A defunct Richmond company and two of its former executives are facing criminal charges for allegedly milking a federal stimulus program that was enacted in the wake of the recession.
Cephas Industries and its namesakes, Morris Cephas Sr. and Chiroya Cephas, were indicted by a federal grand jury in Richmond this month on allegations that they stole hundreds of thousands of dollars from the American Recovery and Reinvestment Act for their own personal means – rather than the money’s intended purpose of helping build a recycling facility and creating jobs on the Southside.
The indictment claims that the Cephases engaged in a scheme over a four-year period beginning in 2010 to defraud the U.S. Department of Energy and the Virginia Department of Mines, Minerals and Energy, which dispersed to their company around $500,000 from the Recovery Act. The intention of the grants was to stimulate the economy by providing incentives to diversify the state’s energy supply.
Press releases from the time touted the planned Cephas facility as a $3.5 million biomass recycling complex to be built in a 33,000-square-foot space on Formex Road. It was expected to create 50-75 jobs and be operational by spring 2011.
Dubbed the “Open-Loop Biomass Manufacturing Project,” the facility never materialized. The indictment charges that much of the money instead was ultimately pocketed by the Cephases and used to pay their personal bills, including delinquent taxes owed to the IRS.
The indictment, which is being prosecuted by the U.S. Attorney’s Office, includes 28 counts alleging conspiracy, theft of government property and fraudulent monetary transactions, among other charges. They carry a combined potential maximum penalty of decades in prison, according to federal guidelines.
Cephas Industries, as told in the 18-page indictment, was a construction and demolition waste recycling company that began operations in 1995.
Morris Cephas had been the company’s CEO. Chiroya Chephas, who has also used the name Chiroya Screen, was its CFO.
The company was approved to receive $500,000 in Recovery Act grants in early 2010. The rules of the program required them to keep the grant funds separate from other sources of revenue and only use the money for its intended purpose. The Cephases, however, flouted that rule, the government alleges.
“Almost immediately after the diversion of project funds, the defendants began using the funds for their personal benefit,” the indictment reads.
The pair then allegedly used $70,000 of those funds to pay delinquent personal taxes owed to the IRS. They also used government money, according to the indictment, to pay other debts and purchase equipment, including machinery unrelated to the Recovery Act project.
The company allegedly submitted inflated invoices for the purchase of heavy equipment, including $209,000 for an excavator, even though the true price was allegedly $115,000.
Then in early 2011, Cephas sold the excavator back to the dealer for $85,000, without the permission from DMME or DOE and in violation of the project agreement. They used that money to pay their rent and delinquent taxes and for a cash withdrawal of more than $31,000, according to the indictment.
They acted similarly when purchasing used Mack truck with the help of Recovery Act funds for $30,000, the government alleges. They allegedly sold the vehicle four months later for $23,000 and again used the money to pay their rent, taxes and the like.
The government also claims they lied on quarterly financial reports they were required to submit to the government, saying that they still owned the vehicles and asking for an additional $20,000. Over time, they allegedly lied to both state and federal officials, including an investigator sent in by DOE in November 2014.
More than five years after the start of the program, the government claims the funds dispersed to Cephas have not been repaid, and it pegs the alleged loss to the Recovery Act program at $340,477.
The Cephases could not be reached for comment on the indictment. A number listed as their residence rang unanswered on Monday and was disconnected on Tuesday. No attorney is yet listed for them in the federal case.
They were not arrested as a result of the charges after the indictment was filed Oct. 6.
Cephas Industries, according to the government, was found to be out of business by May 2013. Its phone number is no longer in service and its website is a dead end. Its most recent address at 2320 Deepwater Terminal Drive is now occupied by another company.
The Cephases will make their first court appearance in the case Wednesday at 3:15 p.m. before Judge David J. Novak at the Richmond federal court building.
In addition to potential prison time, the government’s case also calls for the defendants to forfeit any proceeds or property they received as a result of the alleged violations.