Category Archives: Procurement Fraud

Civilian Navy Employee Found Guilty of Obstruction and False Statements After Jury Trial

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A federal jury today returned a guilty verdict against a civilian employee of the U.S. Navy posted at the Capodichino Navy Base near Naples, Italy, for obstructing an investigation and making false statements, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Nicholas A. Klinefeldt of the Southern District of Iowa.

Steven William Ashton, 41, with a last known U.S. residence in Davenport, Iowa, was found guilty after a nine-day jury trial of creating false documents to obstruct the Naval Criminal Investigative Service (NCIS) investigation into Ashton’s private consulting business called BlackGrid Consulting LLC.  The jury also found Ashton guilty of making false statements about his tour of duty in order to obtain federal benefits and access to military bases worldwide.

The evidence at trial showed that the NCIS was investigating Ashton for conflicts of interest and using inside government information to advance his business.  When Ashton learned about the investigation, he created fraudulent documentation purporting to show that he had fully disclosed his business to Navy authorities and received approval.  At Ashton’s direction, his defense counsel unwittingly submitted those false documents to the prosecutors and gave other false explanations to the Justice Department.

According to the evidence presented at trial, from April 2004 to March 2013, Ashton was employed by the Navy as the North Atlantic Treaty Organization and Host Nation Programs Manager for the regions of Europe, Africa and Southwest Asia, responsible for managing contracts and agreements among the Navy and other countries to support the United States’ military efforts.

He was found not guilty on charges of theft of government funds for obtaining housing benefits, called Living Quarters Assistance, to which he was not entitled, and of obstructing that investigation.

This case was investigated by the NCIS and the Air Force Office of Special Investigations.  The case is being prosecuted by Director of Procurement Fraud Litigation Catherine Votaw of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Clifford Cronk of the Southern District of Iowa.

Federal Contractors Eyak Technology LLC and Eyak Services LLC Resolve False Claims Act and Anti-Kickback Act Allegations

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Alaska and Virginia-based technology contractors Eyak Technology LLC (EyakTek) and Eyak Services LLC (ESL) have agreed to pay $2.5 million and relinquish any rights to additional payments from the United States to resolve allegations that they submitted false claims to the U.S. Army Corps of Engineers, the Justice Department announced today.  EyakTek and its sister company, ESL, provide healthcare, information technology, communications and infrastructure services to the U.S. government.  Both are subsidiaries of The Eyak Corporation, headquartered in Anchorage, Alaska.

“Federal government contractors and their employees must adhere to high standards in their dealings with the government,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “We will vigorously pursue those who pay kickbacks or otherwise engage in conduct that undermines the integrity of the contracting process.”

From 2005 to 2011, EyakTek held a $1 billion prime contract with the U.S. Army Corps of Engineers known as the Technology for Infrastructure, Geospatial, and Environmental Requirements contract.

The government alleged that, between Sept. 12, 2007, and Oct. 4, 2011, EyakTek’s then-director of contracts, Harold Babb, accepted kickbacks from several subcontractors of EyakTek and ESL in return for using his position to direct subcontracts to them.  EyakTek and ESL allegedly submitted invoices to the Army Corps that included charges for work that was never performed by the subcontractors and lacked internal controls to detect the improper charges.

In March 2012, Babb pleaded guilty to bribery and kickback charges.  The U.S. District Court for the District of Columbia sentenced him to serve 87 months in prison, to be followed by 36 months of supervised release and more than $9 million in restitution for his role in the kickback scheme.

The Army Corps stopped payments to EyakTek and ESL when the alleged scheme came to light.  As part of the settlement, EyakTek and ESL will withdraw any appeals seeking the return of those funds, and relinquish all rights to any payments that have been withheld.

“This settlement demonstrates our willingness to use every tool of civil and criminal law in our arsenal to defend the American taxpayer from corruption in contracting,” said U.S. Attorney Ronald C. Machen Jr. for the District of Columbia.  “The criminal investigation into this wide-ranging bribery and kickback scheme has now resulted in the convictions of 20 individuals, including EyakTek’s former contracts director.  We have aggressively pursued asset forfeitures in the criminal proceedings to make the taxpayer whole and to deprive wrongdoers of their ill-gotten gains.  This civil settlement sends a message to contractors who try to cheat in the competition for government funds.”

“This is yet another prime example of our commitment, along with other fellow law enforcement agencies to hold people and companies accountable for each and every detail of their contracts with the U.S. government and the U.S. Army,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit.  “Our agents will continue to aggressively investigate and identify any potential abuses that arise in regard to the contracting process.”

“Manipulations of the Department of Defense procurement process will not be tolerated,” said Special Agent in Charge Robert Craig for the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office.  “Today’s settlement demonstrates the commitment by DCIS and its partner agencies to hold accountable companies who attempt to bypass federal contracting laws.”

Today’s settlement is the result of a coordinated effort among the department’s Civil Division, the U.S. Attorney’s Office for the District of Columbia, the U.S. Army Corps of Engineers, DCIS, the Defense Contract Audit Agency, the Army’s Major Procurement Fraud Unit and the Small Business Administration.

The claims settled by this agreement are allegations only, and there has been no determination of liability.

Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan

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Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held United Arab Emirates (UAE) company, pleaded guilty today to major fraud against the United States and agreed to resolve civil violations of the False Claims Act, in connection with a contract to provide food and water to the U.S. troops serving in Afghanistan, the Justice Department announced today.  The companies pleaded guilty in the Eastern District of Pennsylvania (EDPA) and paid $288.36 million in the criminal case, a sum that includes the maximum criminal fine allowed.

