Latest News

Five face criminal charges in investigation of Merced housing nonprofit

Five people, including two local public officials, face criminal charges ranging from grand theft to felony embezzlement tied to the demise of a local nonprofit funded mainly by taxpayers.

Firm Build was formed by the Housing Authority in 1998 with the high-minded goal of teaching poor residents and troubled teens to become carpenters and builders. It was touted at a contractors' forum four years ago as a great resource for local builders to find skilled workers. The Hispanic Chamber of Commerce named it "Business of the Year" two years ago.

Today, far from being hailed as a training school to keep kids out of gangs, Firm Build has become the target of the most far-reaching criminal investigation in the 15 years that District Attorney Larry Morse II has been in that office.

"We have an obligation to the business community to protect their assets against criminal conduct," he said Thursday. "I still believe strongly in the importance of vocational training, but that cannot be a Trojan horse for criminal activity."

The district attorney's 17-page complaint with 27 charges and six reams of reports to back up the allegations finally sheds light on what happened to one of the city's most prominent nonprofits. It had what seemed like a winning business model of free labor at the height of the county's building boom.

Only now will people begin to understand how Firm Build went from an innovative program to an allegedly criminal nonprofit enterprise.

Fresno district attorney investigators arrested Firm Build' administrative manager Joe Cuellar, a former Fresno city planner and former Housing Authority employee on Thursday.

Firm Build construction manager Rudy Buendia III, a Merced County planning commissioner and former Housing Authority commissioner, learned of his arrest warrant through his attorney. He refused to turn himself in and is now considered a fugitive.

His attorney was unavailable for comment.

Buendia and Cuellar allegedly left dozens of subcontractors unpaid, misused school funding, defrauded Merced residents and renovated homes below industry standards, according to the criminal complaint filed Wednesday.

Investigators also arrested Firm Build's former bookkeeper, Christina Ledezma, and Merced County Office of Education coordinator Patrick Bowman, who served as the nonprofit's board president.

Buendia's father, Rudy Buendia II, also faces misdemeanor charges for contracting without a license.

Investigators said their probe raised questions about MCOE's fiscal accounting and whether there was incompetence in managing its budget.

MCOE spokesman Nathan Quevedo said the office couldn't comment because it didn't have enough information about the allegations.

The criminal case exposes the incestuous relationship that formed between the Merced County Office of Education, the Housing Authority and Firm Build. Left unchecked, it allegedly led to abuses of power, squandered taxpayer money and fraud.

The investigation also highlights a rotating group of residents who wield power on interconnected public and private Merced County boards.

Buendia serves as a planning commissioner and also was a Housing Authority commissioner (both are Board of Supervisors appointments), while leading Firm Build.

Bowman, meanwhile, served as the nonprofit's president while also working at the county education office. In May, the Board of Supervisors unanimously appointed him to the Housing Authority's board, despite a publicized probe by the District Attorney's Office into Firm Build.

For the past 15 months, investigators pieced together Firm Build's downfall after they seized 70 bags and boxes of documents and four computers from its office.

According to investigators, their reports, the criminal complaint and Firm Build's records, they found:

-- a stack of unpaid bills totaling more than $700,000;

-- at least one instance of its managers using cheaper construction equipment when they promised better material;

-- that Ledezma and Buendia gave themselves raises without the approval of Firm Build's board;

-- that from May 2005 to December 2006 Bowman directed $120,000 from Merced County Office of Education to Firm Build for projects with no connection to the school;

-- that Bowman had Firm Build renovate his home, a felony conflict of interest violation;

-- that Cuellar misstated a project's cost on a building permit application, saving about $8,500 in permit fees owed to the county. The money hasn't been paid;

-- evidence that Firm Build, without its board's knowledge, gave $96,000 to the Workplace Learning Academy Foundation, a nonprofit of Bowman's. The money was then given to MCOE. Soon after, the county office of education hired a Valley Community School vice president who would replace Bowman so he could solely oversee the automotive training center built by Firm Build;

-- that the automotive training center was never opened up to competitive bidding, as investigators believe it should have, and that its cost ballooned to $1.25 million;

-- that students were being trained at the center though it hadn't passed final building inspections;

-- that Buendia paid his father, an unlicensed contractor, more than $100,000 for stucco work on Firm Build projects.

From concept to construction

Firm Build was formed by the Housing Authority in 1998 as a way to have its clients learn job skills by renovatating its stock of public housing.

The clients were paid as they learned a marketable trade, and the authority received modernized homes. The program was funded by federal dollars given to the Housing Authority, which is regulated by the U.S. Department of Housing and Urban Development.

Clients eagerly enrolled because the money they earned working for Firm Build didn't affect their subsidized housing. It was essentially extra cash.

A year later, Firm Build became an independent nonprofit, yet remained close to the Housing Authority.

Firm Build trainees helped build its O'Banion Learning Center, and the nonprofit rented space there for its offices. In 2001, the Housing Authority won a $500,000 federal grant to train at-risk teenagers. It passed it along to Firm Build to renovate more housing.

At the same time, Firm Build began looking for more clients to grow its program. It signed its first contract with the Merced County Office of Education to train Valley Community High School students. About 15 signed up for Firm Build's program.

Bowman, who served as Firm Build's president, ran MCOE's career training program.

In 2004, student interest grew, and Firm Build had about 60 teenagers learning to pound nails and lay drywall while earning minimum wage.

