Georgia Tech Procurement Assistance Center

Former company president settles False Claims Act case related to defective bullet proof vests

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Richard C. Davis, the founder and former president and CEO of Michigan-based Second Chance Body Armor, Inc., recently agreed to resolve claims under the False Claims Act in connection with his role in the sale of defective Zylon bullet-proof vests purchased by the United States for federal, state, local and tribal law enforcement agencies, the Justice Department has announced.

Mr. Davis will relinquish his interest in $1.2 million in assets previously frozen by the United States and will pay an additional $125,000 to the United States.  This settlement is based on Mr. Davis’ ability to pay.

Background

Second Chance sold body armor to state, local and tribal law enforcement agencies reimbursed by the Department of Justice’s Bulletproof Vest Partnership (BVP) program and to federal agencies under contracts with the General Services Administration. The United States alleged that Second Chance’s vests were defective due to the loss of their ballistic capability when exposed to heat and humidity. The United States also alleged that by 2001, Davis was aware that Second Chance’s Zylon body armor was degrading at what he described as a “disappointing” rate.

The United States further alleged that, rather than using a $6 million payment from Toyobo Co. Ltd., the manufacturer of Zylon fiber, to fix the degradation problem, Second Chance pocketed the money and Davis and other Second Chance owners began meeting with various investment bankers in an effort to sell Second Chance. These efforts to sell the company allegedly stopped after a Forest Hills, Pennsylvania police officer was shot through his Second Chance Zylon vest in June 2003. Second Chance filed for bankruptcy in 2004 and was liquidated.

Subsequent tests by the National Institute of Justice (NIJ) of Zylon-containing vests found that more than 50 percent of used vests could not stop bullets that they had been certified to stop. The performance of Second Chance Zylon vests were reported to be among the worst.  The NIJ removed all Zylon-containing vests from its list of compliant products, and Zylon is no longer used in ballistic vests.

Settlement

“The Department of Justice will pursue those who attempt to fraudulently profit at the expense of the United States, particularly when the stakes are life or death,” said Acting Associate Attorney General Jesse Panuccio.  “Bullet proof vests protect the brave men and women of our nation’s law enforcement community, and those who manufacture and sell these products have a solemn duty to ensure their safety and efficacy.”

The settlement resolves, in part, allegations filed in a lawsuit by Aaron Westrick, Ph.D., a former employee of Second Chance, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The Act also allows the government to intervene and take over the action, as it did in this case as to the allegations against Davis. Dr. Westrick will receive $28,750 plus a share of whatever the government ultimately recovers from the previously frozen funds.

This settlement is part of a larger investigation of the body armor industry’s use of Zylon.  The United States has previously recovered over $132 million from 18 corporations and individuals who participated in the sale of Zylon body armor. The Civil Division has transferred over $22 million of these recovered funds to the BVP program to replace BVP funds which had been used to purchase Zylon vests. The funds transferred to the BVP program will be used to fund the purchase of additional ballistic-resistant vests for state, local and tribal law enforcement officers. The United States is continuing to pursue claims against Honeywell International Inc., which allegedly sold a laminated version of Zylon for use in police armor.

The investigation and litigation of this matter were handled by the Civil Division’s Commercial Litigation Branch; the General Services Administration, Office of the Inspector General; the Department of Commerce, Office of Inspector General; the Defense Criminal Investigative Service; the U.S. Army Criminal Investigative Command; the Department of the Treasury, Office of Inspector General for Tax Administration; the Air Force Office of Special Investigations; the Department of Energy, Office of the Inspector General; and the Defense Contracting Audit Agency.

The claims settled by this agreement are allegations only, and there has been no determination of liability.  The lawsuit partially resolved by the settlement is captioned United States ex rel. Westrick v. Second Chance Body Armor, et al., No. 04-0280 (PLF) (D.D.C.).