In addition, Supreme Group B.V. and several of its subsidiaries have agreed to pay an additional $146 million to resolve a related civil lawsuit, as well as two separate civil matters, alleging false billings to the Department of Defense (DoD) for fuel and transporting cargo to American soldiers in Afghanistan.  The lawsuit was filed in the EDPA, and the fuel and transportation allegations were investigated by the Southern District of Illinois and the Eastern District of Virginia, respectively, along with the Department’s Civil Division.

“The civil resolutions and agreements reflect the Justice Department’s continuing efforts to hold accountable contractors that have engaged in war profiteering,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The department will pursue contractors that knowingly seek taxpayer funds to which they are not entitled.”

“These companies chose to commit their fraud in connection with a contract to supply food and water to our nation’s fighting men and women serving in Afghanistan,” said U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania.  “That kind of conduct is repugnant, and we will use every available resource to punish such illegal war profiteering.”

The Criminal Fraud

In 2005, Supreme Foodservice AG, now called Supreme Foodservice GmbH, entered into a contract with the Defense Supply Center of Philadelphia (DSCP, now called Defense Logistics Agency – Troop Support) to provide food and water for the U.S. forces serving in Afghanistan.  According to court documents, between July 2005 and April 2009, Supreme Foodservice AG, together with Supreme Foodservice KG, now called Supreme Foodservice FZE, devised and implemented a scheme to overcharge the United States in order to make profits over and above those provided in the $8.8 billion subsistence prime vendor (SPV) contract.  The companies fraudulently inflated the price charged for local market ready goods (LMR) and bottled water sold to the United States under the SPV contract.  The Supreme companies did this by using a UAE company it controlled, Jamal Ahli Foods Co. LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price the Supreme companies were charging for bottled water.  The fraud resulted in a loss to the government of $48 million.

Supreme AG, Supreme FZE and Supreme’s owners (referred to in court documents as Supreme Owners #1 and #2) made concentrated efforts to conceal Supreme’s true relationship with JAFCO, and to make JAFCO appear to be an independent company.  They also took steps to make JAFCO’s mark-up on LMR look legitimate, and persisted in the fraudulent mark-ups even in the face of questions from DSCP about the pricing of LMR.

Even though the SPV contract stated that the Supreme food companies should charge the government the supplier’s price for the goods, emails between executives at the companies (referred to as Supreme Executive #1, #2, etc) reveal the companies’ deliberate decision to inflate the prices. Among other things, Supreme Owner #1 increased the mark-up that JAFCO would impose on non-alcoholic beer from 25 percent to 125 percent.  On or about Feb. 16, 2006, during a discussion about supplying a new product to the U.S. government, one Supreme executive wrote to another, “I am very sure the best option is to buy it from Germany and mark up via [JAFCO], like [non-alcoholic] beer.”

In early March 2006, after a DSCP contracting officer told the Supreme food companies that she wanted to see a manufacturer’s invoice for specific frozen products, Supreme Foodservice GmbH lowered its prices for those products to prices that did not include a JAFCO mark-up.  On March 14, 2006, instead of disclosing that the initial pricing had included a mark-up, a Supreme executive misled the DSCP representative by saying, “Based on more realistic quantities, we have been able to negotiate a better price,” to explain the change in pricing.

In June 2006, when a DSCP contracting officer raised questions about pricing focusing on four specific items, Supreme executives again misled the DSCP, claiming that the high prices were for a high quality of product, and offering to sell lower quality products for lower prices.  Supreme Foodservice GmbH did this even after analyzing its JAFCO margin on the four items in question and finding its profit margins were between 41 and 56 percent.

In September 2007, after a fired Supreme executive threatened to tell the DSCP about the fraud, his former employer entered into negotiation of a “separation agreement” with that executive to induce that executive not to disclose the ways in which the Supreme food companies were overcharging the DSCP.  The agreement stated that the executive would receive, among other things, a payment of 400,000 euros in September 2010, provided that the executive did not cause: a deterioration in the economic situation linked to the SPV contract; the termination of the SPV contract; or a decrease in the price levels for products, specifically including LMR and bottled water provided to the U.S. government.

Defendant Supreme GmbH pleaded guilty to major fraud against the United States, conspiracy to commit major fraud and wire fraud.  Supreme FZE, which owns JAFCO, pleaded guilty to major fraud against the United States.  The Supreme companies agreed to jointly pay $48 million in restitution and $10 million in criminal forfeiture.  Each company also agreed to pay $96 million in criminal fines.  In addition, as a result of the criminal investigation, the Supreme companies paid $38.3 million directly to the DSCP as a refund for separate overpayments on bottled water.

The Civil Settlements

In a related civil settlement, Supreme Group agreed to pay another $101 million to settle a whistleblower lawsuit, filed in the U.S. District Court for the EDPA by a former executive, which alleged that Supreme Group, and its food subsidiaries, violated the False Claims Act by knowingly overcharging for supplying food and water under the SPV contract.  The payment also resolves claims that, from June 2005 to December 2010, the Supreme food companies failed to disclose and pass through to the government rebates and discounts it obtained from its suppliers, as required by its SPV contract with the United States.

“Today’s results are part of an ongoing effort by the Defense Criminal Investigative Service (DCIS) and its law enforcement partners to protect the integrity of the Department of Defense’s acquisition process from personal and corporate greed,” said Deputy Inspector General for Investigations James B. Burch for the U.S. Department of Defense’s Office of the Inspector General.  “The Defense Criminal Investigative Service will continue to pursue allegations of fraud and corruption that puts the Warfighter at risk.”

