs that give contracting preference to disadvantaged minority-owned businesses.
Aziz won the DBE status, in part, by claiming to be the sole owner and president of TesTech since founding it in 1997. Federal regulations require that companies getting those lucrative set-aside contracts be independent and controlled by the disadvantaged minority. The DBE program, which is meant to redress discrimination, is particularly valuable because it gives companies a leg up in winning big-money roadway and airport contracts. The Oakeses are not eligible for the DBE program.
A Feb. 13 appeals hearing has been set on ODOT’s efforts to terminate TesTech from the DBE program because of its ties to the Oakes companies. In a prepared statement last week, Aziz accused ODOT of launching “unwarranted and scurrilous public attacks on TesTech’s integrity and reputation which potentially threatened the company’s business operations.”
In a statement issued on Friday, Aziz said it is “an established and documented fact” that he is the sole owner of TesTech. He said he did not know about the Gunter email until it was later provided to him by state and federal transportation officials.
“Mrs. Gunter should be the person asked about its contents,” he said.
Steven R. Stanforth, Brady Ware chief operating and financial officer, said he could not comment on the documents the Daily News obtained.
“As a matter of firm policy and in accordance with the standards of our profession, Brady Ware vigorously protects the confidentiality of its clients’ personal, financial and tax reporting information,” Stanforth said in a prepared statement.
David Reed, the Oakeses’ attorney, declined comment. Gunter did not respond to requests for comment.
Under DBE rules, Aziz’ company is supposed to be independent and it must be controlled by him. Yet the documents show clear ties between the Oakeses and Aziz.
The documents show:
• While Aziz claimed to own and control TesTech, David Oakes tried to sell the company in December 2007, according to an agreement signed by Oakes and an executive of Brady Ware. Oakes signed the document as TesTech Inc. president.
• In mid-2007, the U.S. Small Business Administration was preparing to reject Aziz for its Small Disadvantaged Business program on the grounds he had too many assets. CESO officials moved to transfer his 21 percent ownership in CESO Inc.’s Michigan operations to Montgomery.
• Despite the requirement that TesTech be independent, emails from 2007 and 2008 show CESO’s Gunter discussed with the accountant Gmeiner TesTech’s tax liabilities and other internal financial information.
• David Oakes and Aziz were also connected through CESO Testing Technology, an Oakes company that Ohio transportation officials allege was “indistinguishable” from Aziz’s TesTech Inc., in apparent violation of federal rules requiring DBE independence.
Documents show Aziz borrowed $2 million from CESO Testing Technology in 2009 to buy the now-defunct company’s assets for nearly $3.3 million. Aziz said he hoped to expand his operations in Michigan and secure a contract with Walmart. For years before the purchase, CESO Testing Technology held the licenses to key equipment TesTech needed to do its work.
The SBA’s 2007 letter rejecting Aziz’s application for the agency’s disadvantaged business program raised some of the same questions state and federal transportation officials are asking about TesTech’s DBE status.
The SBA determined Aziz was not economically disadvantaged, one requirement of the program. It said Aziz had too many assets and asked him to “address the appearance that Mr. Aziz has additional asset holdings that he has not adequately disclosed.
The federal agency also asked Aziz to “address the relationship between TesTech and CESO” and said that the companies’ combined 2006 revenues of $5.1 million created what “appears to be a potential size issue through affiliation,” according to the Sept. 10, 2007, letter to Aziz from SBA official Reginald M. Walden Sr.The letter states that the size limit for engineering services companies in the program, which is designed to benefit small companies, is $4.5 million.
‘Disassociating’ Aziz from the Oakeses
Internal emails show CESO officials were concerned about Aziz’s problems in obtaining the SBA certification for TesTech. Federal officials obtained a CESO email that included the SBA’s September 2007 rejection letter to Aziz. And an October 10, 2007, email from Gmeiner to Gunter is marked “info for sba” and includes a discussion of Aziz’s TesTech’s income and a request that she forward the information to Aziz.
