Georgia Tech Procurement Assistance Center

DOJ cracks down on set-aside contracting fraud

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This week, the Department of Justice (“DOJ”) issued two press releases regarding companies and individuals that agreed to settle False Claims Act cases related to government contracting fraud.  United States Attorney Maria Chapa Lopez announced that Sunrise Systems of Brevard, Inc. had agreed to pay the United States $500,000 to resolve allegations that it violated the False Claims Act by submitting claims for government funds in violations of Small Business Administration regulations.  According to the settlement agreement, from December 10, 2013, through February 9, 2016, Sunrise partnered with a minority-owned small business, V&R Enterprises of Jacksonville, Inc., but violated the SBA’s labor and work performance requirements in order to access SBA set-aside funds.  The government alleged that Sunrise performed nearly all of the work on the joint venture project and received nearly all of the profits, in violation of the law.  In another case, Luke Hillier, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc., agreed to pay the United States $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.

Both cases illustrate that it is critically important that companies both large and small know and understand the rules and regulations governing small business set-aside procurements.  This is especially important when it comes to performance of work requirements (limitations on subcontracting), which often require the small business on a set-aside procurement to do a requisite amount of work depending on the type of contract at issue.  On a set-aside contract that is restricted for a certain types of small business, it is often illegal for the small business to subcontract out all of the work to a large subcontractor.  Further, small businesses cannot be deemed affiliates or too closely affiliated with a large business or they could lose their small business size status.  Meaning, if your operations are so intertwined and dependent on a large business that you are essentially just a part of that large business, you could be deemed ineligible for small business set-aside work because you are too affiliated with that large business.  The intent of small business set-aside contracts is to truly help bonafide small businesses.  As a result, a substantial portion of the work and benefits of a set-aside contract need to go to small businesses.  If you need help understanding performance of work requirements, limitations on subcontracting, and the affiliation rules, please reach out to a GTPAC counselor and we would be happy to help.

Press releases:

Jacksonville Contractor Agrees to Pay $500,000 to settle False Claims Act liability

Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts

 

 

Recent indictments demonstrate increased focus on bid-rigging

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Companies involved in the government contracting industry should take note that the government is honing in on anticompetitive conduct affecting government procurements.  The federal government has demonstrated an increased interest in this area, and companies should refresh and audit their compliance programs to avoid hefty civil and criminal penalties and potential prison terms for implicated employees.

In the last month, the United States Department of Justice (DOJ) has announced three sets of indictments in recent months relating to bid-rigging of various government procurements and solicitations, evidencing an increased focus on anticompetitive conduct targeting federal, state and local governments.

Continue reading at:  McDermott Will & Emery

Former S.C. company executive sentenced to over 4 years in federal prison for construction fraud scheme

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United States Attorney Sherri A. Lydon announced on April 23rd, 2019 that Thomas Brock, age 62, of Camden, South Carolina, was sentenced to 51 months in federal prison after pleading guilty to wire fraud.

According to information presented during his guilty plea and sentencing, Brock was involved in a decade-long scheme to defraud the government in the acquisition of military construction contracts.  Under programs instituted by the United States Small Business Administration (SBA) and the Department of Veterans Affairs (VA), certain military and federal government contracts are specifically set aside for award to minorities, women, and service veterans.  These programs are intended to provide small businesses with an opportunity for growth and experience working through the federal government. 

Brock was an executive with Boykin Contracting and used various straw-owners within the company to pose as a female, an African-American, a disabled person, and a veteran in order to qualify for over $160 million dollars’ worth of these government construction contracts.  Based on information presented in court, Brock illegally acquired the contracts and siphoned money from the company to support a lavish lifestyle.  The scheme fell apart when Brock fraudulently acquired loans to cover the company’s losses and fell behind on the repayments, prompting a civil lawsuit and a criminal investigation.

Continue reading at:  https://www.justice.gov/usao-sc/pr/former-company-executive-sentenced-over-four-years-federal-prison-construction-fraud

DOJ refreshes guidance document on evaluation of corporate compliance programs

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Even before April’s release of the Department of Justice (DOJ) Criminal Division’s 2019 Evaluation of Corporate Compliance Programs (2019 Guidance), those operating within highly-regulated industries like government contracting and health care knew the importance of having an effective, well-tailored compliance program. 