“We are very pleased with this resolution, and are gratified that the public can now see what we’ve been aggressively investigating,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).  “Companies that do business with the government must comply with all of their obligations, and if they overcharge for supplying our men and women in uniform who are bravely serving this nation, they must be held accountable for their actions.”

Separately, Supreme Site Services GmbH, a Supreme Group subsidiary, agreed to pay $20 million to settle allegations that they overbilled for fuel purchased by the Defense Logistics Agency (DLA) for Kandahar Air Field (KAF) in Afghanistan under a NATO Basic Ordering Agreement.  The government alleged that Supreme Site Services’ drivers were stealing fuel destined for KAF generators while en route for which the company falsely billed DLA.

“It is important that government contractors supporting conflicts abroad be held accountable for their billings to the government,” said U.S. Attorney Dana J. Boente for the Eastern District of Virginia.  “The DoD investigating components are instrumental in protecting the interests of the government, and their efforts in this investigation are to be commended.”

Supreme Group’s subsidiary Supreme Logistics FZE also has agreed to pay $25 million to resolve alleged false billings by Supreme Logistics in connection with shipping contracts between the U.S. Transportation Command (USTRANSCOM), located at Scott Air Force Base in Illinois, and various shipping carriers to transport food to U.S. troops in Afghanistan during Operation Enduring Freedom.  The shipping carriers transported cargo destined for U.S. troops from the United States to Latvia or other intermediate ports, and then arranged with logistics vendors, including Supreme Logistics, to carry the cargo the rest of the way to Afghanistan.  The United States alleged that Supreme Logistics falsely billed USTRANSCOM for higher-priced refrigerated trucks when it actually used lower-priced non-refrigerated trucks to transport the cargo.

“The U.S. Attorney’s Office for the Southern District of Illinois is committed to protecting the integrity of all of the vital missions carried out at Scott Air Force Base, including the mission of the U.S. Transportation Command,” said U.S. Attorney Stephen R. Wigginton for the Southern District of Illinois.  “These vital services carried out by the brave men and women of the armed forces of the United States deserve, and will receive, our full support, and this office will do everything possible to protect their missions.”

“These settlements are victories for American taxpayers,” said Special Inspector General John F. Sopko for Afghanistan Reconstruction.  “It sends a clear signal that whether a case involves a mom and pop outfit or a major multinational corporation, we will work tirelessly with our investigative partners to pursue justice any time U.S. dollars supporting the mission in Afghanistan are misused.”

The EDPA lawsuit was initially filed under the qui tam or whistleblower provisions of the False Claims Act, by Michael Epp, Supreme GmbH’s former Director, Commercial Division and Supply Chain.  The False Claims Act prohibits the submission of false claims for government money or property and allows the United States to recover treble damages and penalties for a violation.  Under the Act’s whistleblower provisions, a private party may file suit on behalf of the United States and share in any recovery.  The case remained under seal to permit the United States to investigate the allegations and decide whether to intervene and take over the case.  Epp will receive $16.16 million as his share of the government’s settlement of the lawsuit.

The criminal and civil matters in the EDPA were the result of a coordinated effort by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Pennsylvania, DCIS, U.S. Army’s Criminal Investigative Command’s MPFU and the FBI.

The investigation of Supreme Site Services ’ alleged false billings for fuel was conducted by the Civil Division and the U.S. Attorney’s Office for the Eastern District of Virginia, and the investigation of Supreme Logistics’ alleged false invoices for transportation was handled by the Civil Division and the U.S. Attorney’s Office for the Southern District of Illinois.  Both matters were investigated by the Defense Contract Audit Agency Office of Investigative Support, the Army Audit Agency, the International Contract Corruption Task Force, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit, the DoD Office of Inspector General’s DCIS, the Special Inspector General for Afghan Reconstruction, the U.S. Air Force Office of Special Investigations and the Naval Criminal Investigative Service.

The claims resolved by the civil settlements are allegations only, except for the conduct for which the Supreme food companies have pleaded guilty.

Defense Contractor Agrees to Pay $13.7 Million to Settle Allegations of Overbilling

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DRS Technical Services Inc. (DRS) has agreed to pay $13.7 million to settle allegations that it violated the False Claims Act by knowingly overbilling the government for work performed by DRS personnel who lacked the job qualifications required by the contract, the Justice Department announced today.  DRS is located in Herndon, Virginia, and is a subsidiary of DRS Defense Solutions LLC.

DRS designs, integrates, operates and maintains satellite and wireless network solutions and telecommunication services and security systems for government and private sector customers.  DRS C3 & Aviation Company, which is headquartered in Gaithersburg, Maryland, is an indirect subsidiary of DRS and provides services to government agencies, including aircraft maintenance, logistics and depot support, and engineering support.  Between March 2003 and Dec. 31, 2012, DRS and its predecessors were awarded time and materials contracts for services and supplies to be provided to the Army’s Communication and Electronics Command (CECOM) in Iraq and Afghanistan, and to the Coast Guard for aircraft maintenance.

“Contractors that fail to provide qualified labor as promised are not entitled to bill the government as though they had,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The Department of Justice will pursue contractors that claim taxpayer funds to which they are not entitled.”

The alleged labor mischarging occurred on the Rapid Response or “R2” contract issued by the U.S. Army Communication and Electronics Command (CECOM) located at the Aberdeen Proving Ground in Maryland.  The U.S. Army used the R2 contract to purchase a variety of goods and services needed to support U.S. forces in Iraq, Afghanistan and elsewhere on a quick turnaround basis.  The settlement also resolves labor mischarging on a similar U.S. Coast Guard contract.

