Whistleblower: San Francisco Garbage Company Defrauded State of California Out of Millions

Written by Luke Thomas. Posted in Business, Labor, Law, Media, News, Politics

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Published on May 30, 2012 with 8 Comments

A press conference was held at the law offices of Scott Law Firm, 5/24/12, to announce two civil lawsuits have been filed against San Francisco-based garbage collection company Recology. The lawsuits are based on sworn testimony from a former Recology employee turned whistleblower who alleges the monopoly engaged in fraud and embezzlement, cheating the State of California and taxpayers out of million of dollars. From left to right: Coalition for San Francisco Neighborhoods Director Judith Berkowitz, Recology whistleblower Brian McVeigh, former Superior Court Judge Quentin Kopp, attorney David Anton and community organizer Tony Kelly. Photos by Luke Thomas.

By Luke Thomas

May 30, 2012

A former employee turned whistleblower leveled serious charges of fraud, embezzlement and corruption Thursday against San Francisco-based Recology, accusing the unregulated garbage collection monopoly of bilking the State of California and taxpayers out of millions of dollars.

The whisteblower allegations have been announced at a critical time for Recology which faces a day of reckoning on June 5 when voters will decide if Recology can continue its monopoly or be subject to competitive bidding in an effort to reduce garbage collection rates while addressing a lack of oversight and accountability.

At a press conference held at the law offices of Scott Law Firm, former Recology operations supervisor Brian McVeigh, whose job responsibilities included preventing fraud and theft of California Redemption Value (CRV) recyclable materials, alleged Recology employees regularly inflated CRV weights in a kickback scheme involving Recology “customers,” a scam McVeigh reported both to the Brisbane Police Department and Recology management.

McVeigh estimates as much as $1.3 million per year was fraudulently extracted from the State of California and raises doubts as to whether San Francisco’s celebrated landfill diversion rates – claimed to be the highest in the United States – are accurate and reliable.

Instead of welcoming a police investigation and praising McVeigh for exposing the scam, Recology fired him.

McVeigh said Recology refused to allow police to investigate the fraud because he suspects management was also involved in the kickback scam and wanted to avoid further exposure and scrutiny.

His attorneys filed two civil lawsuits in San Francisco Superior Court, one of which has been filed on behalf of the State of California with the acquiescence of California Deputy Attorney General Nicklas Akers, who filed a legal motion March 20 to unseal the lawsuit and allow it to proceed.  The lawsuits seek McVeigh’s reinstatement and compensatory damages as well as injunctive relief, attorney’s fees and economic damages – a collection of remedies that could cost Recology tens of millions of dollars.

“The State of California has paid Recology millions of dollars that it shouldn’t have for CRV funds, and the City and County of San Francisco has allowed Recology to dip into the diversion incentive pool and has obtained diversion incentive bonuses in the order of millions of dollars that they didn’t qualify for,” said McVeigh attorney David Anton. “But, because of accounting and fraud, they were able to manipulate those figures so that they got those bonuses.”

Attorney David Anton.

Recology hired McVeigh in December 2000 when the company was known as Sunset Scavenger.  After receiving positive performance evaluations, McVeigh was transferred from the Pier 96 sorting facility to supervise the California Redemption Value Buyback Center at Recology’s Tunnel Road facility.  He characterized his termination in June 2008 an act of  “retaliation.”

“I was terminated after I reported the theft of California redemption material and the fraud by the employees and the cover up by management,” McVeigh said.  “I made complaints to the board of directors, to the controllers, and reported a $1.3 million fraud – just from my department – is what I estimated over on Tunnel Road.”

“I reported it, while I was employed, to the Brisbane Police Department seeking their cooperation in investigating and pursuing the people who were engaging in the fraud – and when I tried to do so, all investigations were stopped,” McVeigh added.  “I was told to back off.  I was told to leave it alone.  I was told I was messing with something that was going on for years.”

Former Recology operations supervisor turned whistleblower, Brian McVeigh.

In his sworn declaration filed with the civil complaints, McVeigh reveals what he reported to Sergeant Lynn of the Brisbane Police Department: “I explained the conduct of a number of management individuals and my growing suspicion that management did not want me to be able to pin down the fraud and embezzlement involving State CRV refund payments, was potentially involved in covering up the fraud, and that there was a possibility that management, or some of management, may actually be involved in the fraud.”

