Category Archives: Latest Firm News

Federal Grand Jury in Chicago Indicts Two Former Tech Executives For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company

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Department of Justice
U.S. Attorney’s Office
Northern District of Illinois
FOR IMMEDIATE RELEASE
Friday, June 30, 2017

CHICAGO — A federal grand jury in Chicago has indicted two former executives of a Florida technology company for allegedly conspiring to obstruct an investigation by the U.S. Securities and Exchange Commission.

CHRISTOPHER YOUNG, the former President of Tampa-based M2 Interactive Group Inc., and JOSHUA CARLUCCI, M2 Interactive’s former Chief Executive Officer, are charged with conspiracy to obstruct, influence, and impede an official proceeding. The pair allegedly conspired with executives from Schaumburg-based Quadrant 4 System Corp. to obstruct an SEC investigation into Quadrant 4’s 2013 purchase of M2 Interactive.

The indictment was returned Thursday in federal court in Chicago. In addition to the conspiracy count, Young, 35, of Norwich, N.Y., and Carlucci, 39, of Tampa, Fla., are also charged with attempting to obstruct, influence, and impede an official proceeding. Carlucci also faces a charge of making false statements to the Federal Bureau of Investigation. The Court will schedule arraignments for Young and Carlucci at a later date.

New and expanded criminal charges were also filed Thursday against the two Quadrant 4 executives, NANDU THONDAVADI and DHRU DESAI. A criminal information filed in federal court in Chicago charged them with wire fraud. Arraignments for Thondavadi, 63, of North Barrington, and Desai, 55, of Barrington, have been scheduled for July 6, 2017, at 10:00 a.m., before U.S. District Judge Charles Norgle.

The charges were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent in Charge of the Chicago office of the FBI. The Chicago office of the SEC provided valuable assistance.

M2 Interactive was a technology company that developed applications for mobile devices and conducted business under the name Momentum Mobile. Quadrant 4 provides software products, platforms and consulting services to customers in the healthcare and education sectors. As a public company, Quadrant 4 is required to provide to the SEC a detailed report of its financial condition.

In 2015 the SEC launched an investigation of Quadrant 4 based on indications that the firm may have violated federal securities laws. The FBI initiated an investigation of Quadrant 4 in 2016. As set forth in the information against Thondavadi and Desai, the investigation revealed that Thondavadi and Desai engaged in a wide-ranging scheme to defraud Quadrant 4’s shareholders by misappropriating more than $3 million from the company, fraudulently inflating Quadrant 4’s revenue, and regularly concealing Quadrant 4’s liabilities. The information charges that Thondavadi and Desai certified false SEC reports, including Quadrant 4’s 2014 Form 10-K, in which the defendants fraudulently inflated Quadrant 4’s revenue by more than $4.2 million – nearly 10% of Quadrant 4’s reported income that year.

The fraud scheme also involved numerous misrepresentations related to Quadrant 4’s acquisitions, including misrepresentations about the terms of Quadrant 4’s purchase of Momentum Mobile in 2013. Quadrant 4 purchased Momentum Mobile for $100,000 in cash and 250,000 shares of Quadrant 4 stock, plus assumption of approximately $165,000 in Momentum Mobile liabilities, according to the indictment against Young and Carlucci. Federal authorities discovered that Thondavadi and Desai later concealed the true terms of the deal from Quadrant 4’s auditor and its shareholders, according to the charges. The pair furnished the auditor with a fictitious agreement that Thondavadi created, the charges state. The bogus document inflated the purchase price and failed to mention the liabilities Quadrant 4 assumed, according to the charges.

As set forth in the charges, the investigation further revealed that Thondavadi and Desai attempted to obstruct the SEC’s investigation of Quadrant 4 as it related to the Momentum Mobile acquisition. In July 2016 SEC attorneys sought to question Young and Carlucci, who were unaware of the fictitious acquisition agreement that Thondavadi created. Carlucci notified Thondavadi and Desai of the SEC’s inquiry, and the Quadrant 4 executives responded by striking a deal with Young and Carlucci to pay them cash in exchange for their agreement to send Thondavadi an e-mail falsely stating that Momentum Mobile had previously authorized the terms of the fictitious agreement, according to the charges. The defendants attempted to disguise the payments – $102,900 to Young and $60,000 to Carlucci – as “consulting” fees, the charges state.

