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Pasco contractor accused of $1 million fraud

NEW PORT RICHEY — For six months last year, Rosa Herrera's company, Covenant Construction Unlimited, billed for more than $1 million in work from Haines City to Hudson, Riverview to Clearwater, at numerous churches, a large retail complex, a tire store, an armory and a parking structure.

She gave the invoices to a third party that paid her up front, then that firm planned to collect the amounts due from Herrera's customers while keeping a cut for itself.

It's a legitimate practice known as invoice factoring, which enables companies to get money to pay their own bills and keep capital on hand without having to wait for their customers to pay up.

But Herrera used the setup for a scam, federal authorities say.

Covenant Construction didn't do the work, and the bills Herrera submitted to the factoring company, Capital Plus Equity in Knoxville, Tenn., were fakes, according to her indictment.

"She did a very good job and knew exactly what she was doing," said Scott Applegate, Capital Plus Equity's chief operating officer.

She pulled it off by using the names of real businesses and real employees, some of whom had been her previous customers, Applegate said. In some instances, the indictment said, Herrera paid Capital Plus herself, but with checks that appeared to be from a customer, to keep up with her debt and allay suspicion.

Herrera, 43, was arrested last month and charged with 15 counts of fraud by federal prosecutors in Tampa. She faces a possible 20-year maximum prison sentence on each count if convicted. In addition, the government wants her to repay the $1.13 million.

Like a Ponzi scheme?

Covenant Construction incorporated in 2007, according to state records. When Capital Plus looked into doing business with her, Applegate said, nothing in Herrera's background was a red flag.

"From everything we found out, she was a legitimate business doing work," he said.

She operated out of a nondescript building on Troublecreek Road, not far from a one-story house on Kennedy Drive that is listed as the corporation's principal address. Both are abandoned now.

Applegate said his company discovered the alleged fraud and reported it to federal authorities. He wouldn't elaborate on how it was uncovered for fear that others could use the information to find new ways to cheat.

He likened Herrera's operation to a Ponzi scheme, saying that she didn't use the money to fund a lavish lifestyle for herself but to cover debts and pay vendors to keep the process going.

When she fell behind, he said, she simply fabricated invoices and materials lists for nonexistent projects.

A sample from her indictment:

• February 2008: A $45,000 invoice "for work purportedly performed" for Manantial de Vida Assemblies of God Church on Missouri Avenue in Clearwater.

• April 2008: An $18,000 receipt "purportedly issued by Cemex, Inc.," a cement supplier, acknowledging full payment from Herrera for work performed at Trinity Town Center, for which Herrera sought reimbursement as a subcontractor.

• May 2008: A $150,000 invoice "for work purportedly performed" for another construction company at First Baptist Church of New Port Richey. She issued another invoice that month for $95,000 "for work purportedly performed" at New Hope Assembly of God church in Brooksville and Gulf Coast Worship Center in New Port Richey.

The indictment lists at least seven more church construction projects in New Port Richey, Hudson and Clearwater during 2008.

In each, there are glaring curiosities.

For instance, Herrera listed the Baptist church in New Port Richey at 2600 Troublecreek Road. The church's numerical address is 6800.

Another invoice placed Gulf Coast Worship Center on State Road 54. It's actually on Little Road, and an official there said the church hasn't done any construction projects for at least two years.

Another church is listed on "S. River Road" in Hudson — a street that does not exist.

In the bills submitted to Capital Plus, Herrera claimed to have been working for Hawkins Construction on the Trinity Town Center, the troubled Main Street-style retail and office complex being built on Little Road. But John McCaugherty, president of Hawkins Construction, told the St. Petersburg Times that his Tarpon Springs company hasn't done any work at Trinity Town Center.

"We were not the contractor," he said. "We didn't do anything. Someone else built it."

A 'smooth con job'

Applegate said Capital Plus has stepped up its due diligence. But for every precaution they took, he said, Herrera had a trap door.

If Capital Plus called the main phone number of a church listed on her invoices, they would often be told that the named employee worked there but wasn't in the office. Then they'd call the number for the employee that Herrera had given them. The person would answer and vouch for her work.

But Applegate said Herrera was giving them phoney numbers, and the person on the other end of the line was working for her.

No other arrests have been made in the case, though the indictment refers to phone calls between Capital Plus and "a person purportedly representing" Herrera's customers.

Capital Plus, which has eight employees, had to make up in profits what it lost to Herrera's scheme, but Applegate said the company is healthy.

"It was a pretty smooth con job," he said.

Molly Moorhead can be reached at moorhead@sptimes.com or (727) 869-6245.

Pasco contractor accused of $1 million fraud 08/15/09 [Last modified: Saturday, August 15, 2009 11:08am]

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