Georgia Tech Procurement Assistance Center

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.

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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

Renewed focus on contractor business system reviews

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According to a recent U.S. Government Accountability Office (GAO) report, the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA) have taken certain steps to improve the contractor business system (CBS) review process and are forecasting that CBS reviews will increase significantly over the next four years. Contractor business systems include a contractor’s accounting, earned value management, estimating, purchasing, material management, and property management systems.

These systems require contractors to maintain internal controls that, as GAO noted, “act as the first line of defense against fraud, waste and abuse of federal funding.” Given their importance, the renewed focus on ensuring CBS reviews are conducted in a timely and consistent manner is not surprising, and contractors should prepare for a new wave of audit activity.

Past Challenges to Completing CBS Reviews

In its report, GAO identified persistent challenges that have prevented DCAA and DCMA from performing consistent and timely CBS reviews. One key factor for DCAA is its focus on eliminating the backlog of incurred cost audits, which determine whether contractor costs are allowable prior to closing out the contract. GAO found that as a result of prioritizing incurred cost audits, Contracting Officers maintained CBS determinations as adequate even though the systems had not been audited in many years. GAO further found that lacking a mechanism to track CBS audits, DCMA and DCAA did not always comply with requirements to report CBS deficiencies or did not report the deficiencies within required timeframes.

Keep reading this article at: https://governmentcontractsnavigator.com/2019/03/21/renewed-focus-on-contractor-business-system-reviews/

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

Bribery, fraud indictment issued for $15 million in set-asides for disabled-veteran and other small businesses

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Five men have been charged in a 71-count indictment with engaging in conspiracies to defraud several federal agencies by paying bribes and fraudulently obtaining at least $15 million in government contracts they were not entitled to though disabled-veteran set asides and other small business programs.

Indicted are: James A. Clark of Chipley, Florida, who owned several businesses, including Enola Contracting Services, Inc.; Eric L. Hogan of Bonaire, Georgia, who owned P&E Construction, LLC; Kenneth A. Latham of Albany, Georgia, who was employed by the U.S. Navy as a civilian engineering technician; James K. Alford, 55, of Bowling Green, Kentucky, who owned K&S Constructors, Inc., and Harvey Daniels, Jr. of Marianna, Florida, who owned HDJ Security, Inc.

The charges include conspiracy to commit honest services wire fraud, conspiracy to commit wire fraud, wire fraud, conspiracy to submit false claims, false claims and major fraud.

Construction projects detailed in the indictment include contracts at the Marine Corps Logistics Base in Albany, Georgia, the VA Medical Center in Louisville, Kentucky, and the NASA Plum Brook Station near Sandusky, Ohio.

According to the indictment:

  • Federal departments and agencies, as directed by Congress, work with the Small Business Administration to award portions of contracts to small businesses, with specific goals for small disadvantaged business, including service-disabled veteran-owned small businesses.
  • Businesses must register and meet a number of criteria to be classified as small disadvantaged business – also known as the 8(a) program – such as being at least 51 percent owned and controlled by socially and economically disadvantaged individuals. Businesses must also meet a number of criteria to be classified as a service-disabled veteran-owned small business, such as being at least 51 percent owned by a veteran with a service-connected disability who controls the management and daily operations of the company. Service-disabled veteran-owned small businesses are permitted to enter into joint ventures with other companies but must meet specific requirements to do so.
  • The defendants and others engaged in several criminal schemes designed to deprive the government of its right to honest services of its employees through bribes and kickbacks, and to submit false claims and defraud the United States by obtaining government contracts set aside for qualified companies to which they were otherwise ineligible to obtain by fraudulently using proxy and pass-through companies.
  • P&E, through Hogan and Clark, made false statements, misrepresentations and omissions of facts. Hogan on several occasions certified P&E was a service-disabled veteran-owned small business. It also registered as a joint venture with Enola, with Hogan listed as president and Clark as vice president of the joint venture. HDJ Security was enrolled in the 8(a) program. Daniels self-identified as the president of HDJ, the sole owner of the company and to be socially disadvantaged.

In one scheme, Latham accepted a series of bribes and kickbacks from Hogan and Clark – including cash, meals, a hunting trip,  a fence, and an all-terrain vehicle – in return for Latham using his official position with the Navy to benefit Hogan, Clark and their businesses. These benefits included assistance in finding and securing government contracts, approval of invoices for payments to pass-through companies used by Hogan and Clark to obtain set-aside contracts for which their companies were not otherwise eligible, and concealing Clark and Hogan’s use of pass-through companies to obtain bonding.