The public is reminded that charges are not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The conspiracy, obstruction and wire fraud charges are each punishable by up to 20 years in prison, while making false statements to the FBI is punishable by up to five years. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory U.S. Sentencing Guidelines.

CCC’s: What She [Sally Q. Yates] Said….

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June 26, 2017 by Robert Connolly

I have written often about the need to reform the Sentencing Guideline for antitrust violations.  U.S.S.G. 2R1.1. (here)(here)(here).  My major beef is that the antitrust guideline measures culpability primarily by the volume of commerce subject to the agreement, to the exclusion of many other very relevant factors.  The cartel boss who engages the firm in the illegal conduct is tagged with the same volume of commerce as the employee who is assigned the task of going to cartel meetings to work out the details.

Sally Q. Yates served in the Justice Department from 1989 to 2017 as an assistant U.S. attorney, U.S. attorney, deputy attorney general and, briefly this year, as acting attorney general.  Ms. Yates described the problem with overweighting a quantifiable factor better than I ever have, though in a slightly different context:

“But there’s a big difference between a cartel boss and a low-level courier. As the Sentencing Commission found, part of the problem with harsh mandatory-minimum laws passed a generation ago is that they use the weight of the drugs involved in the offense as a proxy for seriousness of the crime — to the exclusion of virtually all other considerations, including the dangerousness of the offender.”

Sally Yates, Making America Scared Won’t Make us Safer.  Washington Post, June 23, 2017

For the record, the issue of mandatory minimums is a far more serious issue than the problem of sentencing individual criminal antitrust offenders.  While I hope for antitrust sentencing reform, it is not really a “need.” The antitrust sentencing guidelines are so divorced from actual culpability that virtually no individual–even a cartel boss–is sentenced to a guideline range term of imprisonment.

Thanks for reading.

The CBP Officer of the Future

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by [email protected]

At the recent U.S Customs and Border Protection (CBP) west coast trade symposium, a panel titled “Global Innovation,” which included representatives from the Department of Homeland Security’s Office of Science and Technology, CBP’s National Targeting Center [It is not clear if this is one or two organizations.] discussed innovations in software applications and data usage that enhance supply chain security.

 

One question raised by the panel was, what would a future port look like?  The question I raised, in return, was what will a future CBP officer look like? The question remained unanswered, but is one that needs to be considered seriously.

 

As CBP continues to seek and use innovative technologies, it is the officer who needs to understand the technology as it will serve as his/her partner in both the agency’s enforcement and facilitation missions. Ultimately, the officer will need to become a savvy data analyst.

 

In addition, the operational personnel, i.e., Customs and Border Protection officers, import specialists, and trade analysts must be grounded in a solid understanding of the import and export dynamics of international trade. This includes production, sourcing, and logistics trends.

 

In order to be able to maximize the use of available technology, strategic and critical thinking skills must be in the officer’s tool box. Being able to identify, address and prioritize problems will be essential. The days of continuing to focus on low-hanging fruit that fails to bring positive returns to both the agency and the trade community will be over.

 

The mere accessing of data is a waste of time if the ability to evaluate it does not exist. Effective evaluation is critical to enabling supervisors and managers to make decisions on the optimal deployment of limited resources.

 

In general, the officer must be flexible and nimble as global trade trends shift along with the potential risk. Continuing to hold onto historic trends and patterns will only cause the officer to be reactive, instead of proactive, as new challenges emerge. In addition, quick communication by analysts to officers at the port is vital. There is nothing worse than acting on inaccurate or old data. If your efforts do not produce results you must swiftly react to make necessary adjustments.

 

Corporate compliance officers need to have the same skills and approaches to be effective and provide a value-added service across company operations.

 

Janet Labuda on Trade by the Numbers

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By [email protected]

Recently, President Trump sent a memo directing Secretary of Commerce, Wilber Ross, to initiate an investigation of steel and aluminum products. The rarely used investigative authority found under section 232(b)(1)(A) of the Trade Expansion Act of 1962 (19 U.S.C. 1862(b)(1) determines any detrimental trade activity affecting U.S. national security.

