Georgia Tech Procurement Assistance Center

Contractor forfeits $1.7 million in assets, pleads guilty to delivery of cheap versions of products

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Jim A. Meron, owner of California-based WOW Imaging Products LLC and Time Enterprises LLC, has pled guilty to wire fraud related to a procurement fraud scheme involving the General Service Administration (GSA) Federal Supply Schedule program and a Department of Defense (DoD) electronic ordering system.

According to court documents, between May 2011 and July 2017, Meron used his two office supply businesses to defraud federal government agencies out of as much as $3.5 million — involving thousands of transactions — by substituting and delivering cheaper, generic versions of expensive, name-brand products his customers ordered, and pocketing the price difference. As part of his plea, Meron agreed to forfeit more than $1.7 million in assets seized during the investigation of his crimes.

Meron’s companies contracted to sell office supplies to federal agencies through two web-based government sales portals, GSA Advantage and DoD eMall.  After Meron received payments for the premium products his customers ordered, he obtained compatible products from his suppliers that cost him a fraction of what his customer paid for the brand-name products they ordered.  Meron then substituted and delivered those cheaper products for the more expensive products his customers ordered, and retained the difference in cost.  Over time, Meron extended his substitution scheme to nearly all orders for those name-brand products, and never intended to deliver what his customers ordered.

This case is the product of an investigation by GSA’s Office of Inspector General and the Defense Criminal Investigative Service.

Meron is scheduled to be sentenced on February 4, 2019.  Meron faces a maximum statutory penalty of 20 years in prison and a $250,000 fine on each count of conviction. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

Source: https://www.justice.gov/usao-edca/pr/granite-bay-man-pleads-guilty-multi-million-dollar-product-substitution-fraud-federal

Augusta man sentenced for theft of government funds

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U.S. Attorney Sherri A. Lydon states that Phillip Thompson of Augusta, GA was sentenced for conspiracy involving theft of government funds, a violation of Title 18, United States Code, § 371.

U.S. District Judge J. Michelle Childs, of Columbia, SC sentenced Thompson to 23 months in jail after a sentencing hearing. The judge further ordered that Thompson repay $4,580,469.83 in restitution and, after his release from the Bureau of Prisons, that he serve three years on supervised release.

Facts presented in court established that Thompson worked at the Savannah River Site for Wise Services, and that, beginning in September of 2009 and continuing for several years, Thompson was involved in a scheme in which he and a co-defendant stole money using false and fraudulent invoices. An investigation by the U. S. Dept. of Energy’s Office of the Inspector General (OIG) and the Federal Bureau of Investigation (FBI) revealed that Thompson and his co-defendant stole more than six million dollars.

April G. Stephenson, Acting Inspector General for the Dept. of Energy, states: “The Office of Inspector General remains committed to ensuring the integrity of our contractors and subcontractors. Those who choose to abuse their positions of trust while hiding behind sophisticated embezzlement and fraud schemes, will be held accountable.”

The Energy Department’s OIG and the FBI investigated the case.  Assistant U.S. Attorney John C. Potterfield of the Columbia, SC office prosecuted the case.

Source: https://www.justice.gov/usao-sc/pr/augusta-man-sentenced-theft-government-funds

Read The Augusta Chronicle’s account of this story at: http://www.augustachronicle.com/news/20180703/columbia-county-man-gets-23-months-in-prison-in-mox-fraud-case

SBA’s IG questions eligibility of women-owned small businesses to receive contract set-asides

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Federal contracting officers, along with firms representing themselves as woman-owned small businesses (WOSBs) did not comply with federal regulations in 50 instances of sole-source contract awards.  As a result, there is no assurance that the contracts were awarded to firms eligible to receive sole-source awards under the WOSB program administered by the Small Business Administration (SBA).

That’s the conclusion reached by the SBA’s Office of Inspector General (OIG) in a report issued on June 20, 2018.

The OIG undertook its review of SBA’s WOSB program to determine whether the sole-source provisions that Congress included in the 2015 National Defense Authorization Act (NDAA) were being effectively implemented.   Congressional intent was to expand the number of federal contracts being awarded to WOSBs and streamline the process by which WOSB status could be validated.  Thus, in its review, the OIG wanted to determine whether sole-source contract awards comply with program requirements, and whether firms that receive the set-asides conform to the self-certification requirements.