Largely tracking the DOJ Fraud Section’s 2017 Guidance (discussion of the 2017 document is available here), the new, longer 2019 Guidance adds more detailed examples to aid federal prosecutors in evaluating compliance programs.  By making this information public, DOJ is providing companies a blueprint for the design, implementation, and evaluation of those programs that will satisfy the scrutiny of a criminal investigation.

Read more at: Wiley Rein

Firm to pay $545,000 to settle claims it sold Chinese-made equipment to U.S. government

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A Sunnyvale-based network security company has agreed to pay more than a half million dollars to settle allegations it sold Chinese-made equipment to the U.S. government in violation of the False Claims Act, according to federal prosecutors.

According to a settlement agreement made public Friday, Fortinet Inc. acknowledged that between 2009 and 2016 one of its employees directed the relabeling of products to make them appear as though they were in compliance with the Trade Agreements Act.  The act prohibits government contractors from purchasing products that are not entirely from or “substantially transformed” in the United States or other designated countries.

Prosecutors said the new labels did not include the country of origin and featured phrases such as “designed in the United States or Canada” or “assembled in the United States.” A portion of the products were then resold through distributors and subsequent resellers to U.S. government end users.

“Contractors that supply the U.S. government with Chinese-made technology will be pursued and held accountable when violating the Trade Agreement Act,” said Bryan Denny, Defense Criminal Investigative Service special agent in charge, in a statement.

Continue reading at: East Bay Times

Aluminum supplier linked to NASA rocket explosions pays millions to settle criminal charges

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A Portland aluminum company that sold NASA defective aluminum, which allegedly caused two rockets to explode shortly after launch, has agreed to pay $46 million to settle criminal charges and civil claims.

Hydro Extrusion USA LLC, formerly known as Sapa Extrusions or Sapa Profiles, allegedly covered up substandard manufacturing by altering quality test results over two decades.

These were “tests that their customers, including the U.S. government, depended on to ensure the reliability of the aluminum they purchased,” said Assistant Attorney General Brian Benczkowski of the Department of Justice’s Criminal Division. “Corporate and personal greed perpetuated this fraud against the government and other private customers, and this resolution holds these companies accountable for the harm caused by their scheme.”

Continue reading at: The Oregonian/OregonLive

Former Army colonel pleads guilty to role in Fort Gordon fraud, kickback scheme

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A former active-duty U.S. Army colonel has pled guilty to accepting bribes in return for helping steer military contracts to a business fraudulently claiming status as a small business.

Anthony R. Williams of Vienna, VA, pled guilty to Conspiracy to Commit Bribery and felony conflict of interest in U.S. District Court, said Bobby L. Christine, U.S. Attorney for the Southern District of Georgia.

Williams faces a sentence of up to five years in prison, and has agreed to forfeit more than $1.2 million in proceeds derived from the scheme.

According to court documents and evidence entered during court proceedings, Williams, while serving as a colonel in the U.S. Army, accepted bribes to steer federal procurement contracts to the CREC Group, a company owned by Calvin Devear Lawyer, a retired U.S. Army colonel. The CREC Group had received Small Business Administration (SBA) status as a small, disadvantaged business based on false representations from Lawyer and from Dwayne Oswald Fulton, then an employee of a defense contractor.

Lawyer previously pled guilty in the case and is serving a 60-month prison sentence, while co-conspirator, Anthony Roper, a former active duty U.S. Army colonel at Fort Gordon, also pled guilty and is serving a 60-month sentence.

The cases were investigated by the United States Army Criminal Investigations Division (CID), the Defense Criminal Investigative Service (DCIS), the Small Business Administration’s Office of Inspector General, and the United States Attorney’s Office.

Source: https://www.justice.gov/usao-sdga/pr/former-army-colonel-pleads-guilty-role-fort-gordon-fraud-kickback-scheme

Atlanta businessman indicted on 51 counts including bribery, tax evasion, and money laundering

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City of Atlanta contractor Lohrasb “Jeff” Jafari has been charged in a 51 count federal indictment with conspiratorial bribery, bribery, tampering with a witness, tax evasion, money laundering, and structuring.