In addition, the Presidential memo lists other “core industries such as…vehicles, aircraft, shipbuilding, and semiconductors. The administration considers these as “critical elements of our manufacturing and defense industrial bases, which we must defend against unfair trade practices and other abuses.”

The Secretary of Commerce reports to the President, within 270 days of initiating the investigation and focuses on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The President can concur, or not, with the Secretary’s recommendations, and take action to “adjust the imports of an article and its derivatives,” or other non-trade related actions as deemed necessary.

Another trade remedy is found in Section 301 of the Trade Act of 1974. This law provides the United States with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the United States may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices. When negotiations to remove the offending trade practice fail, the United States may take action to raise import duties on the foreign country’s products as a means to address the trade imbalance.

Under section 332 of the Tariff Act of 1930 (19 U.S.C. 1332), the U.S. International Trade Commission (USITC) conducts investigations into trade and tariff matters upon request of the President, the U.S. House Committee on Ways and Means, the U.S. Senate Committee on Finance, either branch of the Congress, or upon the Commission’s own initiative. The USITC has broad authority to investigate matters pertaining to the customs laws of the United States, foreign competition with domestic industries, and international trade relations.

The USITC can also conduct investigations using section 337, to determine whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States. Section 337 declares the infringement of a U.S. patent, copyright, registered trademark, or mask work to be an unlawful practice in import trade. It also declares unlawful other unfair methods of competition and unfair acts in the importation and subsequent sale of products in the United States, the threat or effect of which is to destroy or substantially injure a domestic industry, prevent the establishment of such an industry, or restrain or monopolize trade and commerce in the United States.

Section 337 investigations require formal hearings held before an administrative law judge. If a violation is found, the USITC may issue orders barring the importation of certain products into the United States. In addition to requesting long-term relief, complainants also may move for temporary relief pending final resolution of the investigation based on a showing of, among other things, irreparable harm in the absence of such temporary relief.

Subtitle A of title VII of the Tariff Act of 1930, as added by the Trade Agreements Act of 1979 (19 U.S.C. § 1671 et seq.) and subsequently amended, provides that countervailing duties will be imposed when two conditions are met: (a) the U.S. Department of Commerce (Commerce) determines that the government of a country, or any public entity within the territory of a country, is providing, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of the subject merchandise that is imported or sold (or likely to be sold) for importation into the United States and (b), in the case of merchandise imported from a Subsidies Agreement country, the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

If Commerce determines that a countervailable subsidy is being bestowed upon merchandise imported from a country that is not a Subsidies Agreement country, a countervailing duty can be levied on the merchandise in the amount of the net countervailable subsidy without a USITC determination of material injury.

In addition, Subtitle B provides that antidumping duties will be imposed when two conditions are met: (a) Commerce determines that the foreign subject merchandise is being, or is likely to be, sold in the United States at less than fair value, and (b) the USITC determines that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry is materially retarded, by reason of imports of that merchandise.

Sections 201 to 204 of the Trade Act of 1974 (19 U.S.C. 2251 to 2254) concern investigations conducted by the USITC to determine if a product is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to a domestic industry.

If the USITC makes an affirmative determination, it recommends to the President the action that will address the serious injury or threat and facilitate positive adjustment by the industry to import competition. The President makes the final decision on remedy, including the form, amount, and duration.

There is no doubt that the current administration will use every available tool to initiate investigations and take action where such investigations determine injury to U.S. domestic industry by foreign imports. Continue to keep track of the announcements by the White House, Commerce, the USITC and CBP, and don’t get tripped up on the numbers.

Labuda on Fake News and Trade

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Former CBP Official, Janet Labuda at FormerFedsGroup.Com, provides us with her take on the importance of verifying the accuracy of news information in an emerging world news can longer be taken at face value.

 [email protected]

Over the last few months the fake news dilemma has featured prominently in the media. Day in and day out we receive bits and bytes of information through social media and other electronic sources that many read and take to be the truth, the whole truth, and nothing but the truth, regardless of how outlandish the claim or the source.

Such bits of information are rarely vetted either through our own personal “common sense” filters or through other reliable filters . This usually happens because we are pressed for time and simply can’t find the few minutes needed to verify and validate the information presented to us. What is even more problematic is that many of us pass on such unfiltered misinformation through broad electronic social networks thus perpetuating and exacerbating the problem.

