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FBI wiretap hints at Shipyard bid-rigging scheme as trial begins for indicted contractors

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New transcripts of a phone call the FBI wiretapped during an investigation into San Francisco political corruption reveal an alleged bid-rigging scheme involving a contract for the development of the Hunters Point Shipyard.

The U.S. Attorney’s Office filed excerpts of the transcripts last week as new evidence in the fraud trial of Peter McKean and Clifton Burch, two local contractors who were among the many caught in the sweeping FBI investigation into Chinatown gangster Raymond “Shrimp Boy” Chow.

SEE RELATED: Eight indicted for bid rigging in ‘Shrimp Boy’-linked case to appear in court this week

The trial, which opened in federal court on Monday, alleges that McKean, Burch and group of others conspired to cheat the competitive bidding process for a $5.6 million federal contract in Berkeley. Both contractors deny that any bid-rigging occured.

But in an attempt to show that the alleged bid-rigging operation expanded beyond the Berkeley project, prosecutors filed transcripts from a April 2013 phone call in which the political consultant they call the “ringleader” of the group allegedly talked about two other schemes.

In the call, former school board member Keith Jackson, who is currently serving a prison sentence as a result of the same FBI investigation, allegedly presented political consultant Derf Butler with the opportunity to improperly pursue a $5 million state project in Southern California.

After Jackson proposed finding trusted contractors for the Southern California contract who “will play ball with us” and who “don’t mind doing what we want them to do,” Butler said “I actually got some folks I think will be absolutely perfect,” according to the transcripts.

“The same cats that we were talking about for Lennar,” Butler said. “And they’ll play big ball.”

Butler was referring to a project that then-Shipyard developer Lennar Urban put out to bid on April 2, 2013 — just 10 days before the call, according to the U.S. Attorney’s Office. The project was for work on Block 50 and Block 51 during Phase 1 of the Shipyard buildout.

The two “cats” who submitted bids on the Shipyard project that were later indicted in connection with the Berkeley scheme are Burch and Anton Kalafati, a contractor who already pleaded guilty to conspiracy in March and is now a witness in the case against Burch and McKean.

“Defendant Kalafati believed that there was bid rigging going on for this project through defendant Butler,” prosecutors wrote in the filing. “Neither Kalafati nor Burch were winning bidders on this project but both bid on the project — exactly like they did for the [Berkeley] project.”

Who if anyone benefited from the scheme is unclear, but prosecutors said in another filing that text messages showed “Kalafati was giving Butler information about the amount of his bids prior to submitting the bids to Lennar — indicating a bid-rigging scheme.”

Kalafati submitted a bid through Nu Era Construction, which prosecutors say is a shell company name, while Burch submitted a bid through his company Empire Engineering and Construction.

James E. Roberts Obayashi Corp. apparently won the bid to build housing on the blocks. The company did not respond to a request for comment.

No one has been charged in connection with the Shipyard scheme.

A spokesperson for Lennar declined to comment. In July 2013, the company hired Butler to help local contractors bid on Shipyard projects.

SEE RELATED: Defendants accused of bid rigging plead not guilty in SF federal court

As a result of the Berkeley project, Butler pleaded guilty to conspiracy to defraud the U.S. and to making a false statement in October. His attorney did not immediately respond to a request for comment.

The Shipyard scheme came up only tangentially during opening statements in the Burch and McKean trial Monday, as Assistant U.S. Attorney William Frantzen focused on the Berkeley scheme.

The scheme came about after the FBI listened on wiretap as Jackson and Butler discussed a plan that never came to fruition to improperly coordinate and submit high bids for the $5 million Southern California project from the California Department of Veterans Affairs.

The FBI then sent in an undercover operative named William C. Myles to investigate whether Butler was actually involved in any bid-rigging by setting up a fake project that he could gather bids for in Berkeley. The operative introduced himself as a prominent developer named William Joseph.

In a July 30, 2013 meeting at a Marriott Hotel room in San Francisco, the FBI recorded on a hidden camera as Myles and Butler talked with Burch and Kalafati about bidding on a $5.6 million federal contract to renovate the Lawrence Berkeley National Laboratory.

“They weren’t competing with each other,” Frantzen said. “They were looking to game the system.”

Frantzen said both Burch and Kalafati agreed to submit high bids for the project, and later shared their bids with Butler in a single email chain. The undercover operative was supposed to submit the low bid. Butler later recruited McKean to submit a third high bid for the project.

But attorneys for both Burch and McKean disputed the claims.

“There was no bid-rigging,” said Eduardo Roy, an attorney for Burch. “Absolutely not, there was no bid-rigging.”

Roy said Burch never received money for the contract because he submitted an unresponsive bid for the project. Despite the undercover operative asking him to submit a plan for a 40,000 square-foot project, he submitted one for a 7,000 square-foot project in accordance with the actual blueprints.

Roy painted Burch as the unintended victim of an FBI investigation into political corruption that targeted politicians including London Breed, the current mayor and former president of the Board of Supervisors. He said Myles paid Butler $15,000 to “bring in” Breed and Burch on a deal.

“London Breed is why we’re here,” Roy said. “That’s what they really wanted.”

Court records in the case have previously revealed that Butler told the FBI he “pays Supervisor Breed with untraceable debit cards for clothing and trips in exchange for advantages on contracts in San Francisco.”

Breed has denied the claim.

Peter Goodman, an attorney for McKean, described the FBI investigation as a “spider and the fly” situation. Goodman said McKean submitted the bid during hard economic times for his company, Townsend Management Inc., after the undercover operative made himself out to be a major developer.

“Was it a good thing for him to do that? No,” Goodman said. “Was it something that he regrets deeply? Yes.”

Goodman argued that McKean was not predisposed to engaging in criminal activity before Myles and Butler approached him about the bid.

The investigation into the Berkeley contract led to eight defendants being indicted in 2017, including Burch, Butler, Kalafati and McKean.

The trial is expected to continue this week in federal court.

mbarba@sfexaminer.com

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