Shell game lets bus contractors
get around problems

By: Mike Davis
Susanne Cervenka
Colleeen Wilson
and Amanda Oglesby
Asbury Park Press
USA Today Network - New Jersey

.... It was a sunny but chilly day on January 2, 2013, as a K&M Transportation school bus transported Onynx Williams home from school.
...... As the bus turned down Riverside Avenue in Rutherford, Bergen County, Onynx 14, got up from her seat, ran to the back of the bus. popped open the emergency hatch and fell out.
..... To get there, she had to run past a bus aide - just the one, not two, as was contractually required.
..... She died from her injuries days later.
..... Onyan's parents would eventually file a federal lawsuit against K&M Transportation, the Paterson school district and the Bergen County Special Services school district. But by the time the parties settled - K&M Transportation's insurance provider paid $1.3 million of the total $2 million settlement - the bus company had already dissolved.
...... At least, on paper.
..... As public officials repeatedly said K&M Transportation went out of business after the incident that caused Onynx Williams' death, people connected to K&M Transportation had actually set up a new business incorporation - and kept winning school contracts with another district that serves students with special needs.
..... The former manager of K&M Transportation is associates with at least three more school bus companies and would continue to operate school buses - to this day -under the name Castro School Trans, LLC.
..... The corporate shell game played by K&M Transportation and its iterations is one of many stores of private school contractors who change names and flip ownership registration between family members' names and addresses in order to avoid investigation by state authorities and to rid themselves of their poor safety reputation.
...... Even if school districts are aware of the school bus shell game, there's little they can do. It's all perfectly legal.
..... An investigation into those private contractors by the Asbury Park Press, part of the USA TODAY Network Atlantic Group, a consortium of 36 news sites in five states, has revealed loopholes in incorporation, inspection and public contract laws that allow dangerous bus drivers to stay on the road, school boards to award million-dollar contracts to questionable private companies, and toothless enforcement by state regulators that have let such companies continue doing business after serious, even deadly, safety incidents.
.... The system of bus inspections and background checks to ensure that children are safe when they step onto a school bus is inherently flawed, the investigation found.
..... It is designed to catch issues with drivers and bus operators who agree to play by the rules.
..... But it does little to stop operators who skirt the rules.
..... New Jersey law allows school districts only a limited number of reasons to disqualify a vendor from bidding after having a prior negative experience with that company. A company can be disqualified from bidding on school bus routes for defaulting on a contract or after being found "nonperforming" in a formal hearing with the schools superintendent and the county superintendent.
..... Even then, a company can appeal the decision, and the ban from bidding can't last longer than three years.
..... But there's also a loophole in the law. The owner of a disqualified company could still bid under another company name as long as that person doesn't own more than 10% of the new company - even if they play an active role in operating the new company.
..... That inherently presents problems, said Joseph Doria, a former state senator and community affairs commissioner: "When you're taking the low bid, you're not going to get that kind of careful review of the backgrounds, of the drivers or even the safety of the buses," he said.
.... And the Network found several companies apparently taking advantage of this loophole by setting up companies in family members' names, including the former manager of K&M Transportation, who is now the registered agent and listed under the "first board of directors" on Castro School Trans incorporation records.
..... Castro School Trans, whose headquarters are listed in Garfield, was established in August 2016 and and held 23 contracts worth a combined value of $1.2 million with the South Bergen Jointure Commission, a special needs school district, for the 2019-2020 school year.
..... What district officials didn't realize until they were contacted by Network journalists was that Castro had ties to K&M Transportation, whose business records show it is owned by the same person: Khaled Fouad.
.... Yet there was nothing the district could have done even if it had known.
..... "If they are a company in good standing and they are the lowest bidder, we are obligated by the state of New Jersey to award them the the contract," South Bergen Jointure Commission Business Administrator Susan Cucciniello said.
..... "Bad actors sometimes are very smart," said senator Joseph Lagana, D-Bergen, who sponsored a series of school bus safety laws in the wake of a 2018 fatal bus crash in Mount Olive. "If they're 50% over at one LLC, they'll come on as a member of another LLC with 2% membership, and almost be a non-existing member. So, you know, we're gonna have to really wrap our heads around this and figure out how to make the laws and regulations a little more strict."
..... Between K&M Transpiration and Castro School Trans, Fouad was associated with two different companies, the similarly named American 5 Star and American Five Stars, according to business records, both of which had contracts with South Bergen.
..... Castro School Trans former in August 2016 under Fouad's wife name, Manal Hassan. In May 2019, Fouad was added as to the company's first board of directors, according to business records. he became the company's registered agent in November 2019, according to records.
..... The business operates out of an auto repair shop in Garfield, where, on a recent day, multiple minivans with decals of the company's name could be seen.
.... In an interview, Fouad denied any link between K&M Transportation and Castro School Trans. He was only a manager at K&M Transportation, he said, which was owned by Salah Hanafy. Fouad said Hanafy also owned American 5 Star.
..... But business records show that Fouad is listed as a director, an incorporator, a vice- president or register agent of all four companies - K&M Transportation, American 5 Star, American Five Star and Castro School Trans.
.... As of September, Founad's LinkedIn profile still listed him as the "owner of K&M Transportation." A recent job listing for Castro School Transportation calls for employees who "enjoy working with little direction" at a rate of $600 per week.