The same holds true for the data we collect in the area of international trade. Customs uses data to drive every element of its trade facilitation and enforcement programs. Data collection and its subsequent crunching, dicing and slicing is the bedrock of their risk management processes. Decisions by Customs to focus on certain areas of potential non-compliance, on shifting resources to contain  perceived risk, and on pinpointing companies and their transactions for audit, and further scrutiny are made on what data is reported.

The key questions for companies are: how reliable is the data that is reported, and who is responsible to ensure that the data is accurate and reliable? In addition, what internal controls are followed to vet information. Compliance means reporting accurate information on the transaction to substantiate adherence to legal and regulatory requirements. U.S. Customs and Border Protection enforces strict record keeping requirements, which state “the accuracy of import (and export) information is important not only because it affects the revenue, but because accurate trade information and statistics are important in determining trade policy, the future eligibility of certain goods or goods from certain countries for special programs, the impact of imports on domestic industries, and the effectiveness of various trade agreements and programs.”

Companies need to established sound practices of filtering data received as well as   self-generated. If data is not regularly tested and validated it leaves your company in a vulnerable position. By reporting incorrect data to regulatory agencies, whether you yourself file, or you use a broker to file on your behalf, your company may be subject to unnecessary enforcement reviews, and penalties.

When it comes to data reporting, garbage in, garbage out is not acceptable anywhere in the supply chain. Only accurate and reliable data can help to keep your company insulated from risk.

Janet Labuda on: “Putting Yourself in Custom’s (CBP’s) shoes”

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Last week, President Trump signed two Executive Orders (EO) that will affect the use of U.S. Customs and Border Protection (CBP) trade resources. The first is a direct call to step up enforcement of trade laws with a special emphasis given to anti-dumping and countervailing duty cases. The second EO focuses on the trade deficit. The deficit numbers are driven by the value that is declared to CBP upon entry of goods. While there may be some minor adjustments by the Commerce Department’s Census Bureau, generally such information is gleaned from CBP entry data. Ultimately, CBP will be called upon to ensure that the value declared upon entry is correct, thus giving the Administration a more accurate accounting of the deficit. It is clear that trade law enforcement will be on agency’s front burner. After the EOs were published, Acting CBP Commissioner Kevin McAleenan stated “the men and women of CBP are committed to enforcing the trade laws of the United States to defend the economic competitiveness of domestic industries against unfair trade practices and dangerous counterfeits that could harm consumers.”

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Green Grants and Grantees are now in #GFPFE crosshairs and there is no bag limit

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The Economist’s handy graph showing the breakdown of the Trump Administration’s Proposed Budget shows in stark budgetary terms what US government agencies are facing.  I have reviewed the proposed budget and have concluded that it is the strongest indicator yet that the Trump Administration intends to reinvigorate Grant Fraud and Procurement Fraud Enforcement (#GFPFE).  The graph shows a change in overall agency funding and portends an intra-agency reorientation that is likely to effect grantees or contractors that have been awarded or are currently working on Grants or Contracts awarded by Environmental Protection Agency (EPA) or Department of Energy (Energy).

Let’s review:

  • Review and Recap of Current Posture:

I have previously laid out  here out about why conditions are perfect for a renaissance in Grant Fraud and Procurement Fraud Enforcement (GFPFE). I took the Department of Energy’s enforcement temperature here, I looked at an EPA-OIG audit of laboratories here, and I noticed a NASA-OIG audit announcement of ground and ocean temperatures here. Last week there was an NPR story on case by case review of individual EPA scientists while newly minted EPA Administer Scott Pruitt made statements here questioning the connection between human activity and climate change while raising questions about the measurement of global temperatures. Then a top level EPA transition official, David Schnare, resigned, but not before acknowledging that while ” the vast majority of career staff at the EPA… are dedicated public servants,…there are a small handful “who were definitely antagonistic” to Trump and Administrator Scott Pruitt. “They’re here for some other reason. They’re here for a cause,” he was quoted as saying in The Hill.

