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Two contractors behind massive development in LaPorte, Indiana accused of tax fraud, money laundering

Two contractors behind development in LaPorte, Indiana accused of tax fraud, money laundering 02:36

LAPORTE, Ind. (CBS) -- Tax fraud and money laundering charges have now been filed against two Indiana construction companies behind a $30 million project in LaPorte.

Undercover video obtained by the CBS 2 Investigators helped prosecutors make the case.

As CBS 2 Investigator Megan Hickey reported, it took confidential informants to expose the alleged unlawful payment practices tied to the multimillion-dollar residential and retail development in LaPorte, Indiana.

The two subcontractors now under fire are Pro Paint & Finish and Drywall Hanging Services. The confidential informants went in and asked for jobs – and according to an indictment, they were misclassified as independent contractors.

Groups of employees were also paid by a single check without any required withholding, such as payroll taxes.

A call that was alleged to be with one of the chief executive officers of the company was provided to the CBS 2 Investigators by an employee.

"So, if you want, I can write the same name with two separate checks or three separate checks," the man identified as CEO Adeeb Kupty is heard saying.

"Is there a way where…" the informant asks.

"Oh, you want to have three different names on them?" the man alleged to be Kupty replies. "We can. We can."

The LaPorte County Prosecutor filed charges this week against both companies and their owners.

We reached out to the general contractor for the project — Flaherty & Collins. They claimed they had no idea about the unorthodox payments until the charges were filed - and they're going to investigate.

Flaherty & Collins Construction President Mike Fox released the following statement:

"This past Tuesday was the first time Flaherty & Collins was made aware of any issue regarding Pro Paint and its related entities. We take these allegations very seriously, and are taking steps to address this situation contractually with the subcontractor, Pro Paint and its principal, Adeeb Krupty. Flaherty & Collins does not and will not condone, support or encourage any illegal, unethical or immoral behavior by or between our subcontractors, vendors or F&C personnel. We intend to further investigate this matter, and related charges, and will take all necessary action to mitigate risk to the City of La Porte, the project, taxpayers, and the project owner."

"The bad guys aren't paying this, so they're able to shave 16 - upwards of 48 percent off of their labor costs," said Matthew Capece, a representative of the General President United Brotherhood of Carpenters and Joiners of America.

Capece said the project in LaPorte, called The Banks, illustrates how the structure of the construction industry enables this type of alleged conduct – and it is the local governments that lose out when there's a loss of tax revenue.

"From LaPorte up to the State of Indiana to the federal government, you know, less money for things like fire departments, police, first responders, and schools," Capece said.

John Karr, president of the LaPorte, Starke, Pulaski Building & Construction Trades Council, issued this statement:

"We applaud Prosecutor (John) Lake and his team for all their hard work. We look forward to a positive outcome in the case. Tax fraud and worker misclassification is a real problem in the construction industry. We will fight to maintain our quality of life in our communities.  Shady contractors and developers break the law and deprive our communities of local taxes. The amount of lost revenue to these communities each year is staggering.  This must end and the Carpenters Union is committed to devoting resources to help stop this growing epidemic. Our hope is to get some real enforcement on this so that our local law-abiding contractors have a chance to compete without breaking the law."

We should note that the undercover recordings we obtained are also in the prosecutors' possession and were used to substantiate the charges.

The owners of the two subcontractors appeared in court Wednesday and entered a preliminary plea of not guilty.

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