Source: https://www.justice.gov/opa/pr/former-second-chance-body-armor-president-settles-false-claims-act-case-related-defective

U.S. Attorney for Southern District of GA announces results of recent procurement fraud prosecutions

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As part of a new emphasis on procurement fraud enforcement within the Southern District of Georgia, the U.S. Attorney’s Office for the Southern District of Georgia has announced the results of a series of recent procurement fraud prosecutions.

Over the past several months, the strike force’s efforts resulted in five guilty pleas and twelve civil settlements, including the following publically available actions:

  1. United States of America v. Dwayne Fulton (1:17-CR-35)
  2. United States of America v. Calvin Lawyer (1:17-CR-35)
  3. United States of America v. Anthony Roper (1:17-CR-35)
  4. United States of America v. Audra Roper (1:17-CR-35)
  5. United States ex rel. Major Contracting Services, Inc. v. Military Training Solutions, LLC and ADCO Holdings, Inc., et al. (4:16-cv-115)
  6. United States of America v. Robert Obradovich (4:18-CR-47)

These prosecutions and civil settlements with the named individuals and entities, as well as others, stemmed from a wide variety of fraudulent conduct, including bribery of public officials, illegal kickbacks, illegal arrangements between large contracting companies and certified small or 8(a) businesses acting as “front” companies, and billing for services not rendered.  Each of the individuals who has pled guilty awaits sentencing.  The total financial recovery for the United States thus far has exceeded $7.4 million.  Several of these investigations remain ongoing.

“The Southern District of Georgia is the proud home of several major military installations that serve a vital role both in our national defense and the district’s local economy,” said United States Attorney Bobby L. Christine.  “Those who do business with these installations should be on notice – ripping off the United States will not be tolerated! This office will bring to bear the full weight of our resources to hold fraudsters accountable.”

The joint strike force that led to these convictions and settlements involved agents, investigators, and auditors from the Department of Justice, Defense Criminal Investigative Service, Army Criminal Investigation Command (Major Procurement Fraud Unit), Naval Criminal Investigative Service, the Small Business Administration Office of Inspector General.  Significant and critical assistance was also provided by civilian and military personnel from the Army, Navy, and Air Force stationed at affected military installations.

“The American public expects the Department of Defense (DoD) to spend limited taxpayer funds efficiently and economically.  Bribery and other corrupt behavior by public officials and defense contractors diverts and wastes precious dollars intended to provide critical products and services for our Warfighters.  These results demonstrate the effectiveness of investigative efforts by the Defense Criminal Investigative Service to protect the integrity of all DoD programs,” said Special Agent in Charge John F. Khin, Southeast Field Office.

“These settlements stand as proof of the tenacity of our special agents,” said Frank Robey, director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit. “It is important for those who conspired to profit from illegal payments take responsibility for their actions. The settlements hold the defendants accountable and send a message to others that these violations will be taken seriously.”

“Our partnership with the joint procurement fraud strike force ensures fair and open competition for U.S. Government contracts which support the training and readiness of Marine Corps personnel,” said H. Andrew Goodridge, Special Agent in Charge, NCIS Carolinas Field Office.

“SBA OIG will aggressively investigate allegations of fraud involving SBA’s preferential contracting programs, to include false statements made to gain access to contracting opportunities set aside for small businesses,” said SBA OIG Eastern Region Special Agent-in-Charge Kevin Kupperbusch.  “SBA’s preferential contracting programs are intended to promote the economy and grow and develop small businesses across the nation.  I want to thank the U.S Attorney’s Office and our law enforcement partners for their dedication and hard work throughout these investigations.”

SBA’s General Counsel, Christopher Pilkerton said, “These successful prosecutions demonstrate the tremendous results achieved through the combined efforts of federal agencies to uncover and forcefully respond to procurement fraud.  SBA is strongly committed to identifying and aggressively pursuing instances of fraud perpetrated by those participating in SBA’s procurement programs.”