The OIG selected a sample of 56 contracts, worth $55.7 million, to review.  The sample represented 81 percent of the sole-source contracts awarded to WOSBs between the period of Jan. 1, 2016 and Apr. 30, 2017.  The OIG determined that federal regulations were not followed by federal officials or the WOSB firms themselves in connection with 50 of the 56 contracts.  The 50 contracts were valued at $52.2 million.  Based on its findings, the OIG determined that there “was no assurance that these contracts were awarded to firms that were eligible to receive sole-source awards” under the WOSB program.

The weaknesses noted in the OIG’s report are similar to those noted in a review conducted in 2015.  Then, the OIG recommended that SBA should increase its training and outreach to both federal contracting officials and businesses regarding their responsibilities under the WOSB program.

Once again, in its latest report, the OIG makes a series of recommendations to SBA administrators to remedy the newly-identified problems.  Among them:

  • The SBA should prevent contracting personnel from awarding contracts to ineligible firms by implementing a certification process that includes “reviewing, analyzing, and making an affirmative decision that applicants are eligible to participate” in the WOSB program.
  • SBA also should strengthen controls in FPDS-NG to preclude agencies from using ineligible NAICS codes for the WOSB program’s contracts.

Overall, the OIG is recommending that the WOSB program should be operated more in line with other certification programs operated by the SBA.  In response to these recommendations, however, the SBA estimates that it will take at least another year before it implements a WOSB certification process.  SBA management also states it does not have the responsibility for improving the integrity of data in FPDS-NG.

The OIG concludes that since errors are likely to continue to be made in NAICS code selection and that WOSB firms will be allowed to continue to self-certify, the program is subjected to “unnecessary risks of fraud and abuse.”  In light of this condition, the OIG’s recent report offers six specific recommendations the SBA should take now to expand oversight and prevent agencies from awarding contracts to ineligible firms.

Military bought thousands of boots labeled ‘Made In the USA’ — but they were from China

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Five executives with a former leading manufacturer of U.S. military boots have been sentenced in federal court for saying the boots were made in Tennessee when they were actually produced in China.

According to an indictment filed in U.S. District Court, the actual Chinese manufacturer of the boots was told to include “USA” on the label of Wellco boot uppers that were then shipped to the U.S. The “Made in China” tags were removed, the indictment says. Soles were affixed to the boots at Wellco’s plant in Morristown, Tennessee, and elsewhere, according to the document.

From 2006 through 2012, the U.S. Department of Defense paid at least $138 million to Wellco for military footwear, according to the indictment.

Keep reading this article at: https://taskandpurpose.com/wellco-execs-military-boots-china/

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3 charged in fraud scheme involving small business contracts

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Last week in Wisconsin, three defendants agreed to plead guilty to federal crimes related to a long-term fraud scheme led by Brian L. Ganos involving government-funded contracts intended to benefit small businesses.

The three defendants are James E. Hubbell of Sussex, WI, Jorge Lopez of Worthington, Minnesota, and Telemachos Agoudemos  of Big Bend, WI.

According to the charges, the scheme involved Ganos, Hubbell, and others operating construction companies with straw owners who qualified as a disadvantaged individual or as a service-disabled veteran, but who did not actually control the companies.  The scheme participants fraudulently obtained small business program certifications to win millions of dollars in government-funded contracts to which they were not entitled.  Specifically, the following is alleged:

  • Nuvo Construction Company, Inc. (Nuvo”) was misrepresented to be majority-owned and controlled by Lopez to obtain certifications as a Small Disadvantaged Business from the U.S. Small Business Administration and as a Disadvantaged Business Enterprise from Milwaukee County.  In reality, Lopez worked full-time for a different entity in Minnesota and did not actually control Nuvo.
  • C3T, Inc. was misrepresented to be majority owned and controlled by Agoudemos to obtain verification as a Service-Disabled Veteran-Owned Small Business.  In reality, for long stretches, Agoudemos had virtually no involvement in C3T.