  • Presidential Shift in Priorities Always Wins:

EPA career civil servants who think nobility of purpose protects them in the face of an overwhelming Presidential Administration shift in priorities should pay a visit to the Antitrust Division’s field offices in Atlanta, Cleveland, Dallas and Philadelphia (punch line: they no longer exist).  The Antitrust Division Criminal Program’s Senior Litigators, who woke up on 911 in the World Trade Center Marriott, eagerly supported a GFPFE initiative whose purpose was to “protect the supply chain of goods and services to the nation’s warfighter.” Their tireless work and willingness to support other components of USDOJ in GFPFE efforts became a liability when a new Presidential Administration changed the definition of success from number of cases filed to the number of cases not filed (for anyone wanting to learn about the important competition enforcement function Antitrust Division Field Offices performed can start with the dearly departed Philadelphia Field Office’s Chief Robert E Connolly’s column here). The bottom line is Presidential shift in priorities always wins over perceived nobility of purpose of career public servants.

  • Nobility of Purpose in combatting CO2 is going to be challenged

I know it will come as a shock to many, but there are many scientists–legitimate scientists–who do not come to the same conclusions about the connection between rising CO2 levels and rising temperatures.  I have no idea what the truth is, but I recognize that when you have a President and heads of the EPA and Energy who doubt the warming narrative and view expenditures in that regard to be a waste of money. It would behoove everyone in the risk assessment business to understand what they think and read what they read.  If you restrict your news to the Washington Post and the New York Times, you are flying blind.  Worse, your clients will be flying blind. It is important to recognize that the outgoing administration saw this coming and adorned future budgets with global warming money that will be hard to cut out.  That will stimulate efforts to try.

  • Let’s Look At the Proposed Budget for Department of Energy:

The preamble states:

[The Budget] reflects an increased reliance on the private sector to fund later-stage research, development, and commercialization of energy technologies and focuses resources toward early-stage research and development. It emphasizes energy technologies best positioned to enable American energy independence and domestic job-growth in the near to mid-term.

My translation: Grants for developing green technologies are drying up.  No more Solyndras.

The preamble states:

It also ensures continued progress on cleaning up sites contaminated from nuclear weapons production and energy research and includes a path forward to accelerate progress on the disposition of nuclear waste. At the same time,the Budget demonstrates the Administration’s strong support for the UnitedStates’ nuclear security enterprise and ensures that we have a nuclear force that is second to none. The President’s 2018 Budget requests $28.0 billion for DOE, a$1.7 billion or 5.6  percent decrease from the 2017 annualized CR level. The Budget would strengthen the Nation’s nuclear capability by providing a $1.4 billion increase above the 2017 annualized CR level for the National Nuclear SecurityAdministration, an 11 percent increase.

My translation: Grants for development of nuclear energy capabilities and military nuclear applications are back in vogue.  $6.5 billion in clean-up funds will be oriented towards nuclear.  The important factor to consider is that, in all likelihood, this changes the mix of responsive contractors.

  • Let’s look at EPA proposed budget:

The Compliance Assurance budget is lowered to $419 million, which is $129 million below the 2017 annualized CR level. It “better targets” EPA’s Office of Research and Development (ORD) at a level of approximately $250 million, which would result in a savings of $233 million from the 2017 annualized CR level. ORD would prioritize activities that support decision-making related to core environmental statutory requirements, as opposed to extramural activities, such as providing STAR grants.

It supports Categorical Grants with $597 million, a $482 million reduction below 2017 annualized CR levels. These lower levels are in line with the broader strategy of streamlining environmental protection. This funding level eliminates or substantially reduces Federal investment in State environmental activities that go beyond EPA’s statutory requirements.

It eliminates funding for specific regional efforts such as the Great Lakes Restoration Initiative, the Chesapeake Bay, and other geographic programs. These geographic program eliminations are $427 million lower than the 2017 annualized CR levels. The Budget returns the responsibility for funding local environmental efforts and programs to State and local entities, allowing EPA to focus on its highest national priorities.

It eliminates more than 50 EPA programs, saving an additional $347 million compared to the2017 annualized CR level.

My translation: Grants for development of green technologies and reducing CO2 emissions are slashed.  EPA is being oriented around traditional toxins to land, water and air.  Its administration of $100 million to fix Flint Michigan’s water problems and orientation around poisoning will help with the repositioning. 