The government contends that from Jan. 1, 2003, to Dec. 31, 2012, DRS billed CECOM for work performed by individuals whose job qualifications did not meet all the qualifications prescribed by the contracts for the labor categories under which their efforts were billed, thereby falsely increasing the amount of money DRS claimed and CECOM paid.  Similarly, from Dec. 19, 2009, to Dec. 18, 2011, the government contends that DRS charged the Coast Guard’s Aviation Logistics Center for work performed by individuals whose job qualifications did not meet the qualifications prescribed by the contract, again, thereby inflating the cost of the services provided.

“Companies that submit false bills to the government must be held accountable,” said U.S. Attorney Rod J. Rosenstein for the District of Maryland.

“This settlement is yet another example of the tenacity and hard work of our Army CID agents,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).  “It is a testament to MPFU’s continued resolve to hold companies accountable for the work they do for the U.S. government.”

The settlement was the result of a coordinated effort by the U.S. Attorney’s Office for the District of Maryland, the Civil Division, the Defense Contract Audit Agency, the Army’s Criminal Investigative Command’s MPFU and the Department of Defense Office of Inspector General’s Defense Criminal Investigative Service.   

Five Army National Guard Officials and One Civilian Charged with Bribery

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Four retired and one active-duty Army National Guard officials and one civilian have been charged for their alleged participation in bribery schemes related to the awarding of millions of dollars of Army National Guard marketing, retention and recruitment contracts.  Two of the retired Army National Guard officials and the civilian pleaded guilty for their roles in the schemes.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge Andrew McCabe of the FBI’s Washington Field Office, Special Agent in Charge Robert E. Craig Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Director Frank Robey of the U.S. Army Criminal Investigative Command’s Major Procurement Fraud Unit (Army-CID) made the announcement.

“As captured by its motto, the Army National Guard is ‘always ready, always there’ for the American people,” said Assistant Attorney General Caldwell.  “Unfortunately, today’s charges expose National Guard officials who were ‘always ready’ to pocket bribes and ‘always there’ to take kickbacks.  In return, the charged officials allegedly subverted the open bidding process and illegally steered millions of taxpayer dollars to the bribe-payers through marketing and advertising contracts.  Corruption should know no place in American government, but least of all in the military that so honorably serves our country.  The Criminal Division is committed to rooting out corruption wherever we find it, including in the military, so that we can ensure that no one is putting the public’s trust up for sale.”

“These criminal charges and guilty pleas reflect our continued commitment to rooting out public corruption wherever it occurs,” said U.S. Attorney Boente.  “The public contracting process should be one of integrity and fairness, and these cases should send a strong message that public corruption will be vigorously prosecuted in the military as well as other areas of government.”

“This investigation has sadly reminded us that even some members of our military are willing to trade on the trust their country placed in them to line their pockets with the profits of corrupt activities,” said U.S. Attorney Lynch.  “We and our law enforcement partners will constantly guard against and root out such corruption wherever we find it.”

Charles Sines, 56, of Stafford, Virginia, a retired colonel from the United States Army National Guard; Wesley Russell, 48, of Albany, Indiana, a retired lieutenant colonel from the Indiana Army National Guard; and Jason Rappoccio, 39, of Hampton, South Carolina, an active-duty sergeant first class from the Army National Guard are charged with conspiracy to solicit bribes and the solicitation of bribes.  Russell and Rappoccio allegedly asked for and received bribes, and Sines allegedly provided bribes.

Robert Porter, 50 of Columbia, Maryland, a retired colonel from the Army National Guard, and Timothy Bebus, 44, of Forest Lake, Minnesota, a retired sergeant major of the Minnesota Army National Guard and owner of Mil-Team Consulting and Solutions LLC, each pleaded guilty in the Eastern District of Virginia in September 2014 to conspiracy to commit bribery and bribery of a public official.  Julianne Hubbell, 45, of Brooklyn Park, Minnesota, a civilian who partnered with her brother, Bebus, as the vice president of operations of Mil-Team, also pleaded guilty in September 2014 to conspiracy to commit bribery.  Sentencing hearings for Bebus and Hubbell are scheduled for Jan. 23, 2015, and for Porter on Jan. 30, 2015.

“The alleged steering of large government contracts is offensive to active duty, reserve and retired members of the National Guard Bureau who took an oath to support and defend the Constitution,” said FBI Assistant Director in Charge McCabe.  “It is also offensive to average American citizens who trust their government and its contractors to use taxpayer money wisely.  We urge anyone who has knowledge of corruption and abuse in federal government contracting to contact the FBI.”

“The Department of Defense places special trust and confidence in its service members, particularly those in positions to influence the expenditure of taxpayer dollars,” said DCIS Special Agent in Charge Craig.  “Guardsmen hold a unique position in our society, representing both their state and military service.  The alleged behavior uncovered in this investigation was a disservice to both, but in no way typical of those honorable women and men that serve in our Army and Air National Guard.  Identifying and investigating fraud and public corruption remains the highest of priorities for the Defense Criminal Investigative Service.  Alongside our law enforcement partners, we will continue to aggressively pursue allegations of fraud impacting Department of Defense resources.”

“We have highly-trained, Army CID special agents who are extremely talented and very capable of rooting out this type of corruption within our ranks,” said Army-CID Director Robey.   “People must realize, both in and out of uniform, that fraud will not be tolerated within the Army and Department of Defense, and greed cannot and will not trump duty and honor.”

As set forth in the indictments and other publicly-filed documents, the National Guard Bureau is a joint activity of the U.S. Department of Defense (DOD), state Army National Guard units and the Departments of the Army and Air Force.  The National Guard Bureau, located in Arlington, Virginia, oversees the distribution of federal funding provided to the Army National Guard and its state units.