Around then, however, federal regulations changed, and Housing Authority clients were required to report their Firm Build earnings. It reduced the amount of rent assistance they received, and as a result, the clients' interest in Firm Build waned.

Buendia and Cuellar began looking for private contracts for their nonprofit. The Housing Authority, which included people who also served on Firm Build's board, gave them a $300,000 loan to help with the expansion.

This was in the midst of the countywide housing boom. With student labor subsidized by MCOE, they stood to have a business model that couldn't fail.

The same year, Buendia was appointed by the Merced County Board of Supervisors to be on the Planning Commission. In May 2005, he also was appointed by the Board of Supervisors to the Housing Authority.

That leadership slot prevented Firm Build from signing any Housing Authority contracts, drying up what had been one of its revenue streams.

Firm Build proposed its most ambitious project in June 2005. It would renovate MCOE's automotive training center at Castle Commerce Center for $599,000, which would be funded by federal education bond money, according to a District Attorney's Office report.

The project was a response to requests from the automotive repair community, which wanted more skilled technicians.

Firm Build also had 80 Valley students ready to be trained, and its contract with the school called for two more trainers.

Publicly, the nonprofit seemed to be one of the most successful efforts to keep teenagers out of gangs and also help chip away at the county's unemployment.

Its tax records, however, revealed a different story. It ended 2003 with $198,026 on hand, but the next two years it was in debt. In early 2006, the problems grew when it stopped paying rent on its office space. MCOE also cut its construction training program, which meant Firm Build had to start paying its instructors.

City administrators began hearing complaints from electricians, concrete companies and glass installers who hadn't been paid by Firm Build for their work.

Low-income homeowners had borrowed money from the city through its Redevelopment Agency and had chosen Firm Build as their contractor.

The money, usually about $140,000 per contract, was sent directly to Firm Build in installments.

Other businesses were trying to collect money from the nonprofit. Firm Build owed a Fresno architectural firm $26,000 and a door company $12,000, the Sun-Star reported last year.

Firm Build's debt continued to mount, and a trainer was abruptly fired in February 2007. A month later it applied for a $247,000 state grant, but was denied. Its last-ditch effort was to get a $500,000 grant from the Housing Authority.

The board denied the request in June with Commissioner Joe Ramirez -- also a Firm Build board member -- and Buendia abstaining.

Firm Build filed bankruptcy three months later.

A mushrooming investigation

The District Attorney's Office received an anonymous tip in early June from one of the subcontractors that Firm Build hadn't paid.

From that call, investigators began calling other businesses that contracted with Firm Build. Each one told a similar story of how the nonprofit stopped paying its bills. Subcontractors were forced to put liens on the homes so they could ensure they'd get paid.

In June 2007, investigators seized Firm Build's records and found that more than $700,000 was owed. Most of the bills were more than 90 days past due.

The investigation soon mushroomed, with each file leading investigators in a different direction.

Morse assigned the five investigators to pursue various leads. Thirteen federal, state and local agencies, including the IRS and the state Department of Justice, were called in to research Firm Build's dealings.

They found that Firm Build allegedly cut corners, moved money around without its board's knowledge, tried to defraud customers and failed to pay subcontractors, according to the criminal complaint.

Early on, according to a report, investigators found that Cuellar allegedly falsified a building permit by reporting that Firm Build would only perform $100,000 worth of work at MCOE's automotive training center. The project ended up costing about $1.25 million.

Also, a county building inspector stopped by the center in mid-June 2007 and found that it hadn't passed a final inspection. Students had been training there since August 2006.

Buendia and Cuellar face a felony charge for not paying $7,000 to subcontractors who worked on a West 13th Street house.

On the same project, they allegedly charged Rosario Castro for a three-ton air conditioner while installing a two-and-a-half ton unit, investigators say.

Volvo Rents was owed about $10,000 by Firm Build, which was later paid by Merced City School District, which took ownership of a piece of equipment the nonprofit owed money on, sales manager Derrick Bradley said. "Most of this gets pushed under the rug," he noted. "I hate to see anyone go to jail, but that's what happens."

Cuellar also allegedly tried to charge Cesar Cienfuegos an extra $5,000 for a home that Firm Build was constructing, invesigators say. The forms were poured too close to the road and needed to be moved back. The subcontractor was going to do it for free. However, Cuellar called Cienfuegos and said the mistake would cost $10,000. Firm Build was willing to split the cost. Cienfuegos refused.

In its wake, Firm Build also left $45,000 in unpaid subcontracting bills from MCOE's automotive training center.

Buendia and Ledezma also are charged with felony embezzlement for allegedly giving themselves higher salaries without board authorization. During a three-year period, Buendia collected an extra $19,000 and Ledezma pocketed an additional $8,600, according to a report.

Investigators, according to the report, believe Firm Build was able to hide its financial woes from its board by falsifying its reports and creative accounting. Monthly updates included upcoming revenue from projects and often ignored some bills.

Buendia, Cuellar, Bowman and Ledezma are charged with falsifying corporate reports and giving them to the board.

Guy Maxwell, who served on Firm Build's board the year before it collapsed, said most discussion centered on projects, not finances.

"It takes about eight or nine months to get a feel (for being on the board)," he said. "That's when we realized we had money troubles and then dissolved."

So did the dreams of teenaged craftsmen, contractors, subcontractors, low-income homeowners and, ultimately, taxpayers.

Reporter Scott Jason can be reached at (209) 385-2453 or sjason@mercedsun-star.com.

Related stories from Merced Sun-Star

  Comments