'WEEK SANCTIONS' ALLOW PROBLEMS TO PEERSIT:

..... Sue Fulton, chief administrator of the state Motor Vehicle Commission, said this elaborate, game of whack-a-mole has continued due to weak sanctions. The penalties for a school bus company that put an unqualified driver behind the wheel should be severe enough to prevent the company from reopening, she said.
..... "If you put someone who's not credentialed, who's not qualified, in the seat of a school bus, you need to pay a significant price," she said. "You shouldn't be able to pursue a contract with another school district. You shouldn't be able to just change the name, file a new LLC and continue doing business.
..... "The penalties are just not stiff enough."
.... Perhaps no company is more representative of this elaborate game of whack-a-mole than A-1 Elegant Tours.
.... In June, [2020] the Attorney General's Office charged the owner, Shelim Khalique, and manager Henry Rhodes, with theft by deception, conspiracy, tampering with public records, false representations for a government contract and misconduct by a corporate officials.
..... Khalique is the brother of Paterson Councilman Shahin Khalique, who owns his won school bus companies with contracts in Essex County. Shahin Khalique was not charged with wrongdoing by the state attorney general
..... The Attorney General's Office seized personnel files from A-1 Elegant in 2019, alleging that numerous drivers licenses or endorsement, were driving on suspended licenses or had criminal records.
..... The company was accused of submitting false records and information to both the sate department of Education and the districts that awarded contracts to A-1 Elgant Tours, particularly Paterson.
..... While the Attorney General's Office noted that A-1 Elegant had also been doing business as Eastern Star Transportation, the Network had linked the operation to at least 21 different names since 2005.
..... As recently as August 2019, according to Google, a sign on a brick building in Paterson identified it as the home of A-1 Elegant Tours. But just over one year later, that name was nowhere to be found. Instead, the building advertised "drivers wanted" for Eastern Star Transportation, which business records show is a different company also owned by Shelim Khalique.
..... Mini-buses from American Star Transportation were also parked around the property. American Star Transportation is owned by Khalique's brother, Jwel, according to business records.
..... The companies are connected by eight different people -m many of whom are related, public records show - and a dozen addresses in North Jersey.
..... "This bus company allegedly lied about its employees and equipment to secure contracts, and then had unqualified drivers, convicted felons, and those under the influence drive and supervise young children each day in what were frequently unsafe vehicles,: Attorney General Gurbir Grewal said in a statement after Shelim Khelique and Rhodes were arrested.
..... "This is an unconscionable case of contract fraud," Grewal said.
..... The case is still pending. Neither Khalique nor Rhodes has entered a plea. Khalique;s attorney Joe Rotella declined to comment.
..... The Paterson School District was one of districts that previously contracted with A-1 Elegant. The district was finally able to ban A-1 Elegant in 2018 after it committed more than 100 contract violations, according to the district. The ban was lifted this year, [2020] while Khalique was under indictment.
.... Paterson School District spokesman Paul Brubaker said the district eventually got A-1 Elegant to agree to a two-year disqualification without going to a "lengthy hearing" required by the law.
.... "the statute should be amended, because it limits the options of local Boards in these situations," Brubaker wrote in an e-mail.

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