Developers tried to distance themselves from partner

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Internal documents obtained by the Dayton Daily News show for the first time that Washington Twp. developers David and Shery Oakes tried to distance themselves from their business partner, Sherif Aziz, as the federal government questioned ties between an Oakes company and Aziz’s TesTech Inc.

The documents, obtained in a public records request to the U.S. Department of Transportation, reveal how deeply the Oakeses’ CESO Inc. was involved in Aziz’s financial affairs, and what company officials did to craft a separation.

“What we are trying to accomplish is to disassociate Sherif from the Oakes,” wrote CESO Inc. Controller Tina Gunter in an Aug. 10, 2007, email to CESO’s accountant, Tom Gmeiner, tax director for Brady Ware, a Dayton financial services company.

With the U.S. Small Business Administration questioning Aziz about potentially improper business ties with the Oakeses, Aziz sold his shares in CESO to Amy Montgomery, then 22 and engaged to the Oakeses’ son Peter. In her email, Gunter said the idea was suggested by “SBO,” an apparent reference to Shery B. Oakes.

Aziz and the Oakeses are part of federal and state investigations into the true ownership of TesTech, a Washington Twp. engineering firm that has raked in millions of dollars’ worth of federally funded transportation contracts as a Disadvantaged Business Enterprise, or DBE. Aziz also has gained entry into several similar government programs that give contracting preference to disadvantaged minority-owned businesses.

Aziz won the DBE status, in part, by claiming to be the sole owner and president of TesTech since founding it in 1997. Federal regulations require that companies getting those lucrative set-aside contracts be independent and controlled by the disadvantaged minority. The DBE program, which is meant to redress discrimination, is particularly valuable because it gives companies a leg up in winning big-money roadway and airport contracts. The Oakeses are not eligible for the DBE program.

A Feb. 13 appeals hearing has been set on ODOT’s efforts to terminate TesTech from the DBE program because of its ties to the Oakes companies. In a prepared statement last week, Aziz accused ODOT of launching “unwarranted and scurrilous public attacks on TesTech’s integrity and reputation which potentially threatened the company’s business operations.”

In a statement issued on Friday, Aziz said it is “an established and documented fact” that he is the sole owner of TesTech. He said he did not know about the Gunter email until it was later provided to him by state and federal transportation officials.

“Mrs. Gunter should be the person asked about its contents,” he said.

Steven R. Stanforth, Brady Ware chief operating and financial officer, said he could not comment on the documents the Daily News obtained.

“As a matter of firm policy and in accordance with the standards of our profession, Brady Ware vigorously protects the confidentiality of its clients’ personal, financial and tax reporting information,” Stanforth said in a prepared statement.

David Reed, the Oakeses’ attorney, declined comment. Gunter did not respond to requests for comment.

Under DBE rules, Aziz’ company is supposed to be independent and it must be controlled by him. Yet the documents show clear ties between the Oakeses and Aziz.

The documents show:

• While Aziz claimed to own and control TesTech, David Oakes tried to sell the company in December 2007, according to an agreement signed by Oakes and an executive of Brady Ware. Oakes signed the document as TesTech Inc. president.

• In mid-2007, the U.S. Small Business Administration was preparing to reject Aziz for its Small Disadvantaged Business program on the grounds he had too many assets. CESO officials moved to transfer his 21 percent ownership in CESO Inc.’s Michigan operations to Montgomery.

• Despite the requirement that TesTech be independent, emails from 2007 and 2008 show CESO’s Gunter discussed with the accountant Gmeiner TesTech’s tax liabilities and other internal financial information.

• David Oakes and Aziz were also connected through CESO Testing Technology, an Oakes company that Ohio transportation officials allege was “indistinguishable” from Aziz’s TesTech Inc., in apparent violation of federal rules requiring DBE independence.

Documents show Aziz borrowed $2 million from CESO Testing Technology in 2009 to buy the now-defunct company’s assets for nearly $3.3 million. Aziz said he hoped to expand his operations in Michigan and secure a contract with Walmart. For years before the purchase, CESO Testing Technology held the licenses to key equipment TesTech needed to do its work.

The SBA’s 2007 letter rejecting Aziz’s application for the agency’s disadvantaged business program raised some of the same questions state and federal transportation officials are asking about TesTech’s DBE status.

The SBA determined Aziz was not economically disadvantaged, one requirement of the program. It said Aziz had too many assets and asked him to “address the appearance that Mr. Aziz has additional asset holdings that he has not adequately disclosed . ...”

The federal agency also asked Aziz to “address the relationship between TesTech and CESO” and said that the companies’ combined 2006 revenues of $5.1 million created what “appears to be a potential size issue through affiliation,” according to the Sept. 10, 2007, letter to Aziz from SBA official Reginald M. Walden Sr.