Several options for “disassociating” Aziz from the Oakeses were floated.
In her Aug. 10, 2007, email, Gunter refers to “removing Sherif as 21% owner” of CESO Inc.’s Michigan operations. She also names several Oakes’ associates as potential candidates for ownership of the shares, including Montgomery.
Gunter wrote, “SBO would like to know if Amy (Peter’s fiance) would be able to be the owner without it being connected to the Oakes?”
Gunter also wrote: “Lastly if none of the above options work could one of the niece’s take that ownership? I would like to somehow see if we can shift it to the Oakes without causing tax issues — the less people involved the better for them.”
With the sale, David Oakes remained owner of 79 of CESO’s 100 shares and his soon-to-be daughter-in-law held the remaining 21. Montgomery paid Aziz $25,000 for those shares on Sept. 23, 2007, according to copies of the purchase agreement and Montgomery’s check, which were included in the documents the newspaper obtained from the transportation department.
As part of the sale, Aziz agreed to resign in 2007 as secretary of the board of directors of CESO in Michigan.
Company created for ‘asset protection’
Federal and state officials have also questioned Aziz about WXYZ LLC, an Ohio company Aziz and his wife, Dr. Nancy Zaki, jointly own.
Aziz said the couple created the company in 2006 for “asset protection purposes,” according to a 2010 letter from Aziz to the Ohio Department of Transportation. Zaki owned 90 percent and Aziz 10 percent, the letter states.
Aziz described it as a real estate investment holding company with no employees and said its assets were held in escrow as collateral for his purchase of the CESO Testing Technology assets.
A WXYZ balance sheet for 2007 and 2008 indicates the company held Aziz and his wife’s interests in 14 companies, most or all of which are real estate ventures associated with the Oakeses. Assets totaled more than $650,047 in 2008, according to the documents.
In Gunter’s Aug. 10, 2007, email to Gmeiner regarding the sale of CESO Inc. shares she said, “In the other companies that they have similar ownership with the Oakes family — Sherif was able to shift his ownership to his newly created company WXYZ ... .”
Last November, ODOT asked Aziz to produce tax returns for WXYZ as it sought to determine his eligibility for the disadvantaged business program. In December, ODOT, which administers the DBE program for the federal government, told Aziz TesTech was being decertified and cited multiple findings from a 2011 Daily News investigation, which uncovered numerous documents linking the Oakeses to TesTech.
Egyptian-Americans like Aziz and Shery Oakes typically don’t qualify as minorities in the DBE program.
Shery Oakes owns the luxury home building company Design Homes and Development Co., and in recent years her DHDC has entered the same field as TesTech — performing geological testing at construction sites. Design Homes’ status as a Minority Business Enterprise, or MBE, another set-aside contract designation, now is under review by the Ohio Department of Administrative Services as a result of the Daily News investigation.
In recent years the federal government has cracked down on contract fraud in its various set-aside programs as abuses became more apparent.
Aziz won DBE certification for TesTech in 2005 after two rejections by arguing to an appeals hearing officer that he was black because his ancestry traced through his religion to an African Nubian tribe. Aziz had won some set-aside contracts in years prior to that because he was certified as a DBE separately by airports in Columbus and Kentucky.
TesTech benefited greatly from its DBE status. The company did business with so many government entities across several states it is impossible to know just how much taxpayer money TesTech was paid. But a Daily News review of area and state contracts found TesTech was paid at least $4.7 million since 2003 by ODOT, Montgomery County, the city of Dayton and Dayton Public Schools.
TesTech currently also holds certification in the MBE and Encouraging Diversity Growth and Equity programs through the state. Both programs give companies special access to government contracts.
TesTech also is designated an SBA 8(a) disadvantaged firm and was in the SBA’s disadvantaged business program for three years prior to the 2007 rejection of Aziz’s application, according to the SBA website. The ODAS and SBA are reviewing his eligibility and TesTech filed suit earlier this month against ODAS to stop it from stripping him of his certification.