The DOD provides millions of dollars of federal funds to the Army National Guard for, among other things, advertising, marketing and sponsorships in order to recruit new members.  The National Guard Bureau uses these funds to promote the Army National Guard by entering into advertising, marketing and sponsorship contracts.  For example, through advertising, marketing and sponsorship contracts, the National Guard was an official sponsor of Dew Tour, Warrior Dash, and American Motorcycle Association Supercross’s events, where recruiters handed out promotional items and recruited new members.  The National Guard also had a contract to sponsor Michael Jordan’s AMA Superbike team.

The National Guard Bureau can avoid a competitive bid process by awarding these federally-funded marketing contracts to Small Business Administration (SBA) certified 8(a) companies, which are minority-owned businesses.  The National Guard Bureau also provides a portion of the federal funds to the state units to allocate.

The indictments allege that Sines and Rappoccio evaded the competitive bid process by using 8(a) companies to award contracts in exchange for bribes.

According to allegations in the indictment against him, Sines founded a company, Financial Solutions, after retiring from the Army National Guard as a colonel.  Sines allegedly paid Porter, a then-active-duty colonel in the Army National Guard, a percentage of all contracts that Porter steered to Financial Solutions through 8(a) companies.  As the director of the National Guard Bureau’s Guard Strength Directorate, Porter had substantial influence over the awarding of National Guard Bureau contracts, and allegedly steered approximately $4.5 million worth of contracts to Sines and Financial Solutions.

The indictment against Russell alleges that, while on active duty as a lieutenant colonel in the Indiana Army National Guard, Russell demanded 15 percent of all profits that a private marketing company would receive from state Army National Guard units.  In return for his 15 percent cut of the profits, Russell allegedly promoted and encouraged state Army National Guard units to purchase the marketing company’s products.

The indictment against Rappoccio, an active-duty sergeant first class in the Army National Guard, alleges that Bebus and Hubbell paid Rappoccio a $30,000 bribe for steering a contract worth approximately $3.7 million to an 8(a) company chosen by Bebus.  In pleading guilty, Bebus and Hubbell admitted to paying this bribe.  In an effort to conceal the bribe payment, Bebus, Hubbell and others allegedly arranged for the payment of $6,000 in cash to Rappoccio, and the remaining $24,000 was allegedly routed from a business account controlled by Hubbell to an account controlled by Bebus and Hubbell’s brother-in-law, and then provided to Rappoccio in the form of a cashier’s check to Rappoccio’s wife.

An indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.

The case is being investigated by the FBI’s Washington Field Office, with assistance from DCIS’s Mid-Atlantic Field Office and Army-CID’s Expeditionary Fraud Resident Agency’s Major Procurement Fraud Unit.  The case is being prosecuted by Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section, Assistant U.S. Attorney Jonathan Fahey of the Eastern District of Virginia and Assistant U.S. Attorneys Marisa Seifan and Martin Coffey of the Eastern District of New York.

Allegations of bribery or corruption within the National Guard Bureau’s retention and recruitment contracting can be reported to the FBI’s Washington Field Office at (202) 278-2000 or the FBI’s Northern Virginia Public Corruption Hotline at (703) 686-6225.

Army Sergeant Pleads Guilty for Scheme to Defraud the Military

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An Army sergeant pleaded guilty today to bribery and conspiracy to defraud the government for his role in a scheme to steal more than one million gallons of fuel from the U.S. military for resale on the black market in Afghanistan.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Thomas G. Walker of the Eastern District of North Carolina, Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service (DCIS) Southeast Field Office, Special Agent in Charge John A. Strong of the FBI’s Charlotte Division, Director Frank Robey of the U.S. Army Criminal Investigation Command (CID) Major Procurement Fraud Unit (MPFU) and Special Inspector General for Afghanistan Reconstruction John F. Sopko made the announcement.

Christopher Ciampa, 32, of Lillington, North Carolina, entered his guilty plea before U.S. District Court Judge Terrence W. Boyle of the Eastern District of North Carolina.  The sentencing hearing was scheduled for the week of December 15, 2014.

“Sergeant Ciampa took bribes to help steal millions of dollars’ worth of fuel meant to support U.S. military operations in Afghanistan,” said Assistant Attorney General Caldwell.  “His greed put his fellow soldiers at greater risk, and his actions stand in stark contrast to the integrity and sacrifice demonstrated every day by the men and women of our Armed Forces.”

“The DCIS, with our investigative partners, continues to aggressively pursue those who deprive the Department of Defense of much needed resources, such as fuel, critical to accomplishing its global missions,” said DCIS Special Agent in Charge Khin.  “Corruption and theft in a combat environment, especially on such a large scale, degrade the effectiveness of the U.S. armed forces, and increases the danger to our warfighters by diverting those resources to our enemies

“Sergeant Christopher Ciampa betrayed his unit and nation for personal profit by entering into illegal relationships in order to personally profit from the sale and transport of fuel valued at millions of dollars,” said FBI Special Agent in Charge Strong.  “These actions, especially in a wartime environment, damage the reputation of all soldiers and impede the success of coalition war efforts.  Those who put the reputation and lives of their fellow servicemen and women at risk will be aggressively pursued by the FBI and our military partners dedicated to upholding justice.”

“Our highly-trained special agents are experts in fraud investigations and untangling webs of lies and deceit,” said CID MPFU Director Robey.  “Whether an individual is in or out of uniform, it makes no difference, we will do everything in our investigative power to see those who defraud the Army brought to justice.”