The United States was represented by Assistant United States Attorneys Brian T. Rafferty, Shannon H. Statkus, J. Thomas Clarkson, Matthew A. Josephson, and Jonathan A. Porter.  Any claims resolved by the civil settlement agreements are allegations only and there has been no determination of liability.

Each of the civil settlements resolved potential liability under the False Claims Act.  Under the False Claims Act, whistleblowers can be entitled to a portion of the amount recovered by the United States.  The United States Attorney’s Office also reminds contractors that businesses and individuals that self-disclose potential violations can be eligible for significantly reduced penalties.

If you have any information regarding potential procurement fraud, please contact Assistant United States Attorney J. Thomas Clarkson at (912) 201-2601.

Source: https://www.justice.gov/usao-sdga/pr/southern-district-georgia-announces-results-recent-criminal-and-civil-procurement-fraud

Japanese manufacturer to pay $66 million settlement for supplying defective bullet proof vests

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Toyobo Co. Ltd. of Japan and its American subsidiary, Toyobo U.S.A. Inc., f/k/a Toyobo America Inc. (collectively, Toyobo), have agreed to pay $66 million to resolve claims under the False Claims Act that they sold defective Zylon fiber used in bullet proof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies, the Justice Department has announced.

The settlement resolves allegations that between at least 2001 and 2005, Toyobo, the sole manufacturer of Zylon fiber, knew that Zylon degraded quickly in normal heat and humidity, and that this degradation rendered bullet proof vests containing Zylon unfit for use.  It was further alleged that Toyobo nonetheless actively marketed Zylon fiber for bullet proof vests, published misleading degradation data that understated the degradation problem, and when Second Chance Body Armor recalled some of its Zylon-containing vests in late 2003, started a public relations campaign designed to influence other body armor manufacturers to keep selling Zylon-containing vests.

According to the government, Toyobo’s actions delayed by several years efforts to determine the true extent of Zylon degradation.  Finally, in August 2005, the National Institute of Justice (NIJ) completed a study of Zylon-containing vests and found that more than 50 percent of used vests could not stop bullets that they had been certified to stop.  Thereafter, the NIJ decertified all Zylon-containing vests.

This settlement is part of a larger investigation undertaken by the Justice Department’s Civil Division of the body armor industry’s use of Zylon in body armor.  The Civil Division previously recovered more than $66 million from 16 entities involved in the manufacture, distribution or sale of Zylon vests, including body armor manufacturers, weavers, international trading companies, and five individuals.  The settlement announced on March 15th brings the Division’s overall recoveries to over $132 million.  The United States still has lawsuits pending against Richard Davis, the former chief executive of Second Chance, and Honeywell International Inc.

The latest settlement resolves allegations filed in two lawsuits, one brought by the United States and the other filed by Aaron Westrick, Ph.D., a law enforcement officer formerly employed by Second Chance who is now a Criminal Justice professor at Lake Superior University.  Dr. Westrick’s lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The Act also allows the government to intervene and take over the action, as it did in 2005 in Dr. Westrick’s case.  Dr. Westrick will receive $5,775,000.

This case was handled by the Justice Department’s Civil Division, along with the General Services Administration, Office of the Inspector General; the Department of Commerce, Office of Inspector General; the Defense Criminal Investigative Service; the U.S. Army Criminal Investigative Command; the Department of the Treasury, Office of Inspector General for Tax Administration; the Air Force Office of Special Investigations; the Department of Energy, Office of the Inspector General; and the Defense Contracting Audit Agency.

The claims settled by this agreement are allegations only; there has been no determination of liability.  The lawsuits resolved by the settlement are captioned United States ex rel. Westrick v. Second Chance Body Armor, et al., No. 04-0280 (PLF) (D.D.C.) and United States v. Toyobo Co. Ltd., et al., No. 07-1144 (PLF) (D.D.C.).