The letter states that the size limit for engineering services companies in the program, which is designed to benefit small companies, is $4.5 million.

‘Disassociating’ Aziz from the Oakeses

Internal emails show CESO officials were concerned about Aziz’s problems in obtaining the SBA certification for TesTech. Federal officials obtained a CESO email that included the SBA’s September 2007 rejection letter to Aziz. And an October 10, 2007, email from Gmeiner to Gunter is marked “info for sba” and includes a discussion of Aziz’s TesTech’s income and a request that she forward the information to Aziz.

Several options for “disassociating” Aziz from the Oakeses were floated.

In her Aug. 10, 2007, email, Gunter refers to “removing Sherif as 21% owner” of CESO Inc.’s Michigan operations. She also names several Oakes’ associates as potential candidates for ownership of the shares, including Montgomery.

Gunter wrote, “SBO would like to know if Amy (Peter’s fiance) would be able to be the owner without it being connected to the Oakes?”

Gunter also wrote: “Lastly if none of the above options work could one of the niece’s take that ownership? I would like to somehow see if we can shift it to the Oakes without causing tax issues — the less people involved the better for them.”

With the sale, David Oakes remained owner of 79 of CESO’s 100 shares and his soon-to-be daughter-in-law held the remaining 21. Montgomery paid Aziz $25,000 for those shares on Sept. 23, 2007, according to copies of the purchase agreement and Montgomery’s check, which were included in the documents the newspaper obtained from the transportation department.

As part of the sale, Aziz agreed to resign in 2007 as secretary of the board of directors of CESO in Michigan.

Company created for ‘asset protection’

Federal and state officials have also questioned Aziz about WXYZ LLC, an Ohio company Aziz and his wife, Dr. Nancy Zaki, jointly own.

Aziz said the couple created the company in 2006 for “asset protection purposes,” according to a 2010 letter from Aziz to the Ohio Department of Transportation. Zaki owned 90 percent and Aziz 10 percent, the letter states.

Aziz described it as a real estate investment holding company with no employees and said its assets were held in escrow as collateral for his purchase of the CESO Testing Technology assets.

A WXYZ balance sheet for 2007 and 2008 indicates the company held Aziz and his wife’s interests in 14 companies, most or all of which are real estate ventures associated with the Oakeses. Assets totaled more than $650,047 in 2008, according to the documents.

In Gunter’s Aug. 10, 2007, email to Gmeiner regarding the sale of CESO Inc. shares she said, “In the other companies that they have similar ownership with the Oakes family — Sherif was able to shift his ownership to his newly created company WXYZ ... .”

Last November, ODOT asked Aziz to produce tax returns for WXYZ as it sought to determine his eligibility for the disadvantaged business program. In December, ODOT, which administers the DBE program for the federal government, told Aziz TesTech was being decertified and cited multiple findings from a 2011 Daily News investigation, which uncovered numerous documents linking the Oakeses to TesTech.

Egyptian-Americans like Aziz and Shery Oakes typically don’t qualify as minorities in the DBE program.

Shery Oakes owns the luxury home building company Design Homes and Development Co., and in recent years her DHDC has entered the same field as TesTech — performing geological testing at construction sites. Design Homes’ status as a Minority Business Enterprise, or MBE, another set-aside contract designation, now is under review by the Ohio Department of Administrative Services as a result of the Daily News investigation.

In recent years the federal government has cracked down on contract fraud in its various set-aside programs as abuses became more apparent.

Aziz won DBE certification for TesTech in 2005 after two rejections by arguing to an appeals hearing officer that he was black because his ancestry traced through his religion to an African Nubian tribe. Aziz had won some set-aside contracts in years prior to that because he was certified as a DBE separately by airports in Columbus and Kentucky.

TesTech benefited greatly from its DBE status. The company did business with so many government entities across several states it is impossible to know just how much taxpayer money TesTech was paid. But a Daily News review of area and state contracts found TesTech was paid at least $4.7 million since 2003 by ODOT, Montgomery County, the city of Dayton and Dayton Public Schools.

TesTech currently also holds certification in the MBE and Encouraging Diversity Growth and Equity programs through the state. Both programs give companies special access to government contracts.

TesTech also is designated an SBA 8(a) disadvantaged firm and was in the SBA’s disadvantaged business program for three years prior to the 2007 rejection of Aziz’s application, according to the SBA website. The ODAS and SBA are reviewing his eligibility and TesTech filed suit earlier this month against ODAS to stop it from stripping him of his certification.

In the lawsuit, TesTech attorneys spelled out what is at stake for the company.

They wrote that “if the Defendants carry out their threat to de-certify” TesTech “will suffer irreparable harm in the loss of contracts and the inability to participate in future contracts. In addition, many of the jobs of the present 70 employees will have to be terminated.”

Contact this reporter at (937) 225-7455 or lhulsey@DaytonDailyNews.com