In the lawsuit, TesTech attorneys spelled out what is at stake for the company.
They wrote that “if the Defendants carry out their threat to de-certify” TesTech “will suffer irreparable harm in the loss of contracts and the inability to participate in future contracts. In addition, many of the jobs of the present 70 employees will have to be terminated.”
Contact this reporter at (937) 225-7455 or [email protected]
Staff Writers
Updated 5:06 PM Sunday, January 29, 2012 Dayton Daily News
Internal documents obtained by the Dayton Daily News show for the first time that Washington Twp. developers David and Shery Oakes tried to distance themselves from their business partner, Sherif Aziz, as the federal government questioned ties between an Oakes company and Aziz’s TesTech Inc.
The documents, obtained in a public records request to the U.S. Department of Transportation, reveal how deeply the Oakeses’ CESO Inc. was involved in Aziz’s financial affairs, and what company officials did to craft a separation.
“What we are trying to accomplish is to disassociate Sherif from the Oakes,” wrote CESO Inc. Controller Tina Gunter in an Aug. 10, 2007, email to CESO’s accountant, Tom Gmeiner, tax director for Brady Ware, a Dayton financial services company.
With the U.S. Small Business Administration questioning Aziz about potentially improper business ties with the Oakeses, Aziz sold his shares in CESO to Amy Montgomery, then 22 and engaged to the Oakeses’ son Peter. In her email, Gunter said the idea was suggested by “SBO,” an apparent reference to Shery B. Oakes.
Aziz and the Oakeses are part of federal and state investigations into the true ownership of TesTech, a Washington Twp. engineering firm that has raked in millions of dollars’ worth of federally funded transportation contracts as a Disadvantaged Business Enterprise, or DBE. Aziz also has gained entry into several similar government programs that give contracting preference to disadvantaged minority-owned businesses.
Aziz won the DBE status, in part, by claiming to be the sole owner and president of TesTech since founding it in 1997. Federal regulations require that companies getting those lucrative set-aside contracts be independent and controlled by the disadvantaged minority. The DBE program, which is meant to redress discrimination, is particularly valuable because it gives companies a leg up in winning big-money roadway and airport contracts. The Oakeses are not eligible for the DBE program.
A Feb. 13 appeals hearing has been set on ODOT’s efforts to terminate TesTech from the DBE program because of its ties to the Oakes companies. In a prepared statement last week, Aziz accused ODOT of launching “unwarranted and scurrilous public attacks on TesTech’s integrity and reputation which potentially threatened the company’s business operations.”
In a statement issued on Friday, Aziz said it is “an established and documented fact” that he is the sole owner of TesTech. He said he did not know about the Gunter email until it was later provided to him by state and federal transportation officials.
“Mrs. Gunter should be the person asked about its contents,” he said.
Steven R. Stanforth, Brady Ware chief operating and financial officer, said he could not comment on the documents the Daily News obtained.
“As a matter of firm policy and in accordance with the standards of our profession, Brady Ware vigorously protects the confidentiality of its clients’ personal, financial and tax reporting information,” Stanforth said in a prepared statement.
David Reed, the Oakeses’ attorney, declined comment. Gunter did not respond to requests for comment.
Under DBE rules, Aziz’ company is supposed to be independent and it must be controlled by him. Yet the documents show clear ties between the Oakeses and Aziz.
The documents show:
• While Aziz claimed to own and control TesTech, David Oakes tried to sell the company in December 2007, according to an agreement signed by Oakes and an executive of Brady Ware. Oakes signed the document as TesTech Inc. president.
• In mid-2007, the U.S. Small Business Administration was preparing to reject Aziz for its Small Disadvantaged Business program on the grounds he had too many assets. CESO officials moved to transfer his 21 percent ownership in CESO Inc.’s Michigan operations to Montgomery.
• Despite the requirement that TesTech be independent, emails from 2007 and 2008 show CESO’s Gunter discussed with the accountant Gmeiner TesTech’s tax liabilities and other internal financial information.