“The crimes alleged in this case are serious and describe actions that undermine our mission in Afghanistan,” said Special Inspector General Sopko.  “SIGAR will continue to work tirelessly to protect the American taxpayers’ hard earned money and bring the full weight of the justice system to bear on anyone who seeks to rob the U.S. government.”

According to his plea agreement, Ciampa was deployed to Afghanistan with the 3rd Special Forces Group Service Detachment and was assigned to Camp Brown at Kandahar Air Field between February 2011 and January 2012.  During the deployment, one of Ciampa’s chief responsibilities was management of the Transportation Movement Requests (TMRs) for fuel and other items in support of military units in Afghanistan paid for by the U.S. government.

Over the course of the conspiracy, Ciampa and others created and submitted false TMRs for the purchase of thousands of gallons of fuel that were neither necessary nor used by military units.  Instead, Ciampa and his co-conspirators stole the fuel and resold it on the black market in neighboring towns.  Between February 2011 and December 2011, they created false TMRs for 114 large fuel tanker trucks, which could each carry approximately 10,000 gallons of fuel.  All of the TMRs were awarded to a single Afghan trucking company, despite significantly higher rates charged by this company.

As a result of the criminal conduct, the United States suffered a total loss of $10,812,000.  The loss resulted from stolen fuel and payments on the fraudulent TMRs in the following amounts: $9,120,000 in lost fuel and $1,692,000 in fraudulent TMRs for the 114 large tanker trucks.

Ciampa admitted that he and his co-conspirators sent some of the illicit proceeds back to the United States via wire transfer and carried some of the cash in their luggage, and Ciampa hid $180,000 of stolen funds inside stereo equipment that he shipped back to North Carolina with his unit’s gear.  He used his share of the proceeds from the scheme to purchase a truck and other personal items.

The case was investigated by DCIS, FBI, CID MPFU and the Special Inspector General for Afghanistan Reconstruction (SIGAR).  The case is being prosecuted by Trial Attorney Wade Weems on detail to the Criminal Division’s Fraud Section from SIGAR and Assistant U.S. Attorney Banumathi Rangarajan of the Eastern District of North Carolina.

Former Employee of U.S. Contractor Pleads Guilty to Fraud Scheme

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A former employee of a U.S. contractor pleaded guilty today to conspiracy to defraud the United States in connection with a contract to provide reconstruction-related services in Afghanistan.
Acting Assistant Attorney General David O’Neil of the Justice Department’s Criminal Division and United States Attorney for the Middle District of Florida A. Lee Bentley made the announcement.
Alan D. Simmons pleaded guilty today before U.S. Magistrate Judge Patricia D. Barksdale in the Middle District of Florida.
According to court documents, Simmons worked in Afghanistan as a training program coordinator for PAE Inc.  PAE had a contract with the United States Department of State to train and supply uniforms to Afghan correctional officers.    Simmons was responsible for providing information to others at PAE as to the number and types of uniforms that were to be ordered and provided to the Afghan correctional officers upon their completion of the training program.
As alleged in court documents, Simmons and others created a company, Aminzian Logistics Services (Aminzian), ostensibly to provide uniforms to PAE as a subcontractor.    In fact, Aminzian would submit false and fraudulent invoices to PAE seeking payment for goods that were not in fact provided.    After Aminzian was paid, Simmons and his co-conspirators split the proceeds.    The United States reimbursed PAE for its payments to Aminzian and incurred a loss of over $120,000.
The case was investigated by the Department of State Office of Inspector General and the Special Inspector General for Afghanistan Reconstruction (SIGAR).    This case was prosecuted by Special Trial Attorney Mark H. Dubester, on detail from SIGAR, and Assistant U.S. Attorney Kevin C. Frein of the Middle District of Florida.

 

U.S. Navy Petty Officer Based in Japan Pleads Guilty in International Bribery Scandal

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U.S. Navy Petty Officer First Class Daniel Layug pleaded guilty in the Southern District of California today to accepting more than $10,000 in cash, consumer electronics and travel expenses from a foreign defense contractor in exchange for classified and internal Navy information.
Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division, U.S. Attorney Laura Duffy of the Southern District of California, Director Andrew Traver of the Naval Criminal Investigative Service (NCIS) and Deputy Inspector General for Investigations James B. Burch of the U.S. Department of Defense Office of the Inspector General made the announcement.

Layug, 27, entered his plea before U.S. Magistrate Judge Karen S. Crawford to one count of conspiracy to commit bribery.  He is the sixth defendant charged – and the third to plead guilty – in the alleged bribery scheme involving Singapore-based defense contractor Glenn Defense Marine Asia (GDMA), which provided port services to U.S. Navy ships in the Asia Pacific region.

“Today, U.S. Navy Petty Officer First Class Dan Layug admitted that he swapped classified U.S. Navy information for cash, luxury travel perks and electronic gadgets from a defense contractor,” said Acting Assistant Attorney General O’Neil.  “In taking these under-the-table bribes, Layug put his own financial interests above those of the Navy and the country he vowed to serve.  The Criminal Division, with our law enforcement partners, is committed to holding responsible those who were part of this massive fraud and bribery scheme that cost the U.S. Navy more than $20 million.”

“Every service member is entrusted with the enormous responsibility of protecting this country at all costs,” said U.S. Attorney Duffy.  “Because of greed, Daniel Layug fell woefully short of that high calling, and this guilty plea holds him accountable for a painful betrayal.”

“The guilty plea of U.S. Navy Petty Officer First Class Dan Layug is part of an ongoing effort by the Defense Criminal Investigative Service and its law enforcement partners to bring to justice individuals who seek to enrich themselves at the expense of U.S. taxpayers,” said Deputy Inspector General Burch.  “While the conduct of the vast majority of service members is beyond reproach, Defense Criminal Investigative Service will vigorously pursue individuals who betray the trust bestowed upon them.”

