Former Security Contractor CEO Sentenced for Masterminding $31 Million Disadvantaged Small Business Fraud Scheme

The former chief executive officer of a Virginia-based security contracting firm was sentenced in the Eastern District of Virginia to 72 months in prison for creating a front company to obtain more than $31 million intended for disadvantaged small businesses and for bribing the former regional director for the National Capital Region of the Federal Protective Service (FPS) as part of the scheme. The front company obtained the contracts through the Small Business Administration’s (SBA) Section 8(a) program, which allows qualified small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division; U.S. Attorney Neil H. MacBride of the Eastern District of Virginia; National Aeronautics and Space Administration (NASA) Inspector General Paul K. Martin; SBA Inspector General Peggy E. Gustafson; Defense Criminal Investigative Service (DCIS) Special Agent in Charge of Mid-Atlantic Field Office Robert E. Craig; General Services Administration (GSA) Inspector General Brian D. Miller; and Department of Homeland Security (DHS) Deputy Inspector General Charles K. Edwards made the announcement after sentencing by United States District Judge Gerald Bruce Lee.

“Keith Hedman used his expertise gleaned from decades as a government contractor to cheat the system and steal tens of millions from minority-owned small business owners,” said Acting Assistant Attorney General Raman. “Today’s sentence shows that those who resort to deceit and bribery to secure federal contracts will be caught and held accountable.”

“Keith Hedman tried to game the system and take advantage of a government program designed to help minority-owned small businesses,” said U.S. Attorney Neil H. MacBride.  “He committed fraud, he undermined the trust of the U.S. government and this type of conduct will not be tolerated.  My office is committed to prosecuting those who cheat the government to the fullest extent of the law.”    “I commend the outstanding efforts of our agents and the other law enforcement agencies involved in this case in protecting the integrity of the Federal Government’s procurement program and taxpayer dollars” said NASA Inspector General Paul K. Martin.

Keith Hedman, 53, of Arlington, Va., was sentenced today after pleading guilty to major government fraud and conspiracy to commit bribery on March 13, 2013. Hedman was also ordered to forfeit approximately $6.1 million.

According to court documents, in or about 2011 Hedman formed Company A, which was approved to participate in the 8(a) program based on the 8(a) eligibility of its listed president and CEO, an African-American female. When the listed president and CEO left Company A in 2003, Hedman became its sole owner, and the company was no longer 8(a)-eligible.

In 2003, Hedman created Company B, another Arlington-based security contractor, to ensure that he could continue to gain access to 8(a) contracting preferences for which Company A was no longer qualified. Prior to applying for Company B’s 8(a) status, Hedman selected an employee, Dawn Hamilton, 48, of Brownsville, Md., to serve as a figurehead owner based on her Portuguese heritage and history of social disadvantage. In reality, the new company was managed by Hedman and Company A senior leadership in violation of 8(a) rules and regulations. To deceive the SBA, the co-conspirators falsely claimed that Hamilton formed and founded the company and that she was the only member of the company’s management. Based on those misrepresentations, Company B obtained 8(a) status in 2004.

From 2004 through February 2012, Hedman – not Hamilton – impermissibly exercised ultimate decision-making authority and control over Company B by directing its finances, allocation of personnel, and government contracting activities.  Hedman nonetheless maintained the impression that Hamilton was leading the company, including through forgeries of signatures of Hamilton to documents she had not seen or drafted. Hedman also retained ultimate control over the shell business’s bank accounts throughout its existence.  In 2010, Hedman withdrew $1 million in cash from Company B’s accounts and gave the funds in cash to Hamilton and three other conspirators. In 2011, Hedman approached Hamilton’s brother about starting another shell company to continue the scheme.  The trio submitted another fraudulent application to the SBA, but it was rejected.