Another scheme involved defrauding the VA and the TK by fraudulently representing that P&E and Hogan independently qualified for the service-disabled veteran-owned small business program despite Clark’s involvement in providing bonding for and equity ownership in P&E.

Clark, Hogan, Alford, Daniels and others defrauded the government by using purported service-disabled veteran-owned small businesses and 8(a) businesses as proxies to bid on and obtain set-aside contracts.

Arrow Construction, which was registered in the 8(a) program, was awarded a $2.8 million contract for work at the Marine Corps Logistics Base in Albany, Georgia, in September 2011. Clark and Arrow officials Kent Reynolds and Jennifer Dillard agreed that about 90 percent of the value of the contract was passed through to Clark and Enola, in violation of the 8(a) program.

HDJ was awarded a contract for work at the Marine Corps Logistics Base in Albany, Georgia, in September 2012. HDJ was paid approximately $2.6 million. Clark, Hogan and Daniels agreed to pass through approximately 95 percent of the value of the contract to Clark, Hogan, Enola and P&E, in violation of the terms of the 8(a) program.

The VA in June 2011 awarded a contract to P&E Construction for work at the VA Medical Center in Louisville, Kentucky. The VA paid P&E approximately $4.5 million that the company would not have received if the VA knew P&E was acting as a pass-through for K&S and that it was back-bonded by Clark and Enola.

P&E submitted a winning bid in February 2013 for a contract for construction services at the NASA Plum Brook Station near Sandusky, Ohio. NASA paid P&E approximately $5.6 million that the company would not have received if NASA knew it was acting as a pass-through for K&S and that P&E was back-bonded by Clark and Enola.

If convicted, the defendants’ sentences will be determined by the Court after review of factors unique to this case, including the defendant’s prior criminal record, if any, the defendant’s role in the offense and the characteristics of the violation.  In all cases the sentence will not exceed the statutory maximum and in most cases it will be less than the maximum.

This case was investigated by National Aeronautics and Space Administration’s Office of Inspector General, the Defense Criminal Investigative Service, Naval Criminal Investigative Service, Department of Veterans Affairs’ Office of Inspector General, Small Business Administration’s Office of Inspector General, the Defense Contract Audit Agency, and the Air Force Office of Special Investigations.

Readers are reminded that an indictment is only a charge and is not evidence of guilt.  A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

$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

Former Army colonel, wife sentenced to prison for roles in Fort Gordon fraud, kickback scheme

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A former active-duty U.S. Army colonel and his wife were sentenced to federal prison and fined more than $200,000 Feb. 5th for their roles in steering government contracts to co-conspirators in return for cash.

Anthony Roper of Augusta, Georgia pled guilty to Procurement Integrity Fraud and was sentenced to 60 months in prison and fined $200,000. He also will be subject to three years of supervised release after his sentence is completed.  There is no parole in the federal prison system. Roper’s wife, Audra Roper, pled guilty to Accessory After the Fact and was sentenced to 28 days in prison, fined $10,000, and placed on five years of probation.

According to evidence presented during guilty pleas and sentencing hearings, Anthony Roper, then in active-duty status at Fort Gordon, accepted bribes from Calvin Devear Lawyer, a retired U.S. Army colonel, to steer Army contracts worth more than $20 million to Lawyer’s company, the CREC group. Based on false representations from Lawyer and Dwayne Oswald Fulton, then an employee of a defense contractor, CREC group had been awarded Small Business Administration (SBA) status as a small, disadvantaged business, and the company used that status to gain competitive advantage in contracting.

The conspiracy also included the creation of fraudulent documents in an attempt to cover up bribes to Anthony Roper after law enforcement agencies discovered the scheme. Lawyer previously pled guilty in the case and was sentenced to 60 months in prison. As part of his sentence, Lawyer also paid a $3 million personal money judgment and a $2 million civil penalty.

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.

“Taxpayers deserve above-board behavior from those who do business with the federal government, especially with the military,’” said Southern District of Georgia U.S. Attorney Bobby L. Christine. “It is particularly disappointing when members of the armed forces violate their oaths of office to steal from the public, and our office will prosecute those crimes vigorously.”

Source: https://www.justice.gov/usao-sdga/pr/former-army-colonel-wife-sentenced-prison-roles-fort-gordon-fraud-kickback-scheme

Partner of military contractor sentenced to prison for bribery scheme related to contracts in support of Iraq war

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A former business partner of a U.S. military contractor was sentenced last week to 18 months in prison for his role in a years-long scheme to bribe U.S. Army contracting officials stationed at a U.S. military base in Kuwait during the Iraq War.

