Palo Alto contractor pleads no contest to theft, sentenced to jail

Alleged fraud was originally estimated at $400,000, police said

A Palo Alto contractor who had been accused of defrauding an Atherton homeowner pleaded no contest to one misdemeanor charge of grand theft and was sentenced to 60 days in county jail under a plea agreement accepted by San Mateo County Superior Court Judge Mark Forcum on Friday, Aug. 15.

Other charges against Richard James Smith, 56, owner of R.J. Smith & Associates, including a count of fraud/forgery, were dropped as part of the plea agreement, according to San Mateo County District Attorney Steve Wagstaffe. Because the evidence was mostly circumstantial, prosecutors would have had difficulty proving fraud, said Chief Deputy District Attorney Karen Guidotti.

The judge dismissed all charges against a second defendant, Tariel Gusseinov, a former chief financial officer of the company, the district attorney reported. Because he was not the owner of the company, prosecutors might not be able to prove "that he was responsible for non-payment of the supplier, nor could we prove that he in any way personally profited from non-payment of the supplier," Guidotti said.

The original charges brought against the two men alleged they had fraudulently over-billed Atherton homeowner Larry Lowry by thousands of dollars and diverted money owed to a subcontractor on the project, the District Attorney's Office said. The total amount of alleged fraud was originally estimated at $400,000 by the Atherton Police Department.

Court documents said Smith's company was hired to do a major construction job on Lowry's Stockbridge Avenue home. The alleged fraud came to light when fixtures from a subcontractor were late and the homeowner contacted the subcontractors directly, the documents say.

Guidotti said Smith's primary defense was that, "while these may have been poor business practices, it did not amount to actual fraud or theft." She said the DA's office was concerned it could not prove the case beyond a reasonable doubt in a trial.

In addition to 60 days in county jail with no credit for time served, Smith was sentence to two years of probation. He must pay $7,000 in restitution to the victim as well as $235 in court fines. He had been out on $75,000 bail and was scheduled to surrender himself into custody on Nov. 1.

According to the state of California's Contractors State License Board website, Smith's contractor's license was revoked on Feb. 11, 2013, and he may not reapply for a new license until at least five years from that date.

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Like this comment
Posted by Kenneth R.
a resident of Charleston Gardens
on Aug 25, 2015 at 10:49 pm

One of the biggest discrepancies in bids usually occurs because of building materials. Unless you intend to purchase them yourself, its best to rely on your contractor’s expertise in this regard. You can do some research on the kinds of materials you want to use.

3 people like this
Posted by eagle
a resident of Another Palo Alto neighborhood
on Aug 25, 2015 at 11:41 pm

Overcharging, even egregious overcharging, is rampant in construction, it's really rare for anyone to be charged with a crime. There are a few reasons for this. For one, fraud is very difficult to prove. Secondly, most lawyers don't even want to prove fraud because usually that means the insurance company for the contractor (errors and omissions/construction defects) won't pay a settlement if there is fraud. Thirdly, construction lawyers are extremely expensive and in California, unless the contract explicitly gives winner of litigation legal fees, the default is for each party to pay their own fees. The contractor's fees will get picked up by his/her insurer, but the homeowner has to wage any kind of case to recover any funds alone, so the homeowner's legal fees will almost certainly come from the settlement. i.e., if the contractor has committed fraud and the insurer won't pay, then the plaintiff's legal fees might not get paid. Lawyers don't do things that way.

The plaintiff must have been really pissed off and rich enough to do this. Usually, the contractor is off doing the same thing to the next person without consequence. People rarely even complain.

Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Aug 26, 2015 at 10:54 am

It is no secret that most GC's operate hand to mouth...and they're typically using your payments to payoff subs or suppliers from the previous job!

One way to solve this problem is to have your GC submit the sub or supplier bills (for your job) to you for payment - you must be willing to accept that the GC charges a mark up on these bills (for their time and effort in managing the subs and/or placing/tracking materials orders). But the mark up would be on the GC's bi-weekly bill, not on the subs or materials invoices.

Many GCs won't go for this --- as they are doing the "new job pays for the old job" cash flow dance. But if you make it a criteria when receiving bids from GCs, you'll at least set expectations from the start.

Sorry, but further commenting on this topic has been closed.

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