Later in 2011, Hedman agreed to pay Derek Matthews, 47, of Harwood, Md., the former FPS Regional Director for the National Capital Region, $50,000 and a percentage of new business in exchange for Matthews helping Company B obtain contracts.  During the bribery scheme, Matthews served as FPS Deputy Assistant Director for Operations, a law enforcement position in which he had daily oversight of physical security programs and oversight of approximately 13,000 FPS officers at approximately 9,000 federal buildings.

In total, the scheme netted government contracts valued at more than $153 million, from which Company B obtained more than $31 million in contract payments. The various conspirators netted more than $6.1 million that they were not entitled to receive from those payments. Seven other defendants have pleaded guilty in the scheme.

This case is being investigated by NASA Office of the Inspector General (OIG), the SBA -OIG, DCIS-OIG, GSA-OIG, and DHS-OIG, with assistance from the Defense Contract Audit Agency. Assistant U.S. Attorneys Chad Golder and Ryan Faulconer, a former Trial Attorney for the Criminal Division’s Fraud Section, are prosecuting the case on behalf of the United States.

The Department of Justice Files Suit Against Louisiana Pharmaceutical Company for Distributing Unapproved and Misbranded Prescription and Over-the-counter Drugs

Acting Assistant Attorney General Stuart F. Delery announced today that the Department of Justice, on behalf of the Food and Drug Administration (FDA), has filed suit in the U.S. District Court for the Western District of Louisiana against Sage Pharmaceuticals, Inc. (Sage), its president Dr. Jivn-Ren Chen, and its Director of Corporate Quality, Charles L. Thomas, all of Shreveport, Louisiana.  According to the Complaint, the defendants violated the Federal Food, Drug, and Cosmetic Act (FDCA) by manufacturing and distributing unapproved and misbranded drug products.  Under the FDCA, before a company can sell a new drug product to consumers, it must submit and receive approval of a new drug application from the FDA.  The purpose of this approval process is to ensure that drugs manufactured and distributed to consumers are safe and effective for their intended uses.  Furthermore, the FDA requires all drug labeling to have adequate directions for use.

“Today’s action furthers the FDA’s mission of ensuring that all drugs sold to the public are safe and effective, and those companies that undermine this mission will be held accountable,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division.

U.S. Attorney for the Western District of Louisiana Stephanie A. Finley said, “This lawsuit demonstrates that this office will make every effort to protect public health by filing enforcement actions against companies that are identified as violating federal law.”

This is the second injunctive case that the government has brought against Sage alleging the distribution of unapproved new drugs.  In 2000, the government obtained an injunction against the company banning the manufacture and distribution of two unapproved new drugs.  Since that time, FDA inspections revealed that defendants continue to manufacture and distribute other drug products—including prescription pain relievers, over-the-counter (OTC) cough and cold remedies, and OTC wound cleansers—without first obtaining the requisite FDA approvals.  As a result, the defendants’ products are unapproved new drugs and misbranded drugs under the FDCA, and potentially unsafe and ineffective.

Despite numerous warnings from FDA, the defendants have failed to bring their operations into compliance with the law. The Justice Department will seek a permanent injunction requiring the defendants to cease all receiving, processing, manufacturing, preparing, packaging, labeling, holding, and distributing activities until they comply with applicable FDA regulations.

The FDA referred this matter to the Department of Justice.  The Consumer Protection Branch of the Justice Department’s Civil Division together with the U.S. Attorney’s Office for the Western District of Louisiana brought this case on behalf of the United States.

Statement of the Department of Justice Antitrust Division on Its Decision to Close Its Investigation of Delta Air Lines’ Acquisition of an Equity Interest in Virgin Atlantic Airways

The Department of Justice’s Antitrust Division issued the following statement today after announcing the closing of its investigation into Delta Air Lines’ proposed equity investment in Virgin Atlantic Airways Ltd. and their related trans-Atlantic joint venture:

“After a thorough investigation of the competitive effects of the proposed equity investment and joint venture, the Antitrust Division concluded that the facts and circumstances did not warrant further investigation or action.

