Georgia Tech Procurement Assistance Center

False Claims Act: The risks to small business government contractors

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“False Claims Act: The Risks to Small Business Government Contractors” is the fifth episode of “Ex Rel. Radio,” a multi-part series on the False Claims Act, which includes commentary on potential pitfalls for government contractors who may face enforcement issues in light of emerging trends.

In this episode, Firm Counsel Michelle Litteken joins our host, Jon Williams, to discuss how the False Claims Act relates to small business programs, potential risks these companies face, and strategies for avoiding a potentially costly FCA claim.

Listen to the podcast at:  JD Supra

Four issues that defined the False Claims Act in 2019

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As I wrote two weeks ago, the Department of Justice (DOJ) recently released its annual fiscal year statistics on False Claims Act (FCA) and fraud matters.  The report shows Fiscal Year 2019 was another big year for the FCA, as the number of new matters initiated and the amount of monetary recoveries obtained both increased over the previous year.  2019 also brought important FCA decisions from federal courts, including the Supreme Court; potential new avenues for FCA liability; and formal announcements from DOJ.  These reveal emerging trends that may have lasting implications for government contractors.

Continue reading at:  Piliero Mazza

 

Deputy Associate Attorney General sheds light on DOJ’s FCA priorities at annual False Claims Act conference

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“Enforcing the False Claims Act is a top priority for the Department—not just for our office,” said Deputy Associate Attorney General Stephen Cox, the Keynote Speaker for the 2020 Advanced Forum on False Claims and Qui Tam Enforcement, hosted by the American Conference Institute.  Deputy Cox reflected on FCA recoveries in 2019 and previewed DOJ’s FCA priorities for 2020.  Specifically, his keynote address on Monday, January 27 focused on: (1) enforcement; (2) cooperation credit; and (3) third-party financing.

Continue reading at:  Arent Fox

Recent cases indicate viability of False Claims Act liability connected to federal cybersecurity standards

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Government contractors are no strangers to the numerous quality standards and assurances required by the government.  Over the past several years, cybersecurity in federal contracting has emerged as yet another standard to achieve.  While data breaches are big news in the private sector, the issue remained somewhat under the radar for public contracts — until now.

Last summer, two significant whistleblower cases sent ripples through the False Claims Act (FCA) community by demonstrating the specter of FCA liability resulting from the failure to comply with cybersecurity requirements in government contracts.  In May, the U.S. District Court for the Eastern District of California refused to dismiss a case alleging that Aerojet Rocketdyne Holdings Inc. falsely asserted its compliance with the Department of Defense’s (DOD) cybersecurity standards.  Then, in late July, the government announced that Cisco Systems Inc. agreed to pay $8.6 million to settle a whistleblower suit alleging that the company fell short of federal cybersecurity standards by selling video surveillance products with known vulnerabilities that hackers could exploit.  These cases show that cybersecurity-based FCA claims may be the new frontier and that such claims may prove difficult to defeat depending on the facts in any given case.

Continue reading at:  Carlton Fields

Justice Department recovers over $3 billion from False Claims Act cases in FY 2019

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The Department of Justice obtained more than $3 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2019, Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division announced today.  Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $62 billion.

“The significant number of settlements and judgments obtained over the past year demonstrate the high priority this administration places on deterring fraud against the government and ensuring that citizens’ tax dollars are well spent,” said Assistant Attorney General Hunt.  “The continued success of the department’s False Claims Act enforcement efforts are a testament to the tireless efforts of the civil servants who investigate, litigate, and try these important cases as well as to the fortitude of whistleblowers who report fraud.”

Continue reading at:  U.S. Department of Justice website

Are more FCA cases against small businesses on the horizon?

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On August 20, 2019, the U.S. Department of Justice announced that it had reached a $20 million settlement with Luke Hillier (Hillier), the majority owner and former CEO of a Virginia-based defense contractor, ADS, Inc. (ADS), to resolve “allegations that he violated the False Claims Act (FCA) by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive . . . .”  The resolution of the claims against Hillier follows ADS’s payment of a separate $16 million settlement on related claims, as well as an additional $225,000 paid by Charles Salle, the former general counsel of ADS, to resolve claims arising from his role in the alleged scheme.  Combined, the $36 million total settlement is believed to be the largest FCA recovery in history based on allegations of small business contracting fraud.  Given the size of the collective settlement and the nature of the allegations against Hillier and ADS, small businesses everywhere—particularly government contractors—should anticipate a potential increase in the frequency of small business fraud-related FCA cases.

The case from which these settlements arose was originally filed in November 2013 and alleged that ADS caused its affiliates to falsely represent themselves as, among other things, Service-Disabled Veteran-Owned Small Businesses (SDVOSBs).  It further alleged that these false representations allowed ADS, through its affiliates, to compete improperly for set-aside opportunities that were intended to be available only to SDVOSBs and for which ADS was not eligible.  As a result of this improper access, ADS profited at the expense of both the government and eligible SDVOSBs.  The claims against ADS were settled in August 2017; however, the claims against Hillier remained outstanding until last month.