Finbar Charles, a citizen of Saint Lucia most recently residing in Baguio City, Philippines, was sentenced by Chief U.S. District Judge Karon O. Bowdre of the Northern District of Alabama.  Chief Judge Bowdre also ordered Charles to forfeit $228,558 in illicit gains.  Charles pleaded guilty in July 2018 to one count of bribery of a federal official.

According to admissions made in connection with his guilty plea, Charles was a business partner of a former U.S. military contractor, Terry Hall.  As Hall’s business partner, Charles admitted that he facilitated Hall and others in providing millions of dollars in bribes in approximately 2005 to 2007 to various U.S. Army officials in exchange for preferential treatment for Hall’s companies in connection with Department of Defense (DoD) contracts to deliver bottled water and construct security fencing to support U.S. troops stationed in Kuwait and Iraq.

As part of his role in this criminal conspiracy, Charles admitted that he managed bank accounts in Kuwait and the Philippines that he used to receive DoD payments and transfer illegal bribes to various U.S. Army contracting officials, including Majors Eddie Pressley, James Momon, and Chris Murray.  All of those individuals, as well as at least 10 other co-conspirators, have pleaded guilty or been convicted of crimes relating to this scheme.  Charles admitted that he falsified loan and consulting agreements to conceal the true nature of the bribe payments to the Army officers, and that he personally received over $228,000 in illicit gains as a result of his participation.

This case was investigated by the Defense Criminal Investigative Service (DCIS), the U.S. Army Criminal Investigation Command, the FBI, and the Special Inspector General for Iraq Reconstruction.  The Criminal Division’s Office of International Affairs provided substantial assistance in this matter.

Source: https://www.justice.gov/opa/pr/former-business-partner-us-military-contractor-sentenced-prison-bribery-scheme-related

Government contractors found guilty in $11 million veteran set-aside fraud scheme

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A federal jury has convicted Andrew Otero and his company, A&D General Contracting, Inc. (A&D), on charges that they fraudulently obtained $11 million in federal contracts specifically set aside for service-disabled veteran-owned businesses.  The jury’s decision was rendered on Nov. 21, 2018.

The evidence demonstrated that Otero had no military experience.  Yet Otero and veteran Roger Ramsey participated in a conspiracy to defraud the government by forming a joint venture (JV) – and falsely representing that Ramsey’s firm and the JV qualified as service-disabled veteran-owned small businesses (SDVOSB).  Based on the false claim to SDVOSB eligibility, the conspirators fraudulently obtained approximately $11 million in federal government construction contracts or task orders with the Department of Veterans Affairs (VA) and the Army Corps of Engineers (ACE).

As proven at trial, the fraudulent conspiracy involved set-aside contracts that could only be bid upon by legitimate service-disabled veteran-owned small businesses – a designation that did not apply to Otero or A&D.  To appear qualified, Otero and Ramsey initially executed an agreement to create the JV, which stated that Ramsey’s company would be the managing venturer, employ a project manager for each of the set-aside contracts, and receive the majority of the JV’s profits.

However, as proved at trial, six months later, Otero and Ramsey signed a secret side agreement that made clear the JV was ineligible under the SDVOSB program. For example, the side agreement said the parties created the JV so that A&D could simply use the disabled veteran status of Ramsey’s firm to bid on contracts.  The side agreement also stated that A&D – not Ramsey – would run the construction jobs.  They also agreed that A&D would keep 98 percent of every payment.

In addition to the secret side agreement, the evidence demonstrated several ways in which the JV did not operate as a legitimate SDVOSB, but was essentially controlled by Otero and A&D.  For example, although Ramsey (a service-disabled veteran) nominally served as president of his firm and the JV, he actually worked full-time for a telecommunications company.  Otero and A&D, not Ramsey, controlled the day-to-day management, daily operation and long-term decision making of the JV. Among other things, Otero and A&D appointed an A&D employee as the project manager for every contract and task order.

“Our nation strives to repay the debt of gratitude we owe to our veterans by setting aside some government contracts for veterans with service-related disabilities,” said United States Attorney Adam Braverman.  “These unscrupulous contractors abused this program through a cynical and illegal ‘rent-a-vet’ scheme.  They are now being held fully accountable for robbing truly deserving vets of important economic opportunities.”

The defendants are also facing civil charges consisting of alleged violations of the false claims act based on the similar misconduct.  The defendants have been ordered to appear in U.S. District Court for sentencing on February 19, 2019.

Source: https://www.justice.gov/usao-sdca/pr/government-contractors-found-guilty-11-million-veteran-set-aside-fraud-scheme

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