Four government administrators paid a company that employed no drivers and provided no transportation services. New York’s prepayment audit stopped another $1.27 million. The resulting fraud convictions raise questions about how federal grant administrators verify the services taxpayers are funding.
The passengers were imaginary. The drivers didn’t exist. Some of the people listed as customers were already dead, while some supposed drivers had never held a driver’s license.
The invoices, however, were real enough to collect more than $1.6 million in federal funding.
On September 29, 2026, a federal jury in New York convicted Jael Watts and Luis Pino-Copete of operating a nationwide fraud scheme through Pearl Transit Corporation, a New Jersey nonprofit that purported to provide transportation for elderly and disabled Americans, along with outreach services for homeless individuals.
According to the Department of Justice, the defendants sought more than $13 million through federal transportation and housing programs between July 2019 and October 2025. Four local government administrators disbursed a combined $1,621,534 to the fictitious operation.
The convictions establish the criminal conduct. They do not, however, explain how a company without drivers or transportation services managed to collect payments from multiple government administrators.
That question becomes considerably more interesting when examining what happened in New York, where a fifth jurisdiction scrutinized Pearl Transit’s reimbursement requests and stopped payment.
Four Jurisdictions Paid. New York Asked Questions.
The federal government distributes substantial transportation and housing assistance through state and local administrators. Those entities select projects, oversee recipients, and authorize expenditures under the applicable program requirements.
Pearl Transit exploited that decentralized arrangement.
According to federal prosecutors, the company fraudulently obtained $529,500 in Community Development Block Grant funds from Gwinnett County, Georgia; $429,885 in Federal Transit Administration Section 5310 funding from the Los Angeles County Metropolitan Transportation Authority; $283,000 in Emergency Solutions Grant funding from Kern County, California; and $379,149 in Section 5310 funding from Raleigh, North Carolina.
Those payments came from two federal departments, three grant programs, and four geographically separate administrators.
Despite the different funding sources, prosecutors established that Pearl Transit had no drivers providing the transportation services it claimed to perform.
The company’s fictional operations might have continued longer had its reimbursement requests not encountered the New York State Comptroller’s Office.
In October 2025, Comptroller Thomas P. DiNapoli announced that his office had stopped Pearl Transit from collecting $1,275,550 through New York’s transportation grant program.
The Comptroller explained that, as part of the state’s payment-auditing responsibilities, his office reviewed Pearl Transit’s invoices and identified inconsistencies.
Those discrepancies prompted further examination and a joint investigation with the Department of Transportation’s Office of Inspector General.
Unlike the four administrators that had already distributed money, New York paid nothing on the fraudulent invoices.
The contrast raises a question that has not yet been answered publicly: What verification steps did New York perform that the other administrators either did not perform or did not find sufficient to stop payment?
The Paper Trail Behind the Phantom Passengers
The federal indictment provides a more detailed picture of how the New York reimbursement process operated.
Pearl Transit applied for Section 5310 funding in March 2022. Prosecutors established that Watts submitted an application falsely bearing an attorney’s affirmation, although the attorney had neither reviewed nor signed the document.
That means fraudulent documentation appeared in the grant process well before the reimbursement requests that ultimately attracted investigators’ attention.
The subsequent New York transportation arrangement was intended to support services for elderly and disabled residents in Suffolk, Putnam, Rockland, and Westchester counties.
Beginning in September 2024, Watts submitted invoices through New York’s government payment-processing system.
The September 10, 2026, third superseding indictment identifies emails transmitting invoices to the New York Office of General Services Business Service Center on September 25 and October 2, 2024, followed by additional correspondence with the Department of Transportation.
The Business Service Center processed invoices through the Statewide Financial System and routed them to the responsible agency for payment approval. Certain vouchers then proceeded to the Comptroller’s Office for audit.
That sequence matters because it demonstrates that a submitted invoice did not automatically become an authorized payment.
New York’s process included a separate examination before public money was released.
When the Comptroller requested supporting documentation, the defendants did not simply withdraw their claims.
Instead, prosecutors established that they manufactured additional records to support the fictional operation.
The indictment describes a January 10, 2025, request for drivers’ licenses covering individuals Pearl Transit supposedly employed during the first quarter of 2022, along with applications from passengers the company claimed to have transported during that period.
Those records would have allowed auditors to test whether the people represented in Pearl Transit’s invoices were connected to actual transportation services.
Four days later, according to the indictment, Pino-Copete used an account with TransUnion Risk and Alternative Data Solutions to obtain personal information, including dates of birth.
Prosecutors described the defendants’ use of stolen personal information to fabricate employment and customer records.
The indictment therefore identifies a second issue deserving scrutiny: how commercial identity-information services were used in constructing documents submitted to government agencies.
The public record does not establish that TransUnion knowingly participated in the fraud or violated any legal obligation. Nevertheless, the documented use of its data services provides a potential avenue for follow-up reporting.
The Oversight Question Nobody Has Answered
Federal grant programs operate under different requirements, but they generally include documentation, financial-management, and monitoring obligations.