Hubbell and Lopez agreed to plead guilty to conspiring to defraud the United States by virtue of the scheme in violation of 18 U.S.C. § 371.  Agoudemos agreed to plead guilty to making false statements to federal agents in order to conceal that C3T, Inc. did not qualify as a Service-Disabled Veteran-Owned Small Business in violation of 18 U.S.C. § 1001.  The maximum penalties for these offenses is five years in prison and a $250,000 fine.

Earlier this month, on April 3, 2018, charges were filed against four defendants in two cases that are related to the April 18 charges.  (See: http://gtpac.org/?p=14290.) 

  • First, in Case No. 18-CR-62, an indictment was filed charging Brian L. Ganos of Muskego and Mark F. Spindler of Menomonee Falls, and the business Sonag Company, Inc. with crimes related to the fraud scheme.  The indictment also alleged that Ganos engaged in money laundering with proceeds from the scheme. The indictment included a forfeiture notice indicating that the United States seeks to forfeit a condominium located in Winter Park, Colorado; the office building used by the companies at 5500-5510 West Florist Avenue, Milwaukee, Wisconsin; a 2014 Chevrolet Corvette Stingray Convertible; and more than $2.2 million seized from two bank accounts.  Each of those assets is subject to civil forfeiture actions filed by the United States.
  • Second, in Case No. 18-CR-64, Nicholas Rivecca agreed to plead guilty to an Information charging him with conspiring with Ganos and others to use Nuvo’s DBE status to win government-funded concrete orders.  Rivecca and Ganos were the co-owners of Sonag Ready Mix, LLC, which is alleged to have filled the concrete orders in Nuvo’s name.

The following agencies are participating in the investigation that led to these charges: the Federal Bureau of Investigation; U.S. General Services Administration, Office of Inspector General; Department of Veterans Affairs, Office of Inspector General; Department of Defense, Office of the Inspector General, Defense Criminal Investigative Service; U.S. Department of Transportation, Office of Inspector General; U.S. Small Business Administration, Office of Inspector General, Investigations Division; Defense Contract Audit Agency; and U.S. Army Criminal Investigations Command Major Procurement Fraud Unit.

Source: https://www.justice.gov/usao-edwi/pr/three-more-defendants-charged-fraud-scheme-involving-small-business-contracts

Multiple defendants charged with 22 counts of fraud and money laundering involving $200 million in small business contracts

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A federal grand jury returned a twenty-two count indictment on April 3rd, charging three defendants with a 12-year fraud and money laundering scheme involving over $200 million in government-funded contracts intended to benefit small businesses.

The indictment names two individuals, Brian L. Ganos and Mark F. Spindler, both of Wisconsin, and the business Sonag Company, Inc. as defendants.  In a related case, Nicholas Rivecca, Sr., also of Wisconsin, agreed to plead guilty to conspiring to defraud the United States.

The indicted defendants are charged with a conspiracy to commit mail fraud and wire fraud.  The alleged conspiracy involves operating construction companies with straw owners who qualified as a disadvantaged individual or as a service-disabled veteran, but who did not actually control the companies.  The conspirators then fraudulently obtained small business program certifications to win government-funded contracts to which they were not entitled.

Specifically, court documents allege the following:

  • Nuvo Construction Company, Inc., was misrepresented in order to obtain certifications as a Small Disadvantaged Business from the U.S. Small Business Administration (SBA) and as a Disadvantaged Business Enterprise (DBE) from Milwaukee County.  However, the disadvantaged owner worked full-time for a different entity in Minnesota and did not actually control Nuvo.
  • C3T, Inc. was misrepresented to be majority owned and controlled by another individual to obtain verification as a Service-Disabled Veteran-Owned Small Business.  In reality, for long stretches, the “owner” had virtually no involvement in C3T.
  • Pagasa Construction Company, Inc. was misrepresented to be majority owned and controlled by a third disadvantaged individual in order to obtain certification as a Small Disadvantaged Business from the SBA.  In reality, the owner relied on the assistance of conspirators to form Pagasa.

The federal indictment alleges that the defendants used their certifications to obtain over $200 million in federal, state, and local contract payments.  These included federal construction contracts that were set aside for Small Disadvantaged Businesses or Service-Disabled Veteran-Owned Small Businesses.  The indictment also alleges that the scheme included using Nuvo’s DBE certification to win ready-mix concrete contracts based on the false representation that Nuvo provided ready-mix concrete independently when, in truth, Nuvo’s concrete operations depended heavily on Sonag Ready Mix.  As a part owner of Sonag Ready Mix, Nicholas Rivecca, Sr. agreed to plead guilty to that portion of the scheme.