So while Energy moves onto new contractors for a nuclear spend, EPA moves towards traditional environmental problems and even NASA will now move, happily for many, toward an ambitious space program, all three agencies move away from green and CO2 mitigation programs.  Current contractors and grantees in these areas have a dual problem.  First, the funding in these areas is drying up.  Second, any problems that are found in the award or administration of grants or contracts in these now shuttered programs have a lower risk of causing collateral damage to supporters of the new Administration and they undermine the case against shuttering those programs.  Within the investigative agent community and auditing community examining procurements and grants in these shuttered program areas, investigation carries even lower risk and even higher reward (imagine how an indictment early next week alleging a massive fraud scheme involving a company that had been administering a major grant would be received by the Administration that is looking to justify a shift in funding priorities).  Investigative agents, many of whom in the prior Administration felt professionally stunted because of managerial interference against developing fraud and corruption cases have now been unshackled.  Inquiries that could never blossom into full blown investigations using IG subpoenas and active grand juries can now be taken out from from the back of desk drawers or they can be reopened with the support of career mid-level management looking to take action that will be looked upon favorably when the permanent Inspector General arrives later in the year.

 

USDOJ Grants and Grantees now in the Crosshairs

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We see continuing signs of reinvigorated grant fraud enforcement.  The latest submisison involves a long simmering dispute that has resurfaced involving corporate fines that are recovered, allocated and spent by USDOJ.  USDOJ grants have been a source of frustration for supporters of the current Administration and some believe that white collar enforcement suffered as perverse incentives encouraged the offsets of criminal cases and terms of imprisonment in favor of large recoveries of fines from corporations (Does anyone from the cartel world recall the furious whispers about this case?).  Now there seems to be Trump Administration-led push to shine a media spotlight on USDOJ grants.  Typically, this foreshadows official actions:

Last night Former Arkansas Governor Mike Huckabee was on Fox News discussing the issue speaking in bellicose terms. This accompanied various news articles that covered various aspects of the dispute.

Today on Fox News there is a lengthy piece on the subject with sub links:

“It’s clear partisan politics played a role in the illicit actions that were made,” Rep. John Ratcliffe, R-Texas, told Fox News. “The DOJ is the last place this should have occurred.

Findings spearheaded by the House Judiciary Committee point to a process shrouded in secrecy whereby monies were distributed to a labyrinth of nonprofit organizations involved with grass-roots activism.”

To see how far some have delved into this issue, check out this google search.  You have to go to less established media sources like this InfoWars article referencing State Department grants to get a sense of where this could lead (some will need to don protective suits–oh what we have to do for risk analysis!).  Since there was not as much reporting as there could have been, it is likely this issue could get significant play now. There is also likely to be a convergence effect when problems in one grant tranch from one agency  spills over into other grant programs.

This latest resurfacing of this issue by White House allies suggests a trend and it will likely add to calls for a significant realignment of DOJ on the left side of the org chart and also in its mission in terms of how it helps victims. Particularly vulnerable to significant reform are CRS, OJP, COPS, Office of Violence Against Women (grants) (biannual report) and Office of Access to Justice.  Obviously, grants and grantees will be a subject of interest as well.

I have referenced a prior DOJ IG 2016 civil case here.  Designating an enforcement priority can change whether a case is criminal or civil because criminal investigation assets redeploy and there is often a multiplier effect because the combination of criminal and civil enforcement assets allows for parallel investigations.  Overnight,  a larger swath of FBI agents start trolling for footholds in grants or procurement areas.  Not good.  When investigators expand the duration or number of grants reviewed, when they send agents to do coordinated interviews while serving grand jury and inspector general subpoenas and when AUSA’s start calling witnesses before traditional grand jury investigations, things can change fast.

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Procurement Fraud and Grant Fraud enforcement programs are likely to be revitalized by the Trump Administration.

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It’s no shock that a political change in the Executive Branch leads to an increase in grant fraud and procurement fraud enforcement. The reason? There is low risk in scrutinizing grants and contracts awarded by the outgoing administration. Whatever shenanigans are discovered by a new Administration will have occurred during the term of the previous administration and any negative economic impacts from pulling a grant or imposing a fine, will only impact the grant recipient and, potentially, its subcontractors, who are often presumed by an incoming Administration to have stronger ties to its predecessor.