“In December 2012, Delta Air Lines and Virgin Atlantic reached an agreement to establish a joint venture on flights between North America and the United Kingdom.  At the same time, Delta entered an agreement to acquire the 49 percent stake in Virgin Atlantic currently held by Singapore Airlines for $360 million.  Virgin Group will retain the majority 51 percent stake.

“The proposed equity investment and joint venture also were subject to review by the European Commission.  The division and the European Commission cooperated closely throughout the course of their respective investigations, with frequent contact between the agencies.  This cooperation, facilitated by the parties, made for a more efficient review process.

“Delta and Virgin Atlantic also have filed an application with the U.S. Department of Transportation seeking antitrust immunity for their joint venture.  The division will continue to consult, as appropriate, with the Department of Transportation as it reviews the request for immunity.”

United Technologies Corporation Liable for Over $473 Million for Inflating Prices on Aircraft Engines Sold to Air Force

The U.S. District Court for the Southern District of Ohio found United Technologies Corporation liable for over $473 million in damages and penalties arising out of a contract to provide the Air Force with fighter aircraft engines for F-15 and F-16 aircraft between 1985 and 1990, the Justice Department announced today.  United Technologies, which is based in Connecticut, provides a broad range of high-technology products and services to the global aerospace and building systems industries.

“The department will relentlessly pursue justice against those who knowingly submit false claims to the government and abuse the public contracting process,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division.  “It is vital that companies who do business with the government provide full and accurate information, and if they do not, they will pay the consequences.”

The government alleged that UTC’s proposed prices for the engine contract misrepresented how UTC calculated those prices, resulting in the government paying hundreds of millions more than it otherwise would have paid for the engines.  Specifically, the government alleged that UTC failed to include in its price proposal historical discounts that it received from suppliers, and instead knowingly used outdated information that excluded such discounts.

The government filed suit against UTC in 1999 under the False Claims Act and the common law, and those claims were tried, without a jury, in 2004.  An initial decision by the district court in 2008 found UTC liable under the False Claims Act, but did not award any damages.  The district court also dismissed the government’s common law claims.  That decision was appealed by both the government and UTC.  In 2010, the Court of Appeals for the Sixth Circuit affirmed the district court’s finding that UTC was liable under the False Claims Act, but reversed and remanded the case to the district court to recalculate the government’s damages and to reconsider the government’s common law claims.

In yesterday’s ruling, the district court awarded the government False Claims Act damages and penalties of $364 million, which is the highest recovery obtained by the government in a case tried under the Act.  The court also awarded an additional $109 million in damages on the government’s common law claims.  With the addition of prejudgment interest on the latter claims, which the court has yet to calculate, the government anticipates that the total judgment against United Technologies could be well in excess of half a billion dollars.    This case is being handled by the Civil Division of the Department of Justice.  The lawsuit is captioned United States of America v. United Technologies Corp., No. 3:99-cv-093 (S.D. Ohio).

Macandrews & Forbes Holdings Inc. to Pay $720,000 Civil Penalty for Violating Antitrust Premerger Notification Requirements

MacAndrews & Forbes Holdings Inc. will pay a $720,000 civil penalty to settle charges that the company violated premerger reporting and waiting requirements when it acquired voting securities of Scientific Games Corporation, the Department of Justice announced today.

The Justice Department’s Antitrust Division, at the request of the Federal Trade Commission, filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., against MacAndrews & Forbes for violating the notification requirements of the Hart-Scott-Rodino (HSR) Act of 1976.  At the same time, the department filed a proposed settlement that, if approved by the court, will settle the charges.

MacAndrews & Forbes is a holding company based in New York and is wholly-owned by Ronald O. Perelman.  Scientific Games is a New York-based provider of lottery and gaming services.