Source: https://www.justice.gov/opa/pr/japanese-fiber-manufacturer-pay-66-million-alleged-false-claims-related-defective-bullet

 

CEO gets 5+ years and must pay $2 million restitution for selling inadequately armored trucks to DoD

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The owner and chief executive officer of an armored vehicle company was sentenced Feb. 20, 2018 to 70 months in prison for his role in orchestrating a scheme to defraud the United States by providing the U.S. Department of Defense (DoD) with armored gun trucks that did not meet ballistic and blast protection requirements set out in the company’s contracts with DoD.

William Whyte, 72, of King City, Ontario, the owner and CEO of Armet Armored Vehicles of Danville, Virginia, was  also ordered to serve three years of supervised release following his prison sentence and to pay restitution in the amount of $2,019,454.36.

On Oct. 9, 2017, after a two-week trial, Whyte was found guilty of three counts of major fraud against the United States, three counts of wire fraud and three counts of criminal false claims.  Whyte was charged by an indictment in July 2012.

Evidence at trial demonstrated that Whyte executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored.  Armet contracted to provide armored gun trucks for use by the United States and its allies as part of the efforts to rebuild Iraq in 2005.  Despite providing armored gun trucks that did not meet contractual specifications, Whyte and his employees represented that the armored gun trucks were adequately armored in accordance with the contract, the evidence showed.  Armet was paid over $2 million over the course of the scheme, the evidence showed.

Source: https://www.justice.gov/opa/pr/chief-executive-officer-armored-vehicle-company-sentenced-more-five-years-prison-role-scheme

Contractor agrees to pay half-million dollars to settle False Claims Act allegations relating to unallowable costs on Army contract

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Integral Consulting Services, Inc. has agreed to pay the United States $505,838 to settle False Claims Act allegations that it submitted false claims to the government by inflating certain indirect cost rates in connection with work performed on a Department of the Army contract.

Integral Consulting Services, Inc. (ICS) is a Maryland-based company that provides IT solutions to federal government agencies and commercial organizations.  The services ICS provides range from biometric technologies to enterprise IT management and development of software applications.  In 2012, ICS was awarded an Army contract, W911W5-12-D-0002, under which it was required to provide the Army’s National Ground Intelligence Center’s Biometric Intelligence Program with identity intelligence analysis support.

The civil settlement agreement resolves allegations that from on or about May 1, 2012 through June 27, 2014, ICS took costs and expenses it and its employees incurred in connection with litigation arising out of a teaming agreement with another contracting company and included the costs and expenses in the General and Administration (G&A) indirect cost pool that was spread amongst ICS’s various government contracts, including Army Contract Number W911W5-12-D-0002, and submitted to the United States government.  The inclusion of such costs had the effect of inflating the claims paid by the Army to ICS.

The civil settlement resolves United States ex rel. Amit Dalal v. Integral Consulting Services, Inc., Civ. No. GJH-14-2529 (D. Md.), a lawsuit filed by a relator under the whistleblower provision of the False Claims Act.  The Act permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the recovery by the United States. As part of the civil resolution, the relator will receive approximately $92,315.

Source: https://www.justice.gov/usao-md/pr/defense-contractor-agrees-pay-over-half-million-dollars-settle-false-claims-act

 

“Reverse” False Claims Act liability extended to bonding companies

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On Monday, the U.S. District Court for the District of Columbia ruled that bonding companies can be held liable for treble damages under the False Claims Act for issuing surety bonds to construction companies that falsely claim to be a Service-Disabled Veteran-Owned Small Business (SDVOSB).

In a novel reverse False Claims Act case, whistleblower Andrew Scollick alleged that the bonding companies “knew or should have known” the construction companies were shell companies acting as a front for larger non-veteran owned entities violating the government’s contracting requirements.

A reverse false claim action can occur when defendants knowingly make a false statement in order to avoid having to pay the government when payment is otherwise due in violation of 31 U.S.C. § 3729(a)(1)(G) (reverse false claims).  See United States ex. rel. Scollick v. Narula, Case No: 14-cv-01339-RCL (District Court, District of Columbia. July 31, 2017).