• David Oakes and Aziz were also connected through CESO Testing Technology, an Oakes company that Ohio transportation officials allege was “indistinguishable” from Aziz’s TesTech Inc., in apparent violation of federal rules requiring DBE independence.
Documents show Aziz borrowed $2 million from CESO Testing Technology in 2009 to buy the now-defunct company’s assets for nearly $3.3 million. Aziz said he hoped to expand his operations in Michigan and secure a contract with Walmart. For years before the purchase, CESO Testing Technology held the licenses to key equipment TesTech needed to do its work.
The SBA’s 2007 letter rejecting Aziz’s application for the agency’s disadvantaged business program raised some of the same questions state and federal transportation officials are asking about TesTech’s DBE status.
The SBA determined Aziz was not economically disadvantaged, one requirement of the program. It said Aziz had too many assets and asked him to “address the appearance that Mr. Aziz has additional asset holdings that he has not adequately disclosed.
The federal agency also asked Aziz to “address the relationship between TesTech and CESO” and said that the companies’ combined 2006 revenues of $5.1 million created what “appears to be a potential size issue through affiliation,” according to the Sept. 10, 2007, letter to Aziz from SBA official Reginald M. Walden Sr.The letter states that the size limit for engineering services companies in the program, which is designed to benefit small companies, is $4.5 million.
‘Disassociating’ Aziz from the Oakeses
Internal emails show CESO officials were concerned about Aziz’s problems in obtaining the SBA certification for TesTech. Federal officials obtained a CESO email that included the SBA’s September 2007 rejection letter to Aziz. And an October 10, 2007, email from Gmeiner to Gunter is marked “info for sba” and includes a discussion of Aziz’s TesTech’s income and a request that she forward the information to Aziz.
Several options for “disassociating” Aziz from the Oakeses were floated.
In her Aug. 10, 2007, email, Gunter refers to “removing Sherif as 21% owner” of CESO Inc.’s Michigan operations. She also names several Oakes’ associates as potential candidates for ownership of the shares, including Montgomery.
Gunter wrote, “SBO would like to know if Amy (Peter’s fiance) would be able to be the owner without it being connected to the Oakes?”
Gunter also wrote: “Lastly if none of the above options work could one of the niece’s take that ownership? I would like to somehow see if we can shift it to the Oakes without causing tax issues — the less people involved the better for them.”
With the sale, David Oakes remained owner of 79 of CESO’s 100 shares and his soon-to-be daughter-in-law held the remaining 21. Montgomery paid Aziz $25,000 for those shares on Sept. 23, 2007, according to copies of the purchase agreement and Montgomery’s check, which were included in the documents the newspaper obtained from the transportation department.
As part of the sale, Aziz agreed to resign in 2007 as secretary of the board of directors of CESO in Michigan.
Company created for ‘asset protection’
Federal and state officials have also questioned Aziz about WXYZ LLC, an Ohio company Aziz and his wife, Dr. Nancy Zaki, jointly own.
Aziz said the couple created the company in 2006 for “asset protection purposes,” according to a 2010 letter from Aziz to the Ohio Department of Transportation. Zaki owned 90 percent and Aziz 10 percent, the letter states.
Aziz described it as a real estate investment holding company with no employees and said its assets were held in escrow as collateral for his purchase of the CESO Testing Technology assets.
A WXYZ balance sheet for 2007 and 2008 indicates the company held Aziz and his wife’s interests in 14 companies, most or all of which are real estate ventures associated with the Oakeses. Assets totaled more than $650,047 in 2008, according to the documents.
In Gunter’s Aug. 10, 2007, email to Gmeiner regarding the sale of CESO Inc. shares she said, “In the other companies that they have similar ownership with the Oakes family — Sherif was able to shift his ownership to his newly created company WXYZ ... .”