According to the complaint, MacAndrews & Forbes failed to comply with the antitrust premerger notification requirements of the HSR Act before acquiring voting securities of Scientific Games in June 2012.  As a result of these acquisitions, MacAndrews & Forbes held Scientific Games voting securities in excess of $68.2 million, the HSR reporting threshold then in effect.  Although certain stock acquisitions relating to a previous HSR Act notification are exempt from additional notice and waiting requirements, MacAndrews & Forbes’ June 2012 acquisitions of Scientific Games voting securities fell outside of the five-year time period for that exemption.

The Hart-Scott-Rodino Act of 1976, an amendment to the Clayton Act, imposes notification and waiting period requirements on individuals and companies over a certain size before they consummate acquisitions resulting in holding stock or assets above a certain value, which was $68.2 million in 2012 and is currently $70.9 million.

Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the Department of Justice.  For a party in violation of the HSR Act the maximum civil penalty is $16,000 a day.

Settlement with Ash Grove Cement Company to Reduce Thousands of Tons of Air Emissions

Ash Grove Cement Company has agreed to pay a $2.5 million penalty and invest approximately $30 million in pollution control technology at its nine Portland cement manufacturing plants to resolve alleged violations of the Clean Air Act, announced the Department of Justice and the U.S. Environmental Protection Agency (EPA).

Today’s agreement will reduce more than 17,000 tons of harmful nitrogen oxides (NOx) and sulfur dioxide (SO2) pollution each year across plants located in Foreman, Ark.; Inkom, Idaho; Chanute, Kan.; Clancy, Mont.; Louisville, Neb.; Durkee, Ore.; Leamington, Utah; Seattle, Wash.; and Midlothian, Texas.   “This significant settlement will achieve substantial reductions in air pollution from Ash Grove’s Portland cement manufacturing facilities and benefit the health of communities across the nation,” said Acting Assistant Attorney General Robert G. Dreher.  “The agreement reflects the Justice Department’s ongoing commitment to protecting public health and the environment   through enforcement of the nation’s Clean Air Act.”    “Today’s settlement will reduce air pollution that can harm human health and contribute to acid rain, haze, and smog,” said Cynthia Giles, Assistant Administrator for EPA’s Office of Enforcement and Compliance Assurance. “The new stringent limits on emissions will lead to less pollution and better air quality for communities across the country.”   In addition, Ash Grove has agreed to spend $750,000 to mitigate the effects of past excess emissions from several of its facilities.    The settlement requires Ash Grove to meet stringent emission limits and install and continuously operate modern technology to reduce NOx, SO2, and particulate matter (PM). Ash Grove is required to reduce NOx emissions at nine kilns, some of which will have the lowest emission limits of any retrofit control system in the country.  In addition, modern pollution controls must be installed on every kiln to reduce PM emissions, and on several kilns to reduce SO2 emissions.

In addition, at its Texas facility, Ash Grove will shut down two older, inefficient kilns, while a third will be replaced with a cleaner, newly reconstructed kiln.     Ash Grove will also spend $750,000 on a project to replace old diesel truck engines at its facilities in Kansas, Arkansas, and Texas, which are estimated to reduce smog-forming nitrogen oxides by approximately 27 tons per year.

The settlement is part of EPA’s national enforcement initiative to control harmful air pollution from the largest sources of emissions, including portland cement manufacturing facilities. This is also the first settlement with a cement manufacturer that requires injunctive relief and emission limits for PM. SO2 and NOx, two key pollutants emitted from cement plants, can harm human health and are significant contributors to acid rain, smog, and haze. These pollutants are converted in the air into fine particles of particulate matter that can cause severe respiratory and cardiovascular impacts, and premature death.

Eight states and one local agency have joined the United States in the settlement, including: Arkansas, Idaho, Kansas, Montana, Nebraska, Oregon, Utah, Washington, and the Puget Sound Clean Air Agency.

The settlement was lodged today in the U.S. District Court for the District of Kansas and is subject to a 30-day public comment period and final court approval. It will be available for viewing at

GeyerGorey LLP’s Phillip C. Zane Named to 2013 Edition of Washington D.C. Super Lawyers



A Northern California real estate investor has agreed to plead guilty  for his role in conspiracies to rig bids and commit mail fraud at public real  estate foreclosure auctions in Northern California, the Department of Justice  announced.