“Jeff Jafari allegedly paid multiple bribes to two local officials over a period of years and then attempted to obstruct the federal investigation into his misconduct,” said U.S. Attorney Byung J. “BJay” Pak. “He also failed to pay income taxes on millions of dollars he earned from city contracts.  Instead, he used the funds to live a lavish lifestyle.  Whether you bribe, take a bribe, or otherwise misuse the public’s money to enrich yourself – it’s all corruption. We will vigorously pursue any such cases.”

According to U.S. Attorney Pak, the charges, and other information presented in court on March 6, 2019:

  • Beginning at least in 2014 to January 2017, Jafari allegedly paid thousands of dollars in bribe payments to Adam Smith, the then-Chief Procurement Officer of the City of Atlanta.
  • At the time, Jafari was the Executive Vice-President of PRAD Group and did millions of dollars in work with the City of Atlanta, primarily under the City’s Architectural and Engineering contracts.
  • Jafari and Smith met at Atlanta-area restaurants where they discussed City business, among other things, and Jafari would generally pay Smith $1,000 in cash in the restaurant bathroom.
  • Jafari similarly paid bribes to a local official in DeKalb County in April and August of 2014.

According to the U.S. Attorney’s office, in exchange for Jafari’s payments to Smith, Smith provided Jafari with information and counsel regarding the City of Atlanta’s procurement processes, among other information. When PRAD Group or a joint venture in which PRAD Group was a partner became a successful proponent on a City of Atlanta contract or Request for Proposal, Smith approved and submitted the award of those projects. Smith also approved task and/or purchase orders for those projects.

In February 2017, Jafari became aware of the federal investigation into his payments to Smith, at which time he confronted Smith in an effort to intimidate and persuade Smith to provide false information to federal law enforcement about the payments, instructing Smith to deny taking bribe money from Jafari.

Between 2014 through 2016, Jafari also willfully failed to pay income taxes to the IRS. During those years, Jafari withdrew large amounts of cash from corporate bank accounts and used corporate funds for personal expenses, among other things, to avoid the assessment of income tax. In 2014, Jafari owed at least $150,000; in 2015, at least $300,000; and in 2017, at least $700,000 to the IRS. Jafari is additionally charged with numerous counts of money laundering for engaging in financial transactions with funds earned from City of Atlanta work he obtained while he was paying bribes to Adam Smith.

Members of the public are reminded that the indictment only contains charges.  The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.  This case is being investigated by the FBI and IRS Criminal Investigation.

Source: https://www.justice.gov/usao-ndga/pr/lohrasb-jeff-jafari-indicted-51-counts-including-bribery-tax-evasion-and-money

See federal indictment here: Jeff Jafari-Indictment-03.06.2019

See September 28, 2017 article about guilty plea by City of Atlanta purchasing chief here: https://gtpac.org/2017/09/28/city-purchasing-head-pleads-guilty-to-conspiracy-charge

$3.6 million settlement resolves procurement fraud investigation involving 8(a) firm

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VMJ Construction, LLC (VMJ) and its owner, Colorado resident Michael T. Vigil, as well as Maryland-based Vigil Contracting, Inc. (Vigil Contracting) and its operations manager, John J. Vigil, have agreed to pay the United States $3.6 million to resolve allegations that they defrauded the Small Business Administration (SBA) 8(a) Business Development Program.

The SBA’s 8(a) Business Development Program for economically and socially disadvantaged small businesses serves dual roles.

  • First, the program helps socially and economically disadvantaged small business owners gain access to valuable federal contracts, thereby promoting economic and social mobility.
  • Second, the program saves taxpayers money by spurring a competitive marketplace.  By promoting the development of small businesses, the 8(a) Program helps prevent the formation of monopolies that would stifle innovation and restrict consumers’ ability to negotiate lower prices.

It is important that the 8(a) Program is reserved only for companies that actually meet the program’s criteria because misuse of the program deprives legitimate 8(a) Program participants of valuable economic opportunities and undermines the integrity of the program.

