Contractor, Accountant Indicted in Philadelphia IBEW Scandal

The net has grown wider for International Brotherhood of Electrical Workers Local 98, if not necessarily for its allied power brokers at Philadelphia City Hall. On November 25, Donald “Gus” Dougherty and Michael McKale, respectively, a Local 98 contractor and an accountant for Dougherty’s firm, were indicted in U.S. District Court for the Eastern District of Pennsylvania on multiple fraud and theft charges. The alleged acts included avoiding required contributions to union benefit plans, making false statements on a mortgage loan application, and placing Dougherty’s wife in a no-show union job. The charges are part of a much larger ongoing investigation by the FBI, the IRS and the U.S. Labor Department’s Office of Labor-Management Standards, Employee Benefits Security Administration and Office of Inspector General. The corruption broke wide open nearly two years ago.

Electrical Workers Local 98, now with some 5,000 dues-paying members, for years has been a powerful presence in the Philadelphia-area construction industry. And a good portion of that power was accrued through cultivating close relationships with Philadelphia city officials that amounted to influence-peddling. Federal investigators were curious. Subsequently, in August 2016 the FBI raided the union’s headquarters in Philadelphia. Then, in January 2019, a grand jury handed down a 116-count indictment of eight individuals, six of whom were union members or officials. They included Business Manager John “Johnny Doc” Dougherty and Philadelphia City Council Member Bobby Henon. Most of the defendants thus far have maintained their innocence. The investigation, however, has produced multiple guilty pleas from James Moylan, a former chairman of the Philadelphia Zoning Board of Adjustments, and George Peltz, an unindicted New Jersey-based contractor.

Aside from these actions, the feds have pursued some unfinished business. That’s what led to the November 25 multi-count indictments against Donald Dougherty and Michael McKale. Donald Dougherty, now 54, owner of Philadelphia-based electrical contracting business Dougherty Electric Inc. (DEI), and no close relation to John Dougherty, was charged with conspiracy to defraud the IRS, six counts of filing false tax returns, one count of making a false statement to a bank, 10 counts of filing false union financial reports and 18 counts of failing to make contributions to union employee benefit plans. McKale, now 47, an accountant whose clients have included Dougherty, is charged with one count of conspiracy to defraud the IRS and three counts of aiding abetting the preparation and filing of false income tax returns.  

According to prosecutors, Donald Dougherty enlisted McKale to falsify DEI financial records so that he could reduce his tax liability. That especially meant putting Mrs. Dougherty on his payroll for a $166,400-a-year ghost job and writing that off as a business expense. The hiring came just weeks after the wife purchased a $900,000-plus condominium on the New Jersey shore at which DEI employees performed labor. In all, Dougherty allegedly claimed about $1.16 million in improper business expense deductions, triggering a tax loss of around $416,300. Nobody seemed the wiser until November 2015, when Dougherty was informed by the IRS that it had received anonymous information indicating these actions. Dougherty in response filed amended income tax returns that removed certain business deductions. However, he would continue to claim his wife’s salary and car expenses as write-offs. McKale allegedly covered for Dougherty by listing these personal expenses as legitimate union business.

This wasn’t the only instance of Dougherty allegedly making false statements for personal gain. He and his wife also told a bank that they were unable to make mortgage payments on their $1.7 million South Philadelphia home, causing the bank to accept a one-time payment of $900,000 to settle the debt. Yet according to the indictment, Dougherty’s personal income during 2010-13 was a hefty $2 million thanks to rapid growth in company revenues. In addition, he avoided making more than $500,000 in scheduled contributions to benefit plans sponsored by the Pittsburgh-based IBEW Local 5., paying employees through a dummy company created by his brother. Additionally, he hired nonunion labor in Philadelphia in order to avoid paying about $26,000 in contributions to an IBEW Local 98 benefit fund.

Federal officials are confident that Dougherty and McKale are guilty. “Donald Dougherty’s alleged schemes to enrich himself had multiple victims: hard-working union employees, bank stakeholders, and honest American taxpayers who pay their tax obligations,” said Assistant U.S. Attorney Jennifer Williams. “Further, he found an accountant to help him defraud the IRS by secretly changing properly recorded expenses into fraudulent ones. And when the defendants thought their scheme might be uncovered, they allegedly cooked the books even further to cover their tracks.” FBI Special Agent in Charge Thomas Fattorusso likewise remarked: “Donald Dougherty and Michael McKale are suspected of falsifying financial records to hide Donald Dougherty’s use of his business as a personal piggy bank. Criminal behavior like this is a slap in the face to all hardworking Americans who pay their tax obligations.”