The government alleges that the conspirators engaged in efforts to conceal the scheme and obstruct investigations into the matter; when interviewed, Ganos and Spindler each gave materially false statements to federal agents.

The indictment also alleges that Ganos conspired with Sonag Company, Inc. and others to launder proceeds of the fraud scheme in order to disguise and conceal the nature, source, and location of those fraud proceeds.  As a part of that conspiracy, Ganos is alleged to have transferred fraud proceeds from accounts of Nuvo and C3T to accounts that Ganos controlled.  The indictment further charged Ganos with three counts of concealment money laundering transactions, one of which involved the purchase of a Corvette with proceeds of the fraud scheme, and seven counts of spending money laundering transactions.

The maximum penalties for each of the wire and mail fraud-related charges are 20 years in prison, a $250,000 fine, and forfeiture of criminal proceeds.  The maximum term of imprisonment for conspiring to defraud the United States is five years.  The maximum term of imprisonment for the money laundering conspiracy and for each of the three concealment money laundering charges is 20 years in prison.  The maximum term of imprisonment for each of the seven spending laundering charges is 10 years in prison.  Each of the 11 money laundering charge also carries a fine of up to $250,000 or twice the amount laundered and subjects the defendant to forfeiture of all money and property involved in the laundering transaction.

Assets of the defendants — including real property, a 2014 Chevrolet Corvette Stingray Convertible, and more than $2.2 million seized from two bank accounts — are subject to civil forfeiture actions filed by the federal government.

The following agencies are participating in this investigation: the Federal Bureau of Investigation; U.S. General Services Administration, Office of Inspector General; Department of Veterans Affairs, Office of Inspector General; Department of Defense, Office of the Inspector General, Defense Criminal Investigative Service; U.S. Department of Transportation, Office of Inspector General; U.S. Small Business Administration, Office of Inspector General, Investigations Division; Defense Contract Audit Agency; and the U.S. Army Criminal Investigations Command Major Procurement Fraud Unit.

An indictment is only a charge and not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.

Source: https://www.justice.gov/usao-edwi/pr/multiple-defandants-charged-fraud-and-money-laundering-scheme-involving-over-200

Army told to improve monitoring of small business subcontracts

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Staff at two Army Contracting Command locations sometimes neglected to assure that contractors gave appropriate subcontracts to small businesses, the Pentagon watchdog found.

Though most of the officials located at Redstone Arsenal in Alabama and Army Contracting Command in Warren, Michigan, were given a clean bill of health, officials working on 23 contracts valued at $918 million “did not ensure that prime contractors provided small businesses with adequate subcontracting opportunities,” the Defense Department inspector general said in a report dated March 19.

The review of 80 Army contracts completed in fiscal 2015-2016 found that prime contractors provided adequate subcontracting opportunities for 27 contracts valued at $694 million.

But a subset worth $331 million were signed without a subcontracting plan or a contracting officer’s determination that no subcontracting possibilities existed.

Keep reading this article at: http://www.govexec.com/contracting/2018/03/army-told-improve-monitoring-small-business-subcontracts/146931/

Management of DoD contractor pleads guilty to ‘Made in the USA’ contract fraud

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The former president and CEO of Wellco Enterprises, Inc. (Wellco) and Tactical Holdings Operations, Inc. (Tactical Holdings), Vincent Lee Ferguson, of Knoxville, Tennessee, has pled guilty to conspiracy to commit wire fraud.

Wellco’s former sales VP, Matthew Lee Ferguson, of Geneva, Illinois, and former marketing director, Kerry Joseph Ferguson, of Houston, Texas, also pled guilty to conspiracy to commit wire fraud.  In addition, Wellco’s former VP of government contracting, Neil Streeter, of Warren, Massachusetts, and former operations manager, Stephanie Lynn (Ferguson) Kaemmerer, of Knoxville, Tennessee, pled guilty to smuggling goods into the United States.