Under the Miller Act, government construction contractors must post bid bonds, performance bonds, and payment bonds that guarantee that the contractor will perform the work according to the terms of the contract. In this case, the contract terms required that the construction be performed by a SDVOSB entity.  Michael Kohn, of Kohn, Kohn & Colapinto, who represents the whistleblower, argued that given their role in providing a surety bond to the contractor the bonding companies would know whether the invoicing being billed against the contract is being performed by a SDVOSB.  The district court agreed and found that a “reverse false claims” violation occurred because the bonding company knew or should have known that the construction organization was not a SDVOSB and the act of issuing surety bonds furthered the fraud.  As a result, the bonding companies were held legally obligated to return to the government funds the bonding company knew to be paid to contractor firms fraudulently posing as SDVOSBs. Being held liable under the False Claims Act means that treble damages will be awarded for every dollar up to the amount of the bond that the government paid out under each contract.

Because of the substantial dollar amounts involved, it is not all that uncommon for contractors to falsify service-disabled veteran status. Holding bonding companies liable when they have reason to know of the fraud could have an immense impact on stamping out such contract fraud. “Holding bonding companies liable for treble damages in these types of case will have a huge impact on preventing fraud in government contracts and will help ensure these contracts go to disabled veteran-owned companies as intended,” said Kohn.

The Scollick case alleges that two of the largest surety bonding companies, Hanover Insurance Company and Hudson Insurance Company, knowingly bonded dozens of Veteran Administration construction contracts totaling more than $12.5 million with the knowledge that the bonded contractors did not qualify as service-disabled, veteran-owned small businesses.

 

Source: http://www.webwire.com/ViewPressRel.asp?aId=211708

Government may disqualify contractors who use standard confidentiality language with employees and subcontractors

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Under a new FAR rule, standard language in confidentiality agreements could lead to disqualification from contracting or False Claims Act liability.

In January, the FAR Council issued a final rule regulating confidentiality agreements between prime contractors and their employees and subcontractors. The rule implements Section 743 of the Consolidated and Further Continuing Appropriations Act of 2015, Pub. L. 113-235 (Dec. 6, 2014).  As we previously reported, a proposed rule was issued in January of 2016 and a class deviation was issued by the Department of Defense late last year.  The final rule largely adopts the proposed rule’s language and applies to all solicitations and resultant contracts that are funded with fiscal year (FY) 2015 funds.  Contractor Employee Internal Confidentiality Agreements or Statements, 82 Fed. Reg. 4717 (Jan. 13, 2017).

In summary, the new FAR 52.203-19 bars contractors from requiring their employees or subcontractors to sign or comply with “internal confidentiality agreements or statements” that would prohibit them from reporting “waste, fraud, or abuse” on a federal contract.  FAR 52.203-19(b).  Contractors who disregard this rule are prohibited from receiving federal funds.  FAR 3.909-1(a).

Because of the broad reach and significant consequences of non-compliance, the contracting community should take notice of this new rule’s requirements.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2017/04/new-far-rule-government-may-disqualify-contractors-use-standard-confidentiality-language-employees-subcontractors/

Oracle to leave GSA schedule: A signal of broader change?

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GSA logoOracle is leaving the General Services Administration’s schedules program. It’s not going to just stop selling directly through the IT schedule, but the software giant will no longer use third-party resellers either, according to multiple sources.

Let that sink in for a second. One of the largest software vendors in the world is telling GSA, thanks, but we can live without you.

Sources said Oracle decided the GSA schedules just weren’t worth the hassle any longer — the compliance requirements, the potential and real threats of False Claims Act lawsuits and the new Transactional Data Reporting (TDR) rule, all played into this decision.

