Academy Bus to pay $20.5M in fraud lawsuit settlement

Academy Bus has agreed to pay $20.5 million to settle a lawsuit brought by the state of New Jersey for overcharging New Jersey Transit for missed trips and overbilling for hours and miles driven.

The agreement is the state’s largest False Claims Act settlement outside the healthcare sector, Acting Attorney General Andrew Bruck said in a statement.

The state joined a whistleblower lawsuit in 2020 against Hoboken-based Academy Bus LLC, which bills itself as the largest privately owned and operated transportation company in the country.

The state’s complaint alleged that Academy engaged defrauded the transit agency by more than $15 million by failing to report tens of thousands of missed bus trips between 2012-2018 and that those missed bus trips caused the riding public to suffer.

‘Defrauding the state doesn’t pay’

In June, Academy Bus lost its last NJ Transit contract – a three-year, $32.6 million approved in 2020 – to run bus routes in Middlesex County, ending a more than 20-year relationship. While Academy isn’t barred from working with NJT, the settlement agreement requires the company to make changes to provide greater transparency in any contracts with the the transit agency. 

An Academy Bus coach in New Jersey. (Creative Commons)

Those measaures require Academy to retain an independent Integrity Oversight Monitor and create new policies, procedures and training efforts to ensure the accurate reporting of missed bus trips, hours logged and miles driven.

“This settlement sends a clear message: defrauding the state doesn’t pay,” Bruck said in the statement. “We are not only requiring the corporate defendants to pay more than the amount of their alleged fraud. We also are holding individual defendants financially responsible and requiring Academy Bus to adopt corrective measures designed to prevent similar misconduct in the future.”

During the period at issue in the complaint, Academy operated seven NJ Transit bus routes in the Hudson and South Hudson service areas involving approximately 175,000 bus trips each year. Academy billed NJ Transit about $12 million annually for its services, while NJ Transit retained all bus fares that Academy collected along the routes.

Academy kept two sets of records, state says

Under its contract with NJ Transit, Academy was required to report the number of bus trips that were missed for each route on a monthly basis.  NJ Transit would then deduct an assessment for each missed trip.

Academy also charged NJ Transit contractually agreed-upon fees for miles and hours driven along bus routes it handled for the agency.  Academy could not charge fees for hours and miles driven for buses that did not run.

The state’s complaint alleged that Academy overcharged NJ Transit in at least two ways. First, by underreporting to NJ Transit the number of bus trips it had missed for each month, Academy avoided millions of dollars of missed trip deductions from the monthly invoices.  Second, Academy billed NJ Transit for miles and hours driven for buses that had not actually run.

The complaint also alleged that Academy’s internal records tracked two sets of bus trip numbers – the “real” number of missed bus trips (which Academy labeled “RN”) and an adjusted set of numbers that was always significantly lower, and which Academy submitted to NJ Transit.  According to the complaint, the gap between the “real number” of missed trips and the number actually submitted to NJ Transit shrunk during periods when Academy knew NJ Transit was actively monitoring Academy’s performance.

Academy may have missed so many trips because it was shifting drivers from the NJT routes it covered to its more profitable charter bus routes.

According to the complaint, one witness who worked as a dispatcher for Academy reported telling Academy’s President and CEO Francis Tedesco that diverting drivers would cause missed trips on NJT routes. Tedesco allegedly responded: “I don’t care about NJ Transit.”

 UMA cites unfair competition

“This is a story motorcoach companies in the New York and New Jersey area know all too well,” said Ken Presley, United Motorcoach Association’s Vice President, Legislative & Regulatory Affairs & Industry Relations/COO.

Ken Presley

In 2013, UMA filed a charter service complaint against New Jersey Transit regarding Academy’s use of motorcoaches purchased with FTA dollars providing service to the Barclays Golf Tournament. 

“While UMA prevailed and the transit authority was fined $10,000, on the surface we continued to receive reports of continued use of NJT coaches in charter service,” Presley said. “Someone actually took a photo of an NJT motorcoach at a mall near Baltimore one day and sent it to us. You have to wonder how many commuters missed their ride to work that day. The average motorcoach company cannot compete with an operator using what essentially is a free motorcoach. After years of damage to private sector motorcoach companies, hopefully the abuse has come to an end.”       

In 2015, the FTA denied an appeal by NJT challenging the fine. The New Jersey Transit appeal revealed that Academy was paid more than $165,000 to provide the Barclay shuttles but said Academy’s operating expenses should have been deducted to reduce the economic benefit basis used to calculate the fine, reported Bus & Motorcoach News.

The UMA complaint asserted that Academy was subject to the charter service regulation as a subrecipient of FTA funds and was required to notify registered charter companies upon receiving a request to provide charter service at the golf tournament, thereby allowing other companies to bid on the shuttle contract.

New safeguards ordered

Under the settlement, Academy must do the following with respect to any contract or agreement to operate NJ Transit bus lines:

  • Submit with each invoice to NJ Transit a personal certification from a Senior Vice-President, Chief Financial Officer or such person’s designee that attests to the accuracy of the submission, as well as to the accuracy of the supporting Daily and Monthly Reports of Operation.
  • Retain for three years an independent Integrity Oversight Monitor — approved by NJ Transit and paid by Academy — to oversee the accuracy of its internal documentation of bus trip operations, as well as the accuracy of invoices and missed trip and miles and hours reporting.
  • Implement new policies and procedures to ensure accurate reporting of missed trips and hours and miles driven. The new policies and procedures must include staff training on accurate reporting, the maintenance of records and databases, and document retention.
  • Create bus operator training policies that ensure the proper use of all provided equipment, including proper use of Clever Devices and other telematics, as well as the proper reporting of equipment malfunctions.
  • Create procedures that Academy road supervisors must employ to ensure conformity to bus service regulations, as well as driver adherence to bus routes and accident reporting.

In addition to Hoboken-based Academy Bus, the settlement includes affiliated corporate defendants Academy Lines LLC; Academy Express LLC; and No. 22 Hillside LLC, as well as  individual defendants Antonio Luna, formerly an assistant manager at No. 22 Hillside LLC; Eddie Rosario, a general manager at No. 22 Hillside LLC; Thomas Scullin Vice President and Chief Operating Officer for all of the corporate defendants; and Frank DiPalma, the Controller of each of the corporate defendants.

The settlement includes payments of $150,000 from Scullin and $50,000 each from Rosario and Luna.

Hector Peralta, a former Academy employee who filed a whistleblower complaint against the company, will receive $3.9 million of the settlement. He also has a separate case against Academy that has not yet been settled, according to

Under the settlement, Academy and the other corporate and individual defendants make no admission of wrongdoing or liability.

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