“Petty Officer Layug sold sensitive Navy information for monetary gain,” said NCIS Director Traver.  “In doing so, he compromised the integrity of his position and the safety of his shipmates. NCIS will continue to work with DCIS and the U.S. Attorney’s Office in investigating and prosecuting these crimes to the fullest extent possible.”

According to allegations in court documents, GDMA owner and CEO Leonard Glenn Francis and his cousin, GDMA executive Alex Wisidigama, enlisted the clandestine assistance of Navy personnel – including Layug, Commander Michael Vannak Khem Misiewicz, Commander Jose Luis Sanchez, and Naval Criminal Investigative Service Special Agent John Beliveau – to provide classified ship schedules and other sensitive U.S. Navy information in exchange for cash, travel expenses, and consumer electronics.   GDMA allegedly overcharged the Navy under its contracts and submitted bogus invoices for more than $20 million in port services.

Court records state that Layug worked secretly on behalf of GDMA, using his position as a logistics specialist at a U.S. Navy facility in Yokosuka, Japan, to gain access to classified U.S. Navy ship schedules and then provided this information to GDMA’s vice president of global operations.  Layug admitted he also provided pricing information from one of GDMA’s competitors.

In return, according to the plea agreement, GDMA gave Layug envelopes of cash on a regular basis.  Layug admitted that he accepted a $1,000 monthly allowance from GDMA.   On May 21, 2012, GDMA’s vice president of global operations instructed a GDMA accountant that “at the end of each month, we will be providing an allowance to Mr. Dan Layug. Total of US $1,000. You may pay him the equivalent in Yen.  He will come by the office at the end of each month to see you.”    Layug also admitted that he received luxury hotel stays for himself and others in Malaysia, Singapore, Indonesia, Hong Kong and Thailand.

Further according to the plea agreement, Layug asked GDMA for consumer electronics.  In an email on March 9, 2012, Layug asked the vice president of global operations, “What are the chances of getting the new iPad 3? Please let me know.”  In the plea agreement, Layug admitted that GDMA then provided him with an iPad 3.

In another email exchange on May 28, 2013, Layug asked the vice president of global operations for a “bucket list” of items including a high end camera, an iPhone5 cellular phone, a Samsung S4 cellular phone, and an iPad Mini.  Shortly after sending his “bucket list” to the vice president of global operations, Layug stated in an email that “the camera is awesome bro! Thanks a lot! Been a while since I had a new gadget!”

Francis was previously charged with conspiring to bribe U.S. Navy officials.  Wisidagama pleaded guilty on March 18, 2014, to defrauding the U.S. Navy.

Two other senior Navy officials – Commander Michael Vannak Khem Misiewicz, 46, and Commander Jose Luis Sanchez, 41 – have been charged separately with bribery conspiracies involving GDMA.  On Dec. 17, 2013, NCIS Supervisory Special Agent John Bertrand Beliveau II, 44, pleaded guilty to conspiracy and bribery charges for regularly tipping off Francis to the status of the government’s investigation into GDMA.

The ongoing investigation is being conducted by NCIS, the Defense Criminal Investigative Service and the Defense Contract Audit Agency.

The case is being prosecuted by Director of Procurement Fraud Catherine Votaw and Trial Attorneys Brian Young and Wade Weems of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Mark W. Pletcher and Robert Huie of the Southern District of California.

Antitrust Division Increasing Procurement Fraud Footprint Once Again

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The Antitrust Division announced that a former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

This is a legacy case reassigned from the shuttered Atlanta Field Office suggesting a successful and a smooth transition of its assignment to the Washington 1 Criminal Office (formerly the National Criminal Enforcement Section).    For any tea leaf readers, AAG Bill Baer’s comments in this press release (reprinted below) suggest renewed focus by the Antitrust Division into procurement fraud and an increasing willingness to open, investigate and charge matters that involve non Title 15 U.S.C Section 1 offenses in all types of procurements.  The “tell” here is subtle, but it is very significant.

 Baer’s quote today:

 “Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

If you know the history of Title 18 procurement prosecutions, Baer’s commitment to bringing future procurement fraud cases is significant.  The Antitrust Division was a significant player during the Bush years’ National Procurement Fraud Task Force.  Besides domestic kickback and other Title 18 cases, the Division brought many overseas contingency operations (then “WarZone”) prosecutions for bidding corruption and grant fraud.  In fact, the Division had wide berth to investigate and prosecute cases that involved “corruption of the bidding or award process.”  This was a wider mandate than simply bringing cases of horizontal collusion among competitors.  The National Procurement Fraud Task Force was incorporated into the Financial Fraud Enforcement Task Force early in the Obama administration and resources were reallocated to new enforcement priorities in the wake of the financial crisis in 2008.  As everyone viewed their new enforcement mission through a financial crimes prism, the focus of the Antitrust Division returned to a more restrictive view of its mission, i.e., bringing Sherman Act cases under 15 U.S.C. Section 1.  At the height of this limitation, for an investigation to receive authority to be opened, it had to include evidence that on its face could be construed classic horizontal bid rigging conduct. 

It is beyond the scope of this blog entry, but there is much that goes into the press release process that provides insights into enforcement agency gestalt, resource allocation, drive to open cases, and willingness to keep cases open and to charge cases, particularly marginal ones.  A press release also can provide insight into the AAG’s mindset and, sometimes, even more importantly from an agency effectiveness perspective, what people reporting to the AAG think his mindset is.