Also in attendance at the press conference included former State senator and retired Superior Court Judge, Quentin Kopp, and community organizer Tony Kelly, both sponsors and proponents of Measure A, a 12,000 signature-approved initiative on the June ballot that aims to reduce garbage collection rates via competitive bidding of garbage collection contracts.  To address corruption and accountability, Measure A would also place management and oversight of Recology’s recycling processing facilities – where the CRV fraud is alleged to have occurred – under city control.

Under Recology’s current monopoly, garbage collection rates have increased 136 percent since 2001 and are expected to increase again, effective July 1, 2013, Kopp said.

“City government and Recology, the monopoly, have concealed the fact that another massive rate increase is on its way,” Kopp said, adding that a rate increase application will be filed by Recology after the June 5 election. “The record shows that it will probably be a double-digit increase.”

Retired Superior Court Judge Quentin Kopp.

The City and County of San Francisco is the only one of 71 Bay Area cities that does not require competitive bidding for garbage collection, or a franchise fee, despite two city-sponsored studies in 2011 that recommends open, competitive bidding.  The City of Oakland, for example, charges a $24 million franchise fee on its $80 million competitively bid garbage contract.

Recology generates $220 million in annual revenues from residential and commercial San Francisco ratepayers. If Measure A passes, it is estimated San Francisco garbage collection rates would decrease by as much as 25 percent and generate an annual franchise fee worth $40 to 50 million, monies that will benefit the city’s general fund, Kelly said.

“This is just about making the garbage industry a franchise like every other franchise in the city and approving contracts the way the Board of Supervisors approves every single competitive bid contract,” Kelly said, adding, “There is no competitive bidding measure that Recology will ever support, because that’s their gravy train.”

Measure A sponsor Tony Kelly.

Recology raised $1.5 million to defeat Measure A, according to records filed with the Department of Ethics, the beneficiaries of which include media, union, and political organizations including the San Francisco Democratic County Central Committee.

By comparison, Measure A’s proponents raised $56,000.  It is endorsed by San Francisco Tomorrow and the Coalition for San Francisco Neighborhoods, a conglomeration of community groups representing 48 city neighborhoods.

In addition to Recology’s soft money political donations, Recology also routinely instructs its employees to work on election campaigns favorable to Recology interests, McVeigh said.  Before he was terminated, McVeigh said he was instructed by Recology to work on the campaigns to re-elect former Mayor Gavin Newsom and former Supervisor Bevan Dufty.

“That definitely was part of the job description,” McVeigh said.

In another example of Recology’s meddling in the political election process, in last year’s race for mayor, Mayor Ed Lee booster Rose Pak sought Recology’s help to collect signatures and distribute campaign signs for the controversial “Run, Ed, Run” campaign.

Lee’s history with Recology has been favorable to the monopoly, Kopp said. As Director of Public Works under the administration of former Mayor Willie Brown, Lee overruled a staff-recommended rate increase of 22 percent in 1999 and instead awarded the company a 44 percent increase. The rate was appealed and reduced to 40 percent.

Responding to the allegations of CRV fraud and embezzlement of public funds, Recology-authorized spokesperson, Adam Alberti of Singer Associates, told Fog City, “The simple fact of the matter is, as far as the campaign is concerned, that this is a disgruntled employee who sued the company and has now joined with the only two other people in San Francisco who are in support of Proposition A. We believe that the policy here is a disaster, and if enacted would have a disastrous impact to rates and the city.  And as far as the merits of the action, we believe that they don’t exist and we are confident that in due time that will be proven out in the courts.”

Asked if Recology intends to raise its garbage collection rates, Alberti said, “They have no plans to proceed with a rate increase at any time in the near future, but at some point in the future they will.”

Alberti was unable to comment on McVeigh’s termination except to acknowledge McVeigh had filed a wrongful termination action against Recology.

“I do not know the exact reasons behind why he [McVeigh] was fired,” Alberti said. “That’s an HR matter within the company.”

Court records show McVeigh’s causes of action against Recology were dismissed because as a supervisor with the responsibility to prevent and investigate fraud, McVeigh was not entitled to the protections of whistleblower status and was an ‘at will’ employee who was fired three years after McVeigh first reported the CRV theft and fraud.  That decision is being challenged on appeal, Anton said.

