San Antonio Express-News
September 20, 2007 By Guillermo Contreras, Express-News Staff Writer
Four of six men charged with participating in a scheme to rig $79 million in contracts at the U.S. Army Medical Command at Fort Sam Houston have agreed to plead guilty to bribery-related charges, go to prison and pay a total of $2.7 million in restitution.
Rather than go to trial and risk prison sentences of up to 25 years, the four accepted plea offers that would cap their prison sentences at seven years.
Two others charged have not accepted plea deals but are expected to soon.
Among those who accepted the deals are two former insiders at the Army Medical Command, or MEDCOM, William John "Bill" Strout Sr. and Ignacio "Nacho" Ruelas Torres. They agreed to plead guilty to accepting a bribe by a public official, which is punishable by a maximum of 15 years. Each agreed to seven years in prison. Torres also agreed to give up his interest in four properties investigators allege had connections to "dirty" money from the graft.
Strout, 57, of San Antonio, was a contracting officer technical representative for the U.S. Army Medical Information Technology Center, or USAMITC, a division of MEDCOM. Torres, 53, of Windcrest, was a private contract employee assigned at the time to MEDCOM.
They admitted using their positions to manipulate and steer contracts for computer equipment and technology for the Army — such as computer cable upgrades — to companies they controlled or were aligned with.
Most of the contracts were awarded between 2002 and 2005 for computer-related work, equipment or services at nearly 20 Army hospitals, including Brooke Army Medical Center at Fort Sam Houston and Darnall Army Medical Center at Fort Hood.
The case is unrelated to that of Fort Sam Maj. John Cockerham, who was indicted last month along with his wife, Melissa, and his sister Carolyn Blake on charges that they accepted up to $9.6 million in bribes for Defense Department contracts in Iraq and Kuwait.
Also agreeing to plead guilty in the MEDCOM case are Strout's son William John "Will" Strout Jr., and Johnnie Flores, president and CEO of Sphinx Consultants & Associates.
Flores was named Businessman of the Year in 2003 by the National Republican Congressional Committee Business Advisory Council, and his firm once was listed as one of the fastest-growing among Hispanic-owned businesses.
Strout Jr., 36, agreed to plead guilty to aiding and abetting bribery and possessing child pornography. The porn charge resulted from a search of his computer in the course of the contracting investigation. His sentence will be 66 months.
Flores, 47, will plead guilty to bribery, although his lawyer, Bernie Martinez, said what Flores actually did was conspire with the others. His sentence will be 62 months.
"Johnnie was never the person that was paying or receiving bribes," Martinez said. "Unfortunately, he allowed his company to be used as a conduit by these guys who were doing the bid rigging. He never engaged in the bribes or kickbacks that these guys did."
The four with deals are scheduled to formally enter their pleas in federal court Sept. 28 or the following week.
Francisco "Frank" Quinata Cruz, a San Antonio contractor/consultant whose business centered on MEDCOM, and Andrew "Andy" Delancey Waring II, 58, a former civilian contract employee assigned to the Video Teleconferencing Network at USAMITC, remain the two lone defendants scheduled for trial on Nov. 5.
Cruz's lawyers, Louis Correa and Robert Featherston, have said Cruz, 59, believes he's done nothing wrong, defrauded no one, "performed the contracts in a workmanlike and quality manner," saved the government money and added that there were no bribes involved.
Waring's lawyer could not be reached for comment.
The indictment filed in May against the six alleged they gained roughly $3.6 million total in profits by tainting contracts through methods that took advantage of laws that give minority-owned and small disadvantaged businesses a leg up on other contractors.
Those companies, which were referred to as pass-throughs, allegedly would get a cut — generally 3 percent to 5 percent of the value of the contract — while the work was actually completed by companies aligned with the defendants.
The affidavits name 15 companies whose contracts were being scrutinized by investigators. Several of them were controlled by Cruz, court records allege.
Search warrant affidavits in the case identified other people as helping facilitate the schemes, but none has been charged. Some of the contracts were steered through a Department of Interior employee, for example, who was favorable to Strout Sr. so as not to draw the Army's attention to MEDCOM, the affidavits said.
Much of the damaging evidence that forced the deals came from 150 conversations secretly recorded for agents by a cooperating witness at several meetings where illicit activity about contracts purportedly was discussed by four of the men. Other conversations were captured by a court-approved bug planted at Sphinx's offices in Northeast San Antonio.
Investigators alleged that the group structured contracts in a variety of ways that would benefit the suspects. For instance, single-source contracts were narrowly tailored so that only the handpicked companies could get them.
Also, bids allegedly were falsified so that it seemed companies were competing with each other to get a job. In reality, the companies worked together so no matter who got it, the insiders still made money, according to court documents.
Court records allege $19 million in contracts had already been tainted when agents moved in before they could profit from a $50 million contract that was to be passed through a Native American-owned company in Oklahoma.
One minority-owned company, Sphinx, clearly profited.
A Hispanic Business story in 2003 said Sphinx reported revenues of $6,000 when it formed in 1998. By 2002, the company reported revenues of $7 million, a five-year growth of 116,566 percent. The dramatic increase put Sphinx at the top of the "2003 Hispanic Business Fastest-Growing 100."
Martinez said Flores continues finishing off contract jobs that had nothing to do with the case and is trying to start another business to help support his family.
But he won't be doing work for the federal government. He along with the five others and seven companies affiliated with them are suspended indefinitely from doing business with the feds, a review of the government's databases shows.