FTA’s Section 5310 program provides assistance for transportation serving older adults and individuals with disabilities. HUD’s Community Development Block Grant and Emergency Solutions Grant programs fund eligible community-development and homelessness-related activities.
The applicable rules distinguish between direct recipients, subrecipients, and contractors, and those classifications affect the responsibilities of each administrator.
For certain CDBG subrecipient arrangements, 24 CFR § 570.503 requires written agreements specifying the work to be performed and applicable reporting and performance requirements.
Emergency Solutions Grant recordkeeping requirements under 24 CFR § 576.500 include documentation supporting eligible activities and expenditures.
Federal grant regulations also establish responsibilities for monitoring subrecipients, although the precise requirements depend on the award and governing regulations.
These rules provide a framework for examining Pearl Transit’s payments. They do not, by themselves, establish that any of the four paying jurisdictions violated federal requirements.
The critical missing records are the actual grant agreements, payment approvals, reimbursement packages, monitoring reports, and supporting documentation.
Did administrators verify the identities of the people Pearl Transit claimed to employ? Did they independently establish that passengers received transportation? Were trip records compared against vehicle operations, payroll information, or other independently maintained evidence?
Or were payments approved primarily on the strength of documents supplied by Pearl Transit itself?
Those distinctions matter. A forged record can defeat a legitimate control, while an inadequate control may never test whether the record is genuine.
Without the underlying administrative files, it would be premature to declare which occurred in Georgia, California, or North Carolina.
What is established is that the controls operating in those jurisdictions did not prevent the fraudulent payments identified by prosecutors.
An Arrest Did Not End the Attempts
The fraud continued into 2025, even as federal investigators began unraveling Pearl Transit’s operations.
Watts was arrested in July 2025. Federal investigators subsequently examined her electronic devices and uncovered communications with Pino-Copete concerning the fabrication of records.
According to DOJ, the defendants attempted to obtain an additional $50,000 from San Bernardino, California, in September 2025 while Watts was detained at the Albany County Correctional Facility.
That episode raises another administrative question: how quickly can government grant administrators learn that an applicant or recipient is under investigation for fraud?
The Federal Transit Administration suspended Watts and Pearl Transit from federal procurement and nonprocurement transactions on December 3, 2025. Pino-Copete was separately suspended on February 17, 2026.
Those dates followed Watts’ initial arrest by several months.
The suspension notices do not establish whether other restrictions, alerts, or administrative interventions occurred earlier. Nor does an arrest automatically establish grounds for every available administrative sanction.
Nevertheless, the interval between the arrest and the documented suspensions warrants examination, particularly given the defendants’ continued efforts to obtain funding.
The Money Went Somewhere. Has Any of It Come Back?
Prosecutors described how the defendants spent the proceeds.
Bank records introduced at trial showed more than $100,000 spent on Porsche rentals and another $100,000 at Loro Piana, an Italian luxury clothing retailer. The defendants also traveled extensively, including visits to Colombia, Aruba, and Europe.
The spending details provide evidence of how the proceeds were used, but they are not the end of the financial story.
The more consequential question for taxpayers is how much of the fraudulently disbursed money has been recovered.
The publicly reviewed records do not establish a complete accounting of recovered funds, outstanding losses, or repayments to the affected grant programs.
With sentencing scheduled for January 21, 2027, restitution and forfeiture proceedings may provide additional answers.
For now, the more than $1.6 million in fraudulent payments represents money that federal programs intended for public services instead distributed to a company that provided none of the claimed transportation services.
A Fraud Conviction Is Not an Oversight Audit
The federal jury’s verdict resolves the defendants’ criminal liability. It does not substitute for an examination of the government systems that authorized the payments.
New York’s experience demonstrates that prepayment scrutiny can stop fraudulent reimbursement requests. Its Comptroller identified inconsistencies, requested supporting evidence, and helped initiate an investigation that exposed a nationwide scheme.
What remains unclear is whether the other jurisdictions possessed comparable verification procedures, whether those procedures were followed, and whether the fraudulent records defeated otherwise reasonable safeguards.
There is also no publicly established explanation for why the scheme was able to pursue federal funding across multiple programs and jurisdictions over several years without earlier detection.
Those questions require the administrative records, not merely the criminal indictment.
The Department of Justice has provided an unusually colorful account of the defendants’ spending habits and personal relationship. Federal prosecutors have also established that the company submitted false records, misused identities, and collected substantial public funds for nonexistent services.
The government has successfully prosecuted the people who manufactured the fiction.
The remaining question is how four government administrators paid for it.
Reporting note: This article draws on DOJ’s October 2, 2026, conviction announcement, the September 10, 2026, third superseding indictment in United States v. Watts and Pino-Copete, New York State Comptroller Thomas P. DiNapoli’s October 17, 2025, announcement, and DOT-OIG suspension records. The underlying payment-approval and monitoring files for the four paying jurisdictions have not yet been obtained.