Neither Recology nor Singer Associates responded to repeated requests for comment as to why Recology refused to agree to an investigation into the allegations of CRV fraud and theft.  Nor did they respond to questions about Recology’s human resources policy as it relates to its employees working on political campaigns.

Luke Thomas

Luke Thomas

Luke Thomas is a former software developer and computer consultant who proudly hails from London, England. In 2001, Thomas took a yearlong sabbatical to travel and develop a photographic portfolio. Upon his return to the US, Thomas studied photojournalism to pursue a career in journalism. In 2004, Thomas worked for several neighborhood newspapers in San Francisco before accepting a partnership agreement with the SanFranciscoSentinel.com, a news website formerly covering local, state and national politics. In September 2006, Thomas launched FogCityJournal.com. The BBC, CNN, ABC, NBC, CBS, Fox News, New York Times, Der Spiegel, San Francisco Chronicle, San Francisco Magazine, 7x7, San Francisco Examiner, San Francisco Bay Guardian and the San Francisco Weekly, among other publications and news outlets, have published his work. Thomas is a member of the Freelance Unit of the Pacific Media Workers Guild, TNG-CWA Local 39521 and is a member of the Society of Professional Journalists.

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  • Ralph E. Stone

    I voted “yes” on Proposition A.  The whistleblower’s charge of fraud on the eve of the election was nicely timed.  Hopefully, this will give impetus to the “yes” campaign.

    • Sfodoug

      And will be recorded in memory by many voters as a hit piece. Come on, Prop A is a piece of shit. I’m surprised that a emeritus politician like Quentin Kopp would put his stamp on this poorly worded excuse for a proposition. Is he suffering from dementia?  

  • h. brown

    Recology campaign slogan …

    ‘Vote No on A and nobody get’s hurt’

    h.
     

  • Jackmariecurtis

    Brian, we need more citizens like you!

    Jack Curtis

  • John

    Well, if you are still following this issue, give us an update.

    And btw, thanks to our conservation despite its corrupt waste Recology/Sunset seeks a significant rate increase. On Thursday, April 25, 2012 The Corbett Heights Neighbors association will meet at 7:00 pm at 501 Castro, St – 2nd floor (through the BofA glass doors & take stairs or elevator on the right). There will be a guest speaker from Recology there to ‘discuss”, ways to “mitigate” our increases and speak about “recycling theft” — as if that was not THEIR problem and due to THEIR apparent corruption. Perhaps you and others who have done their homework might like to come and hold some feet to the fire by impeaching any self-serving PR propaganda spin.

    • sfodoug

      I witnessed recycling theft this evening, John. A full sized pickup pulled to the curb and it’s occupants tippled a number of blue carts looking for items with CRV value. Recology and the Department of the Environment’s problem is people like you who find fault with the idea of ZERO waste.

      • John

        Your comment it too telling (incriminating) to not expose for what it is. I found this article in a Google search for the Recology rate increase controversy. How telling that, after seven months of no comment on a year-old article, you instantly just happened to notice it and lunch libelous attack within less then two hours. Psst, you just told on yourself.

        What on earth is your problem? “People like you”? Get off it. Let no one accuse you of civil discourse. What is your peculiar trolling interest here anyway? My goodness who hides behind this troll’s anonymous handle? A shill for Recology perhaps? Or just a nut-bag troll? After 7 months of no comment on an article written almost a year ago, and less than two hours later its posted, out jumps this troll?! How very, very telling.

        Please go libel and misrepresent somebody else with your piffle about “find[ing] fault with the idea of ZERO waste” and go put your club foot in somebody else’s mouth. The fault is not found in the “idea of ZERO waste ” but the incompetence and corruption of quasi-public officials in charge of monopoly who disgrace that “idea” and increase public waste for their personal profit only to then seek to pass the cost of their misfeasance and malfeasance onto rate -payers.

        Many of us are fully aware of the trucks you are talking about and have complained of them for years; but what a tellingly convenient story you confect? What street did you just happen witness this on exactly when you just happened to notice my comment to an article no one has just happened commented on for several months and which just happened to be written a year ago? My goodness! What a miraculous series of coincidences you just happened to fall upon.

        So where to you think those people just happen to get the Recology schedule which (for obvious reason) is not public information?

        Part of the specious rationale for this huge rate increase is the cost of recycle theft but there is a serious question as to precisely who is stealing what from whom.