Continue reading at: Piliero Mazza

Government contractor pleads guilty to fraud for paying drivers as independent contractors

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Paying workers as independent contractors instead of as employees may land a former executive in jail for criminal wire fraud.  On June 12, 2019, the former operations manager and vice president of a Florida-based mail transportation contractor pled guilty to two counts of wire fraud related to such treatment.  The Government’s case was based on pricing estimates for employee-related costs that the contractor later did not incur because it instead used independent contractors.

In the June 1, 2018 indictment of Alexei Rivero, the Government contended that Rivero purposely misclassified the drivers it hired as independent contractors.  According to the indictment, this allowed the contractor to “misappropriate” $1.5 million in USPS contract payments “designated” for fringe benefits and $1.2 million designated for payroll taxes.

Continue reading at:  Husch Blackwell’s The Contractor’s Perspective

Government settles alleged False Claims Act violations against Statesboro business

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The Sesolinc Group has agreed pay up to $2.4 million to settle allegations that they supplied defective products and submitted false claims to the Army, Department of Veterans Affairs and General Services Administration.

Based on the allegations of the unsealed complaint, Sesolinc is alleged to have violated the False Claims Act when it sold products to the United States that were not in compliance with required electrical and structural standards, said Bobby L. Christine, U.S. Attorney for the Southern District of Georgia.  After concerns were raised internally, Sesolinc, which manufactures its products in Statesboro, is alleged to have continued to deliver defective products to government customers.  As part of the settlement, Sesolinc has agreed to repair goods previously supplied to the United States and pay an additional penalty.

“If a contractor represents to the United States that it will provide products consistent with basic requirements of the government customers, this office will hold them to those promises,” said Christine.  “We will continue to vigorously pursue any contractors who try to cut corners at the taxpayers’ expense.”

“This settlement sends a clear message that defective products sold to our military will not be tolerated,” said Special Agent in Charge Cynthia A. Bruce, Defense Criminal Investigative Service (DCIS), Southeast Field Office.

Continue reading at:  Savannah Now

False Claims Act case based on DoD’s cybersecurity regulations survives motion to dismiss

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In the summer of 2015, we cautioned that the Department of Defense’s (DoD’s) new cybersecurity regulations could be used offensively to support False Claims Act (FCA) cases and bid protests.  Four years later, those premonitions have unfortunately come true.  Recently, a federal court refused to dismiss a relator’s implied certification FCA case in which he alleged that his employer “misrepresented … to the government the extent to which it had equipment required by the regulations, instituted required security controls, and possessed necessary firewalls” in violation of DoD’s cybersecurity regulations.  United States ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-2245, 2019 WL 2024595, *3 (E.D. Cal. May 8, 2019).

By way of background, the False Claims Act imposes civil and potentially criminal liability on anyone who knowingly presents a false or fraudulent claim for payment to the federal Government, or knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim.  31 U.S.C. § 3729(a)(1)(A) & (B).  The FCA permits a private person, known as a relator, to bring a qui tam civil lawsuit in the name of Government against anyone who violates the Act.  Civil remedies can include up to three times the actual damages suffered by the Government as a result of the false claim along with a civil penalty between $5,000 and $10,000 for each violation.  The relator receives a share of any proceeds from the action—generally 15 to 25 percent if the Government intervenes, and 25 to 30 percent if it does not, plus attorneys’ fees and costs.  The FCA also has a lengthy statute of limitations of either six years from when the fraud is committed or three years after the Government knows or should know about the material facts giving rise to the claim, whichever is later, as long as the action is filed within ten years of the alleged fraud.  31 U.S.C. § 3731(b); Cochise Consultancy, Inc. v. United States ex rel. Hunt, 587 U.S. __ (May 13, 2019) (noting “if the Government discovers the fraud on the day it occurred, it would have 6 years to bring suit, but if a relator instead discovers the fraud on the day it occurred and the Government does not discover it, the relator could have as many as 10 years to bring suit”).

Read more at:  Privacy and Data Security Insight

Defense contracting fraud remains ongoing issue

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In April Oben Cabalceta pleaded guilty to defrauding the U.S. Department of Defense (DoD) out of $1.8 million by providing the wrong or incorrect military equipment parts.  The New Jersey resident also admitted to illegally accessing sensitive, technical information despite not even being an American citizen.

Cabalceta, who is a native and citizen of the Republic of Costa Rica and was not lawfully in the United States, pleaded guilty to one count of wire fraud and one count of conspiracy for violating the Arms Control Act.

Continue reading at:  Clearance Jobs

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