Felony charges were filed today in the U.S. District Court for the  Northern District of California in San Francisco against Robert Williams of Atherton,  Calif. Williams is the 31st individual to plead guilty or agree to  plead guilty as a result of the department’s ongoing antitrust  investigations into bid rigging and fraud at public real estate foreclosure  auctions in Northern California.

According to court documents, Williams conspired with  others not to bid against one another, but instead to designate a winning  bidder to obtain selected properties at public real estate foreclosure auctions  in San Mateo County, Calif. Williams was also charged with conspiring to use the mail to  carry out schemes to fraudulently acquire title to selected properties sold at public  auctions, to make and receive payoffs and to divert to co-conspirators money  that would have otherwise gone to mortgage holders and others.

The  department said Williams conspired with others to rig bids and commit mail  fraud at public real estate foreclosure auctions in San Mateo County beginning  as early as October 2009 and continuing until about December 2010.

“Collusion at these foreclosure auctions enabled the conspirators to  present the illusion of competition, when they were actually thwarting the  competitive process and profiting at the expense of lenders and distressed homeowners,”  said Bill Baer, Assistant Attorney General in charge of the Department of  Justice’s Antitrust Division. “The division remains committed to holding  accountable those who illegally subvert competition at real estate foreclosure  auctions across the country.”

The department said that the primary purpose of the  conspiracies was to suppress and restrain competition and to conceal payoffs in  order to obtain selected real estate offered at San Mateo County public  foreclosure auctions at non-competitive prices. When real estate properties are  sold at these auctions, the proceeds are used to pay off the mortgage and other  debt attached to the property, with remaining proceeds, if any, paid to the  homeowner.

“The legitimacy of an open, public real estate  foreclosure auction is compromised when an individual or group conspires to  commit criminal activity which impacts genuine intentions of good citizens,”  said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field  Office. “We are steadfast in our continued partnership with the Antitrust  Division in bringing those criminally responsible to justice.”

A violation of the Sherman Act carries a maximum penalty of  10 years in prison and a $1 million fine for individuals. The maximum fine for  the Sherman Act charge may be increased to twice the gain derived from the  crime or twice the loss suffered by the victims if either amount is greater  than $1 million. A count of conspiracy to commit mail fraud carries a maximum  sentence of 30 years in prison and a $1 million fine. The government can also  seek to forfeit the proceeds earned from participating in the conspiracy to  commit mail fraud.

The charges today are the latest filed by the department in  its ongoing investigation into bid rigging and fraud at public real estate  foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties,  Calif. These investigations are being conducted by the Antitrust Division’s San  Francisco Office and the FBI’s San Francisco office. Anyone with information  concerning bid rigging or fraud related to public real estate foreclosure  auctions should contact the Antitrust Division’s San Francisco Field Office at  415-436-6660, visit, or call the FBI tip  line at 415-553-7400.

Today’s charges were  brought in connection with the President’s Financial Fraud Enforcement Task  Force. The task force was established to wage an aggressive, coordinated and  proactive effort to investigate and prosecute financial crimes. With more than  20 federal agencies, 94 U.S. attorneys’ offices and state and local partners,  it’s the broadest coalition of law enforcement, investigatory and regulatory  agencies ever assembled to combat fraud. Since its formation, the task force  has made great strides in facilitating increased investigation and prosecution  of financial crimes; enhancing coordination and cooperation among federal,  state and local authorities; addressing discrimination in the lending and  financial markets and conducting outreach to the public, victims, financial  institutions and other organizations. Over the past three fiscal years, the  Justice Department has filed nearly 10,000 financial fraud cases against nearly  15,000 defendants including more than 2,900 mortgage fraud defendants.