        The question you beg is who is responsible for this recycling theft and who should pay the cost of recovering the loss? Certainly not the people who were promised a recycling benefit when, last year, the voters approved and extended Recology’s monopoly instead of subjecting it to competitive bidding, nor those who seek to reduce garbage collection rates, nor those who complain of lack of oversight and accountability – not to mention the alleged collusion and cover-up in an outright pattern and practice of years-long corruption.

        Brian McVeigh blew the whistle on Recology and claims he was fired for it. His job was to PREVENT FRAUD AND THEFT of California Redemption Value (CRV) recyclable materials. He testifies that, for years, Recology employees regularly colluded and conspired to inflate CRV weights in a kickback scheme involving Recology “customers”. Please spare us the sanctimonious lecture about “ZERO waste”.

        This waste was a “scam McVeigh reported both to the Brisbane Police Department and Recology management.” The estimate is that $1.3 million per year was FRAUDULENTLY EXTRACTED FROM THE STATE OF CALIFORNIA. “People like” who? Get off it.

        Perhaps you might just happen to be one of the people who got the whistle blown on them and so troll this blog against anyone who defends a whistle-blower? How else would you just just happen to notice one comment 7 months later just hours after it was posted and on the very night you just happened to witness recycle theft? Hmmm.

        McVeigh’s law suit for wrongful termination was dismissed last January but it was recently reinstated. He will get his 12 reasonable people. Let’s hope they are not “people like you” who will simply beg the question to falsely accuse him of just “find[ing] fault with the idea of ZERO waste.”

        But there is more fraud than just this. One problem you point to is the employers with expendable junk trucks (and the Recology collection schedule in hand) who hire desperate people for chump-change to go do the dirty work for them. Many of us have spotted them and called Recology and the police and we know what an exercise in futility that can be. Even when apprehended they are right back at it with nary a hitch next week. It’s gone on for years and I seriously doubt the semi-literates exploited to carry it out are the one’s who get the money.

        As Mr. McVeigh’s law suit suggests our well paid official watch dogs are not only on-the-take but easily bought buy collaborators. It takes inside information to know what nights different streets put out bins so as to get there before collection — these guys do not simply troll around looking but know the schedule. Ergo Brian McVeigh may not even know (or be telling) the full extent of Recology employee and management collusion. But the point is simple: the fraud watch dogs at Sunset/Recology have allegedly, and for years, been doing the defrauding and collecting a salary for it too. Now, after allegedly firing the one whistle-blower with the guts to tell the truth, this monopoly wants to be rewarded with a 22% rate increase.

        I don’t know who pays you to troll this Internet article such that you instantly pounce to attack others who speak out after 11 months of no comment (do you really have nothing better to do?) but there are only two kinds of people who could do so: an obvious shill or a troll off his meds and out of therapy. So please spare us all the “people like you” rubbish!

        A 22% rate increase burden on seniors and the disabled living on fixed incomes seems especially harsh. Even where tenants do not pay for waste removal such an increase may be sufficient for rent controlled landlords to exploit Rent Ordinance loopholes and pass-though their tax deductible increase in overheads on to the tenants. But I guess that shilling and trolling for Recology brings meaning to people like you who apparently have nothing better to do then spend their time trolling a year-old article to attack others who comment in good faith seven months hence and to falsely accuse them of “finding fault with the idea of ZERO waste.”

        • sfodoug

          First of all, the Fog City Journal message notification system, disqus notified my of your slightly less than neutral announcement of The Corbett Heights Neighbors Association this evening, John.

          Recycling theft IS a ratepayers problem. Every CRV piece that doesn’t go to Recology means that much less income to offset the cost of recycling other items with far less market value. I don’t know the details of the alleged fraud you rant about, so I can’t comment on that. I can tell you that mosquito fleets have been pilfering recyclables since the early days of curbside pickup. They would use vans and empty the contents of the blue bins into banana boxes, sort it and dump the undesirable items in blue bins in the next block. It’s certainly not rocket science to know the routes when this has been going on for over twenty years.

          Recology’s contract with Waste Management to tipple at Altamont will expire in 2015. With all the lawsuits flying who knows if Ostrom Road or another landfill will get the contract, however I can assure you it will be more expensive. I really think that the charge should be completely on the black cart, since the green and blue carts divert waste from the landfill. This would give ratepayers impetus to downsize, i. e. from a 64 gal. to a 32 gal. or even to the 20 gal. insert.