Imagine you are a high-level Department of Justice official in a new administration positioned to deploy resources toward matters you believe most merit investigation and possible prosecution.  You will need to work on accomplishing the new Administrations mission as well as continue to satisfy your existing management chain with positive results.  What is the best way to move forward in this environment.

The most obvious way is to go after the low-hanging fruit: to aim the enforcement initiative at situations in which there is a high risk/reward ratio. Nowhere in white collar enforcement, is this ratio more favorable than in the realm of grant fraud and procurement fraud enforcement (GFPFE). Contributing to the richness of this area from an enforcement standpoint is that since 2009 the enforcement apparatus adopted a rigid prevention model, decreased the number of federal agents developing cases, increased barriers between the investigations and audit components of the Office of Inspector Generals (OIG’s) and made it more difficult to engage in aggressive or effective GFPFE.[1] This shift away from effective GFPFE in 2009 coincided with the largest spending increase in government history so it stands to reason there will be plenty of cases worth developing.

* * * Click Here for the Rest of the #GFPFE Analysis * * *

 

Department of Energy OIG Enforcement under a Trump Administration

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The United States Department of Energy (DOE) is a Cabinet-level department of the United States Government. Its responsibilities include the nation’s nuclear weapons program, nuclear reactor production for the United States Navy, energy conservation, energy-related research, radioactive waste disposal, and domestic energy production. It also directs research in genomics; the Human Genome Project originated in an iniative between DOE, NIH and international collaborators.  DOE sponsors more research in the physical sciences than any other U.S. federal agency, the majority of which is conducted through its system of National Laboratories.

Former Governor of Texas Rick Perry has been nominated as the next Secretary of Energy, and a vote is anticipated in the next few weeks.  April Stephenson currently serves as Acting Inspector General United States Secretary of Energy and will continue to head the department,  unless Secretary Perry makes a change. As a practical matter, DOE is unlikely to get a permanent Inspector General installed for many months. This means that its roughly 70 investigative agents in roughly 12 US cities will engage in enforcement that is somewhat skewed by perceptions about what a future Secretary of Energy will want.  For these reasons, I would project that investigative agents will believe they will ultimately receive more overhead support for investigations developed now.

Based on basic familiarity with DOE contracts and DOE-OIG investigative activity in the past as well as reasonable assumptions about how agents will interpret statements made by Trump Administration officials, I see three primary areas where agents will likely focus current efforts to develop cases:

1) Clean-up Sites.

Clean-up sites are viewed as cash cows with poor oversight.  I have lost track of how many there are, but there are  more than half a dozen prime ones including Hanford, Idaho Falls and Savanah River.  The Hanford site is an example of a site that has had longstanding troubles.  CH2MHill took a hit back in 2013 for an $18.5 million qui tam and, just recently, at the same site, BNI and URS agreed to  pay $125 Million for false claims regarding deficient nuclear quality procurements and improper payments to lobby Congress.  Internal conjecture is that there are more false claims being made at these and at other clean-up sites and it would behoove any companies involved at these sites to brush up on compliance and internally investigate around vulnerabilities or weaknesses.

2) Management and Operational (M&O) Contracts

Management Operations Contractors, whether deserved or not, are a source of frustration to enforcers.  These are huge, large dollar volume contracts that are viewed by enforcers as having poor oversight.  Other sources of frustration is that enforcers believe that they have no visibility with indirect contractors.  This feeling is even generally held in regard to direct contractors where transparency is lacking and contractors are perceived as foot dragging.  Because of lack of appetite in some US Attorney’s Offices for these complex investigations, there was less support in the past few years than perhaps there could have been, but I believe this will begin to change as the Trump Administrations enforcement priorities becomes more clear.

3) Green Grants

Although these are smaller dollar volume contracts, legal theories are easier to fashion around bite-sized grants and the story around each is usually more accessible to prosecutors and potential juries.  There is lingering resentment that politics adversely affected investigations that adversely impacted potential prosecutions (see Solyndra as an often cited example in the opinion of some) and there is a view among enforcers that investigations involving more than $2 billion in green grants and associated loans guaranteed by the government were never pursued appropriately.

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