“The federal market is a very small chunk of their business and while it seems big for us, when you look at someone like Oracle’s overall business, they have to expend an exorbitant amount of resources for little payoff,” said Jennifer Aubel, a principal with Aronson Consulting, who said she wasn’t familiar with Oracle’s decision. “With the TDR and even with not having to do price reduction clause reporting, a company like Oracle would still have to do monthly reporting and there is a lot of concerns, including how GSA will keep the data secure.”

Keep reading this article at: http://federalnewsradio.com/reporters-notebook-jason-miller/2016/09/oracle-leave-gsa-schedule-signal-broader-change/

Court enforces “presumed loss” rule in 8(a) fraud case

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Presumed LossIn a Memorandum Opinion issued on June 17, 2016, the U.S. District Court for the District of Columbia applied the so-called “presumed loss” rule to assess the full contract value as the measure of the government’s loss for purposes of sentencing an individual convicted of misusing the SBA’s 8(a) program to win set-aside contracts.  (See United States v. Singh, Criminal Action No. 15-173 (RBW) (D.D.C. Jun 17, 2016).

This appears to be the first published court decision enforcing the controversial rule since its passage by Congress as part of the Small Business Jobs Act of 2010.

As brief background, prior to the 2010 Jobs Act, the Government had difficulty proving damages under the False Claims Act where a contractor misrepresented its size or socio-economic status to win set-aside government contracts. Practically speaking, the Government rarely suffers any actual economic harm in such cases. The fact that an ineligible firm improperly receives a contract set aside for small businesses may violate public policy, but it rarely increases the price of the contract.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=514216 

Companies to pay $5.8 million for misrepresenting small business status and failure to pay GSA fees

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Justice Dept. seal - CopyThe U.S. Department of Justice (DOJ) has announced that a group of California-based companies — En Pointe Gov., Inc., En Pointe Technologies, Inc., En Pointe Technologies Sales, Inc., Dominguez East Holdings, LLC and Din Global Corporation — have resolved allegations of violations of the False Claims Act by agreeing to pay the government $5.8 million.

The government alleged that En Pointe Gov., Inc. falsely certified that it was a small business in order to obtain contracts set aside for small businesses.  The government also found that the company under-reported sales under a General Services Administration (GSA) contract in order to avoid the payment of fees.

En Pointe Gov., Inc. is now known as Modern Gov IT, Inc.; En Pointe Technologies Sales, Inc. is now known as Collab9, Inc.; and En Pointe Technologies, Inc. is now known as Dinco, Inc.

“These companies defrauded the government in two ways, each of which cost taxpayers,” said U.S. Attorney Eileen M. Decker for DOJ’s Central District of California. “Small businesses, in some cases, are eligible to receive a preference when government contracts are issued. Large companies that fraudulently solicit and obtain contracts under small business set-aside programs, like the companies in this case, not only abuse the system but also harm legitimate small businesses by taking those contracts away from them.”

In this case, the government alleged that, between 2011 and 2014, the defendants were liable for false representations that En Pointe Gov., Inc. met Small Business Administration (SBA) requirements to obtain work that was only available to small businesses.  In particular, the government alleged that En Pointe Gov, Inc.’s affiliation with the other defendants rendered it a non-small business and, thus, ineligible for the small business set-aside contracts it obtained.

The government also alleged that defendants caused En Pointe Gov., Inc. to file false quarterly reports with the GSA between 2008 and 2015, under-reporting sales made under a GSA schedule contract that allowed other federal agencies to purchase from En Pointe.  Under the terms of the contract, En Pointe was supposed to return to GSA a percentage of its sales receipts.  This is known as an Industrial Funding Fee.

The settlement resolve allegations filed in a lawsuit by Minburn Technology Group, LLC (Minburn), a Virginia company that sells information technology products and services, and Anthony Colangelo, Minburn’s managing member.  The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The Act also allows the government to intervene and take over the action, as it did in this case.  Minburn and Mr. Colangelo will receive approximately $1.4 million.

Source: https://www.justice.gov/opa/pr/information-technology-companies-pay-58-million-misrepresentations-relating-small-business

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