Owner of Louisiana-based Health Care Company Sentenced in Texas to 97 Months in Prison in Connection with $6.7 Million Medicare Fraud Scheme

The owner and operator of a Louisiana-based durable medical equipment (DME) company was sentenced today to serve 97 months in prison for his role in a $6.7 million Medicare fraud scheme, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; and Special Agent in Charge Mike Fields of the Dallas Regional Office of the U.S. Department of Health and Human Service’s Office of the Inspector General (HHS-OIG).

Kenny Msiakii, 45, of Houston, was sentenced by U.S. District Judge Nancy Atlas in the Southern District of Texas.  In addition to his prison term, Msiakii was sentenced to serve three years of supervised release and ordered to pay $2.5 million in restitution.  On Dec. 13, 2012, a federal jury found Msiakii guilty of eight counts of health care fraud.

According to court documents, Msiakii was the owner and operator of Joy Supply and General Services, a company based in Shreveport, La., that purported to provide orthotics and other DME, including power wheelchairs, to Medicare beneficiaries.

Msiakii used Joy Supply’s Medicare provider number to submit claims to Medicare for DME, including orthotic devices, that were medically unnecessary and, in some cases, never provided.  Many of the orthotic devices were components of “arthritis kits” and purported to be for the treatment of arthritis-related conditions; however, the devices were neither medically necessary nor appropriate for such conditions.  The arthritis kit generally contained a number of orthotic devices including braces for both sides of the body and related accessories such as heat pads.

According to court documents, from November 2007 through September 2009, Msiakii submitted claims of approximately $6.7 million to Medicare and was paid approximately $3.6 million for devices that were not medically necessary and, in some cases, never provided.

This case is being prosecuted by Assistant Chief Laura M.K. Cordova of the Criminal Division’s Fraud Section.  The case was brought as part of the Medicare Fraud Strike Force, supervised by the U.S. Attorney’s Office for the Southern District of Texas and the Criminal Division’s Fraud Section.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,500 defendants who have collectively billed the Medicare program for more than $5 billion.  In addition, HHS’s Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

Axius CEO Roland Kaufmann Sentenced for Conspiracy to Pay Bribes in Stock Sales

Roland Kaufmann, CEO of Axius Inc., was sentenced today to serve 16 months in prison for his role in a conspiracy to bribe purported stock brokers and manipulate the stock of a company he controlled, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of New York Loretta Lynch.

Kaufmann, 60, a Swiss citizen, was sentenced today by U.S. District Judge John Gleeson in the Eastern District of New York.  In addition to his prison term, Kaufmann was sentenced to serve three years of supervised release and ordered to pay a fine of $450,000.

Kaufmann pleaded guilty in January 2013 to one count of conspiracy to violate the Travel Act in connection with a scheme to bribe stock brokers to purchase the common stock of a company he controlled and to manipulate its stock price.  As part of his plea agreement, Kaufmann forfeited $298,740 gained through this crime.

According to court documents, Kaufmann controlled Axius, Inc., a purported holding company and business incubator located in Dubai.  As part of the scheme, the defendant and his co-conspirator, Jean Pierre Neuhaus, enlisted the assistance of an individual who they believed had access to a group of corrupt stock brokers, but who was, in fact, an undercover law enforcement agent.  Court documents reveal that they instructed the undercover agent to direct brokers to purchase Axius shares in return for a secret kickback of approximately 26 to 28 percent of the share price.  Kaufman and Neuhaus also instructed the undercover agent as to the price the brokers should pay for the stock and that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period.  By preventing sales of Axius stock, Kaufmann and Neuhaus intended to maintain the fraudulently inflated share price for Axius stock.

Jean Pierre Neuhaus has pleaded guilty and been sentenced for his role in the scheme.

The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ilene Jaroslaw, with assistance from Fraud Section Trial Attorney Nathan Dimock.  The case was investigated by the FBI New York Field Office and the Internal Revenue Service New York Field Office.  The Department also recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

This prosecution was the result of efforts by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.