Today’s quote from AAG Baer is instructive.  It is in an active, broad and forceful voice. In a sweeping statement it links “kickbacks” and “the Antitrust Division” in the same sentence and suggests direct Antitrust Division intervention.  Most importantly, it suggests an interest in crimes involving the payment of kickbacks to award contracts (a Title 18 offense where a Section 1 agreement between competitors is usually not present).  It then states that when offenses like these are committed they will be “tak[en] seriously…[and will be vigorously prosecut[ed]” by the Antitrust Division.

Contrast this with Baer’s statement in September 2013 regarding another case on the same investigation:

“Today’s sentence should serve as a stiff deterrent to executives who might be tempted to solicit a kickback from their supplies in exchange for their honest services,” said Bill Baer, Assistant Attorney General in charge of the Antitrust Division. “The Antitrust Division is committed to ensuring that contracts are won based on competition and not collusion.”

The 2013 AAG quote literally suggests that deterrence is provided by the length of this sentence rather than by any threat of immediate action by the Antitrust Division.  It then links to a general principle that references the blanket requirement imposed earlier in the Administration that a horizontal agreement between competitors had to be present to justify resources.  It also should be recognized that “collusion” is a primarily a term of art within the Antitrust Division directed at collusion among competitors rather than collusion with a contract officer. 

Baer’s current statement is forward-looking and reaffirms that procurement fraud as a Division priority.   For all intents and purposes, AAG Baer has indicated to line attorneys and the outside world (most importantly, investigative agencies) that the Antitrust Division is again open for cases of “corruption of the bidding or award process.”   This strongly suggests a move away from an exclusive focus on Invitation for Bids (IFB) contracting to the massively larger pie of “everything else” including cost plus contracts, prime vendor contracts, sole source contracts and even the issuance of grants.

To advise clients regarding risk analysis, GeyerGorey LLP has been tracking this progression because in many hidden, but key areas, the Antitrust Division provides disproportionate value to the government’s procurement fraud mission by supporting the agency mission, helping resource investigations and by providing continuity to long investigations and program management.  This message has been received loud and clear by Antitrust Division rank and file and it is in the process of being received by the FBI, IRS-CID and 38 Inspectors General who immediately recognize that they can bring cases to Antitrust that require extensive resourcing or which have been declined.   With history as a guide, we expect procurement fraud investigation openings to increase substantially and we expect current investigations to be prolonged or rekindled as resources are reallocated with Antitrust Division resources.  


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Former airline fuel owner sentenced in fraud scheme

Executive Sentenced to Serve 50 Months in Prison

A former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

Sean E. Wagner, the former owner and operator of Aviation Fuel International Inc. (AFI), was sentenced in the U.S. District Court for the Southern District of Florida in West Palm Beach to serve 50 months in prison and to pay $202,856 in restitution.  On Aug. 13, 2013, a grand jury returned an indictment against Wagner and AFI, charging them for their roles in a conspiracy to defraud Ryan. On March 6, 2014, Wagner pleaded guilty to one count of conspiracy to commit honest services wire fraud.   According to court documents, from at least as early as December 2005 through at least August 2009, Wagner and others at AFI made kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, totaling more than $200,000 in the form of checks, wire transfers, cash and gift cards in exchange for awarding business to AFI.  The charges against AFI were dismissed on Feb. 21, 2014.

Ryan provided air passenger and cargo services for corporations, private individuals and the U.S. government – including the U.S. Department of Defense and the U.S. Department of Homeland Security.

“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

“This sentencing highlights the continuing commitment of the DCIS to thoroughly investigate and bring to justice any companies or individuals who engage in fraudulent and corrupt practices that undermine the integrity of Department of Defense procurement programs,” said John F. Khin, Special Agent in Charge of the Defense Criminal Investigative Service Southeast Field Office.

As a result of the ongoing investigation, five individuals, including Wagner, have pleaded guilty and have been ordered to serve sentences ranging from 16 to 87 months in prison and to pay more than $780,000 in restitution.  An additional individual has pleaded guilty to obstructing the investigation and is currently awaiting sentencing.

The investigation is being conducted by the Antitrust Division’s Washington Criminal I office and the U.S. Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.

Former Executive Director of Virgin Islands Legislature Charged with Bribery and Extortion in Award of Government Contracts

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The former executive director of the Legislature of the Virgin Islands was indicted today by a federal grand jury in the Virgin Islands for accepting bribes and engaging in extortion in the award of contracts with the Legislature, announced Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division and U.S. Attorney Ronald W. Sharpe for the District of the Virgin Islands.
The indictment charges Louis “Lolo” Willis, 56, of St. Thomas, Virgin Islands, with three counts of federal programs bribery and three counts of extortion under color of official right.
According to the indictment, Willis was the executive director of the Legislature between 2009 and 2012.  One of his responsibilities included oversight of the renovation of the Legislature building, which included awarding and entering into contracts on behalf of the Legislature.    These contracts included contracts for general construction, air-conditioning services and carpentry, which were not publicly bid.  Willis was also responsible for paying the contractors for their work.    As alleged in the indictment, Willis accepted payments, including, among other things, thousands of dollars in cash, from three contractors in exchange for using his official position to secure contracting work for the contractors and to ensure they received payment upon completion.
An indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.
This case was investigated by the FBI’s San Juan Division, the Office of the Virgin Islands Inspector General and the Internal Revenue Service – Criminal Investigation.    The case is being prosecuted by Trial Attorneys Peter Mason and Jennifer Blackwell of the Criminal Division’s Public Integrity Section and First Assistant U.S. Attorney Thomas Anderson of the District of the Virgin Islands.