Last November, ODOT asked Aziz to produce tax returns for WXYZ as it sought to determine his eligibility for the disadvantaged business program. In December, ODOT, which administers the DBE program for the federal government, told Aziz TesTech was being decertified and cited multiple findings from a 2011 Daily News investigation, which uncovered numerous documents linking the Oakeses to TesTech.
Egyptian-Americans like Aziz and Shery Oakes typically don’t qualify as minorities in the DBE program.
Shery Oakes owns the luxury home building company Design Homes and Development Co., and in recent years her DHDC has entered the same field as TesTech — performing geological testing at construction sites. Design Homes’ status as a Minority Business Enterprise, or MBE, another set-aside contract designation, now is under review by the Ohio Department of Administrative Services as a result of the Daily News investigation.
In recent years the federal government has cracked down on contract fraud in its various set-aside programs as abuses became more apparent.
Aziz won DBE certification for TesTech in 2005 after two rejections by arguing to an appeals hearing officer that he was black because his ancestry traced through his religion to an African Nubian tribe. Aziz had won some set-aside contracts in years prior to that because he was certified as a DBE separately by airports in Columbus and Kentucky.
TesTech benefited greatly from its DBE status. The company did business with so many government entities across several states it is impossible to know just how much taxpayer money TesTech was paid. But a Daily News review of area and state contracts found TesTech was paid at least $4.7 million since 2003 by ODOT, Montgomery County, the city of Dayton and Dayton Public Schools.
TesTech currently also holds certification in the MBE and Encouraging Diversity Growth and Equity programs through the state. Both programs give companies special access to government contracts.
TesTech also is designated an SBA 8(a) disadvantaged firm and was in the SBA’s disadvantaged business program for three years prior to the 2007 rejection of Aziz’s application, according to the SBA website. The ODAS and SBA are reviewing his eligibility and TesTech filed suit earlier this month against ODAS to stop it from stripping him of his certification.
In the lawsuit, TesTech attorneys spelled out what is at stake for the company.
They wrote that “if the Defendants carry out their threat to de-certify” TesTech “will suffer irreparable harm in the loss of contracts and the inability to participate in future contracts. In addition, many of the jobs of the present 70 employees will have to be terminated.”
Contact this reporter at (937) 225-7455 or [email protected]
Washington Twp. business raided by federal agents
By Lou Grieco and Tom Beyerlein
Staff Writers
Updated 11:23 PM Friday, July 8, 2011 Dayton Daily News
WASHINGTON TWP., Montgomery County — Agents of the FBI and the U.S. Transportation Department executed a search warrant Thursday afternoon at The Galleria Building, 8534 Yankee St., headquarters of a company, TesTech Inc., that is an interstate trucking cargo carrier for the department.
FBI spokesman Mike Brooks said the search warrant was sealed and he could not provide details. He said there were multiple addresses in the warrant.
The Galleria Building houses custom home builder Design Homes and Development Corp., owned by Shery Oakes; CESO Inc., a civil engineering firm owned by her husband, David; and TesTech, a geo-environmental engineering firm owned by Sherif Aziz, a business partner of Shery Oakes.
Attorney David Reed, who represents Design Homes, said the targets of the search were TesTech and CESO Testing Technology Inc., not Design Homes. He declined to comment further.
Reed was the attorney who, in February, dissolved CESO Testing Technology, according to Ohio Secretary of State’s records. David C. Oakes was the sole officer and trustee listed in the paperwork. David Oakes also owns and runs CESO Inc., a separately incorporated company also at the Yankee Street address.
In a 2004 news release, the Ohio Department of Development said Design Homes and Development, CESO, CESO Testing and TesTech collectively were “the Oakes companies.” That year, Montgomery County received $400,000 in roadwork grant money from the state to widen Yankee to support construction of the Galleria to create and retain jobs at the Oakes companies.
CESO lists the Ohio Department of Transportation as among its clients. TesTch has received a number of government contracts for transportation projects, including its role in a $26 million Interstate 75 exit realignment project, according to the company website. Formed in 1997, TesTech has 80 employees and offices in Dayton, Columbus, Cincinnati, Indianapolis, Fort Wayne, Louisville and St. Louis.