There are several rules that businesses in the 8(a) program must abide by.

  • The socially and economically disadvantaged owner of the business must manage the day-to-day operations of the company and have responsibility for the long-term decision-making for the company.
  • 8(a) Program applicants must also truthfully disclose any affiliation with other businesses so that SBA may accurately assess whether the applicant meets the definition of a small business, and whether the applicant shows potential for success and the ability to perform the requisite percentage of the contracts secured through the Program.
  • Businesses also cannot remain in the 8(a) Program indefinitely; after nine years, they graduate from the program and are no longer eligible to bid on 8(a) contracts.

VMJ was accepted into the 8(a) Program in 2011.  Michael T. Vigil, who is Hispanic, was the 91% owner of VMJ, and was the socially and economically disadvantaged individual upon which VMJ based its application to the 8(a) program.  John J. Vigil was a 9% owner of VMJ.  John J. Vigil was also the operations manager of Vigil Contracting.  Vigil Contracting is a 2011 graduate of the 8(a) Program.  Since 2011, Vigil Contracting has not been eligible to bid for contracts reserved for 8(a) program participants.

The United States contends that VMJ made false statements to the SBA regarding its eligibility to participate in the 8(a) program.  Specifically, VMJ relied almost exclusively upon Vigil Contracting to bid on and complete the work awarded to VMJ under the 8(a) program.  VMJ used Vigil Contracting’s bonding, office space, employees, contractors, software, computers, and vehicles.  Vigil Contracting employees and contractors, including John J. Vigil, made the high-level business decisions of VMJ and managed the day-to-day operations of VMJ.   Michael T. Vigil did not control VMJ, did not set the long-term policy, nor manage the day-to-day management of the business.  VMJ knowingly misrepresented these facts to SBA, in both VMJ’s initial application to participate in the 8(a) program and in an annual update to SBA.  As a result of the deception, the Army, the Navy, and the Department of Agriculture awarded VMJ several federal government contracts set aside for 8(a) program participants.

“The United States uses these set-aside contracts for a clear reason — to help small businesses owned by economically and socially disadvantaged individuals.  This program continues the promise of the American Dream by helping new small businesses get on their feet, and with more businesses on their feet, our markets are healthier and more competitive,” said U.S. Attorney Jason Dunn. “When companies lie about their eligibility to get these contracts, they prevent other deserving small businesses from getting the assistance that Congress intended.”

Source: https://www.justice.gov/usao-co/pr/36-million-settlement-resolves-procurement-fraud-investigation-against-colorado-and

2 Florida men convicted of selling falsely-labeled body armor

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A federal jury convicted two Florida men on Feb. 7th on charges of conspiracy, making false claims on the United States government, and wire fraud.

According to court records and evidence presented at trial, Dan Thomas Lounsbury, Jr. of South Palm Beach, and Andres Lopez-Munoz are both executives of Tactical Products Group, LLC (TPG), a Florida-based manufacturer and re-seller of various products to military, law enforcement, and private security clients.  Lounsbury is the founder, owner, and CEO of TPG, while Lopez-Munoz is TPG’s vice president for sales and federal contracting. In 2012, TPG was selected as a subcontractor on a contract to provide certain goods, including 10 sets of hard body armor plates, to the United States government.

The Government had requested a specific type of plate, and Lounsbury and Lopez-Munoz both knew that no substitutions were allowed. Furthermore, Lounsbury and Lopez-Munoz both knew that these plates were intended to protect government personnel in the field. Nevertheless, Lounsbury and Lopez-Munoz worked together to procure cheaper substitute plates, none of which were military-tested, and some of which were far outside of their warranty period. To get the United States government to accept and pay for these plates, Lounsbury and Lopez-Munoz had fake labels created and placed on the armor, falsely representing the plates to be the specific type that the government had ordered.

Lounsbury and Lopez-Munoz face a maximum penalty of 20 years in prison when sentenced on May 10, 2019.  Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.

Source: https://www.justice.gov/usao-edva/pr/executives-convicted-selling-falsely-labeled-body-armor-us-government

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