Sentencing has been set for Vincent Lee Ferguson, Matthew Lee Ferguson, and Kerry Joseph Ferguson for June 6, 2018.  Sentencing for Neil Streeter and Stephanie Lynn Kaemmerer is set for June 11, 2018.  Conspiracy to commit wire fraud and smuggling goods into the United States both carry a maximum penalty of 20 years in prison and a fine of up to $250,000.  Each defendant was released pending sentencing.

According to information on file with the U.S. District Court, Wellco was a leading manufacturer and supplier of military footwear to the U.S. Department of Defense (DoD) and to civilian (commercial) customers for over 70 years.  From 2006 through 2012, DoD alone paid in excess of $138 million to Wellco for the supply of combat boots.  Wellco pioneered and patented the first practical method for molding and attaching a rubber sole to a shoe upper in a single operation.  During the Vietnam War, the U.S. Army adopted Wellco technology for the manufacture of its hot-weather boots for the jungles of Vietnam, a boot that became known as the “Vietnam Boot” or the “jungle boot.”   In May, 2007, in a deal involving approximately $22 million, Wellco was acquired by two investment firms, Golden Gate Private Equity, Inc. and Integrity Brands, Inc.  Wellco became a wholly owned subsidiary of Golden Gate’s portfolio company, Tactical Holdings.

In March 2006, Vincent Lee Ferguson was made President and CEO of Wellco.  At that time, he discussed a turnaround plan with Wellco’s Board of Directors for the company to increase commercial sales and “aggressively pursue” sales to the U.S. government.  From December 2008 through August 2012, he conspired with his executive team to import military-style boots that were made in China into the United States and then deceptively market and sell those boots to DoD (and other federal departments and agencies), government contractors, and the general public as “Made in the USA” and as compliant with the Berry Amendment and the Trade Agreements Act (TAA).   The Berry Amendment prohibits DoD from buying clothing that is not grown, reprocessed, reused or produced in the U.S.   The purpose of the Berry Amendment is to protect the viability of America’s textile and clothing production base.  The TAA provides that the government may acquire only “U.S.-made or designated country end products” and requires government contractors to certify that each “end product” meets applicable requirements.

By December 2008, Wellco was manufacturing certain military boot model uppers and insoles in China.  In order to conceal this fact, the conspirators required the Chinese manufacturing facility to include the American flag and “USA” on labels of certain boot uppers.  After two shipments of these deceptively marked boots were detained and seized by the U.S. Department of Homeland Security’s Customs and Border Protection, the conspirators ordered the Chinese facility to stitch tear-away “Made in China” labels in Wellco boot uppers.  After importation, the conspirators instructed Wellco factory workers in Morristown, Tennessee to tear out the “Made in China” tags prior to shipping the boots to government and commercial purchasers.

The defendants marketed and sold these Chinese-made Wellco boots as “Made in the USA.”  They also submitted false certifications to DoD and other federal agencies, and to government contractors that these boots complied with the Berry Amendment and TAA and met certain safety standards, including electrical hazard and blood-borne pathogen protections for U.S. troops.  For example, on August 15, 2012, the defendants submitted a signed “Certificate of Conformance” to a government contractor, representing that Wellco’s boot model S161 was “100% Berry Compliant” and “fully protective against Electrical Hazard,” even though the model was imported from China and not safety tested.  The boots were then supplied to troops stationed at Sheppard Air Force Base in Wichita Falls, Texas.   In total, Wellco sold at least $8.1 million of fraudulent boots.

This case was investigated by Homeland Security Investigations, Defense Criminal Investigative Service, Air Force Office of Special Investigations, General Services Administration Office of Inspector General, and Defense Contract Audit Agency.

Source: https://www.justice.gov/usao-edtn/pr/former-ceo-and-executive-management-defense-contractor-wellco-enterprises-inc-pleads

Owner of fraudulent government contract registration firm sentenced to prison for tricking 1,200 vendors

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In April of this year, the Georgia Tech Procurement Assistance Center (GTPAC) reported on the guilty plea entered by the operator of a phony government contract registration firm charged with wire fraud for his part in tricking at least 1,200 businesses into believing they needed to employ his services in order to qualify for contracts issued by the Federal Emergency Management Agency (FEMA), a unit of the U.S. Dept. of Homeland Security.