A person who answered the phone at Sherif Aziz’s home said Aziz was unavailable for comment.
Aziz and Shery Oakes were co-incorporators of several Ohio businesses, according to Secretary of State’s records. They are Pyramid Properties Ltd., Mandarin Cove Ltd. and the defunct Design Castle Ltd.
Shery Oakes is listed as owner and president on the company’s website. Montgomery County real estate records also list her as the trustee for Yankee Partners, LLC, the owners of the Galleria.
The office building is assessed at $4.3 million, according to the Montgomery County Auditor’s Office.
Two agents with the Department of Transportation’s Inspector General’s office were blocking the driveway to the Galleria, 300 feet from the building.
Jill Kelley and Steve Bennish contributed to this report
Staff Writers
Updated 11:23 PM Friday, July 8, 2011 Dayton Daily News
WASHINGTON TWP., Montgomery County — Agents of the FBI and the U.S. Transportation Department executed a search warrant Thursday afternoon at The Galleria Building, 8534 Yankee St., headquarters of a company, TesTech Inc., that is an interstate trucking cargo carrier for the department.
FBI spokesman Mike Brooks said the search warrant was sealed and he could not provide details. He said there were multiple addresses in the warrant.
The Galleria Building houses custom home builder Design Homes and Development Corp., owned by Shery Oakes; CESO Inc., a civil engineering firm owned by her husband, David; and TesTech, a geo-environmental engineering firm owned by Sherif Aziz, a business partner of Shery Oakes.
Attorney David Reed, who represents Design Homes, said the targets of the search were TesTech and CESO Testing Technology Inc., not Design Homes. He declined to comment further.
Reed was the attorney who, in February, dissolved CESO Testing Technology, according to Ohio Secretary of State’s records. David C. Oakes was the sole officer and trustee listed in the paperwork. David Oakes also owns and runs CESO Inc., a separately incorporated company also at the Yankee Street address.
In a 2004 news release, the Ohio Department of Development said Design Homes and Development, CESO, CESO Testing and TesTech collectively were “the Oakes companies.” That year, Montgomery County received $400,000 in roadwork grant money from the state to widen Yankee to support construction of the Galleria to create and retain jobs at the Oakes companies.
CESO lists the Ohio Department of Transportation as among its clients. TesTch has received a number of government contracts for transportation projects, including its role in a $26 million Interstate 75 exit realignment project, according to the company website. Formed in 1997, TesTech has 80 employees and offices in Dayton, Columbus, Cincinnati, Indianapolis, Fort Wayne, Louisville and St. Louis.
A person who answered the phone at Sherif Aziz’s home said Aziz was unavailable for comment.
Aziz and Shery Oakes were co-incorporators of several Ohio businesses, according to Secretary of State’s records. They are Pyramid Properties Ltd., Mandarin Cove Ltd. and the defunct Design Castle Ltd.
Shery Oakes is listed as owner and president on the company’s website. Montgomery County real estate records also list her as the trustee for Yankee Partners, LLC, the owners of the Galleria.
The office building is assessed at $4.3 million, according to the Montgomery County Auditor’s Office.
Two agents with the Department of Transportation’s Inspector General’s office were blocking the driveway to the Galleria, 300 feet from the building.
Jill Kelley and Steve Bennish contributed to this report
Why are the above story's important to us?
Riversides leaders are negotiating with CESO to be a developer of a new housing development on Brandt Pk. It will be located where the empty "Riverside Business Park" is now. Not only are city leaders wanting to use YOUR tax dollars to subsidize these high priced homes, they are dealing with a company who is under investigation of the FBI. I understand innocent until proven guilty but the fact remains that during a federal investigation assets can and will be seized. We could then see our tax dollars and the land be seized by the feds during an investigation that could take years. This is not a risk we should take as a city. Please go to the Contact your Government section on this website and email your Mayor and Council and tell them to stop this deal.