On Friday, August 11, 2017, he was sentenced to four years and two months in federal prison, along with a $594,000 judgment against him, for his role in these fraudulent activities.

In Tampa, Florida, U.S. District Judge Charlene E. Honeywell imposed the sentencing terms on Michael Pirolo who earlier pled guilty to the charges against him.  According to court documents, Pirolo served as the president of Government Contract Registry, Inc. (GCR), doing business as FEMA Contract Registration. He employed telemarketers who, during communications with victim-companies, falsely claimed that — for a fee — GCR would “register” the companies with FEMA to enable them to receive preference in obtaining contracts from FEMA.  The GCR telemarketers’ communications were based on instructions and scripts that they received from Pirolo.

Specifically, the telemarketers falsely and fraudulently stated that for a one-time fee of $500, the customer would be registered with FEMA, and that this registration would place the customer on a list of “preferred” vendors.  When the need for a vendor arose, GCR telemarketers falsely stated that FEMA would bypass the standard contract acquisition process, contact the registered victim-company, and then offer a no-bid contract.  At times, Pirolo also instructed GCR telemarketers to go back to victim-companies that had already paid the $500 one-time fee and seek renewal and payment of another fraudulent $500 fee.

To further the scheme, the GCR telemarketers provided victim-companies with an online GCR form that requested the same information as a form on FEMA’s public website.  In fact, FEMA does not charge a fee to companies to complete its vendor information form.  The purpose of FEMA’s form is to assist the agency with market research in identifying viable possible vendors.  FEMA’s form does not “register” companies.  In actuality, registration in the federal government’s System for Award Management (SAM) is the government-wide vendor registration system.  Vendors can register in SAM at no cost.  

Once GCR telemarketers received the victim-companies’ information, GCR completed and submitted the online FEMA form that then enabled emails to be sent from FEMA to the victim-companies, giving the appearance that the companies had been “registered.”  The FEMA emails gave GCR the appearance of legitimacy.

The approximate 1,200 victim-companies who were misled by this scheme paid GCR at least $604,500.

This case was investigated by the U.S. Department of Homeland Security, Office of Inspector General, and the General Services Administration, Office of Inspector General.  It was prosecuted by Assistant United States Attorney Adam M. Saltzman.

GTPAC again reminds its clients and all other vendors that government agencies never charge a fee for registration in government databases.  This includes vendor databases maintained by FEMA and the government-wide vendor database known as SAM.

While one scam — the company featured in this article — has been put out of business, there are others still in operation, so beware!   To read more about questionable practices involving the FEMA and SAM vendor registration databases, click on the links below:

For no-cost assistance with registering in SAM — and no-cost help with many other aspects of government contracting — contact GTPAC at http://gtpac.org/contact-us.   If your business is located outside the state of Georgia, feel free to contact the procurement technical assistance center (PTAC) nearest you.  Locate the PTAC offices in your state at http://www.aptac-us.org/find-a-ptac.

Amid $52 billion plus-up, DoD looks to trim spending on service contracts, health care

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As expected, the final 2018 Defense budget the Trump administration submitted to Congress on May 23rd calls for $640 billion in military spending, $52 billion more than the current year and breaking the current budget caps by the same amount.

But even amid a healthy plus-up in the top-line amount, the Pentagon says it’s found some modest ways to produce “efficiency” savings in 2018. Officials billed the budget as a fulfillment of two commitments Defense Secretary James Mattis made when he took office in January: rebuilding the military’s readiness and reforming its business operations.

“There are a number of ongoing activities that we continue to pursue,” said John Roth, the career senior executive who’s currently performing the duties of DoD comptroller. “We’re continuing to look at the major headquarters and to reduce them by 25 percent. We continue with acquisition reform, particularly with Better Buying Power 3.0. We continue to take a hard look at our service support contracts and make sure that they’re appropriate.”

The department said the largest chunk of the savings — $1.2 billion — will come from changes to business processes in the headquarters of the military services and the Office of the Secretary of Defense.

Keep reading this article at: https://federalnewsradio.com/defense/2017/05/amid-52-billion-plus-up-dod-looks-to-trim-spending-on-service-contracts-health-care/

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