Category Archives: Procurement Fraud

FLORIDA AIRLINE FUEL SUPPLY COMPANY AND ITS OWNER INDICTED FOR ROLE IN SCHEME TO DEFRAUD ILLINOIS-BASED RYAN INTERNATIONAL AIRLINES

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WASHINGTON — A Florida-based airline fuel supply service company and its former owner and operator were indicted yesterday on charges of participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

A federal grand jury in the U.S. District Court for the Southern District of Florida in West Palm Beach, Fla., returned an indictment against Sean E. Wagner and his company Aviation Fuel International Inc. (AFI), an airline fuel supply company.  The indictment alleges that Wagner and AFI participated in a conspiracy to defraud Ryan, a charter airline company based in Rockford, Ill., by making kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, in exchange for awarding business to AFI. Wagner was arrested on July 19, 2013, in Weston, Fla., on a one-count criminal complaint in connection with these charges.

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.

The indictment alleges, among other things, that from at least as early as December 2005 through at least August 2009, Wagner, AFI and others made kickback payments totaling more than $200,000, in the form of checks, wire transfers, cash and gift cards, to Kepple while working at Ryan.

“The conspirators traded contracts for kickbacks and took affirmative steps to hide their illegal scheme, including wiring payments to personal bank accounts and making secret cash payments,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “The division will continue to aggressively prosecute companies and individuals that seek to defraud the government and U.S. taxpayers by thwarting the competitive process.”

Wagner and AFI are charged with one count of conspiracy to commit wire fraud and honest services fraud, as well as two counts of wire fraud and two counts of mail fraud.  Each count carries a maximum sentence of 20 years in prison and a $250,000 criminal fine for individuals and a $500,000 criminal fine for corporations.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine.

As a result of this ongoing investigation, four individuals have pleaded guilty to date. Three of the individuals have been ordered to serve sentences ranging from 16 to 24 months in prison and to pay more than $220,000 in restitution.  The fourth individual, Kepple, pleaded guilty and is currently awaiting sentencing.

The charges are the result of an investigation being conducted by the Antitrust Division’s National Criminal Enforcement Section and the U.S. Department of Defense’s Office of Inspector General with assistance from the U.S. Attorney’s Office for the Southern District of Florida.

Texas Businessman Agrees to Settle False Claims Allegations Involving the E-Rate Program

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Larry Lehmann of Giddings, Texas has agreed to pay $400,000 to settle allegations that he violated the False Claims Act in connection with the Federal Communications Commission’s E-rate Program, the Department of Justice announced today. The E-rate Program, created by Congress in the Telecommunications Act of 1996, subsidizes eligible equipment and services to make Internet access and internal networking more affordable for public schools and libraries.  The Houston Independent School District (HISD) was one of the applicants that successfully sought and received E-rate subsidies from 2004 through 2006.

“The E-rate Program provides vital support for our nation’s students and schools,” said Stuart F. Delery, Assistant Attorney General for the Civil Division of the Department of Justice.  “We are committed to protecting the integrity of this important program, which helps our children connect to the digital world.”

“Our office is committed to protecting the integrity of government initiatives,” said U.S. Attorney Kenneth Magidson.  “We will continue to work closely with the Department in cases such as this one to ensure the E-rate and other federal programs are free from fraudulent and deceitful claims.”

Lehmann functioned as the CEO and managing partner of Acclaim Professional Services (Acclaim), which partnered with other companies to provide E-rate funded equipment and services to HISD during this period.  The United States contended that, in violation of E-rate competitive bidding requirements and HISD procurement rules, Lehmann provided gifts and loans to HISD employees, including tickets to sporting events and two loans totaling $66,750 to an HISD employee who was involved in the procurement and administration of HISD’s E-rate projects.

The United States also alleged that Lehmann helped devise a scheme in which HISD outsourced some of its employees to Acclaim, which allowed them to continue to work for HISD while passing the cost on to the E-rate Program.  The United States further alleged that, with Lehmann’s approval, Acclaim hid the cost of these employees in its E-rate Program invoices by rolling them into the cost of eligible goods and services.

The settlement with Lehmann is part of a broader investigation by the United States of E-rate funding requests submitted by HISD and the Dallas Independent School District (DISD).  The government previously recovered $16.25 million from Hewlett-Packard, $850,000 from HISD, and $750,000 from DISD.  The government’s investigation was initiated, in part, by a qui tam or whistleblower lawsuit filed under the False Claims Act by Dave Richardson and Dave Gillis, who investigated allegations of improprieties based on Richardson’s experience bidding for contracts at HISD and DISD.  The False Claims Act authorizes private parties to file suit for false claims on behalf of the United States and share in the government’s recovery.  The United States intervened in Richardson and Gillis’ lawsuit, and added Lehmann as a defendant.

“E-rate is one of the FCC’s biggest success stories, helping connect nearly every U.S. library and school to the Internet,” said Julie Veach, Chief of the FCC Wireline Competition Bureau.  “We take any abuse of our rules seriously and thank the Department of Justice for their assistance in protecting the integrity of the E-rate Program for students, teachers, and libraries across the country.  Today’s action is a signal to those interested in profiting at the expense of our nation’s schools and libraries: fraud doesn’t pay.”

This case was handled by the U.S. Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Southern District of Texas, and the FCC’s Office of the Inspector General and Office of the General Counsel.

The claims resolved by this settlement are allegations only, and there has been no determination of liability.  The lawsuit against Lehmann is captioned United States ex rel. Dave Richardson and Dave Gillis v. Larry Lehmann, Civil Action No. 4:05-cv-3836 (S.D. Tex.).

Two Mayors and Two Lobbyists Charged in Separate Corruption Investigations Mayor of Sweetwater Received More Than $40,000 in Bribes; Mayor of Miami Lakes Received $6,750 in Bribes

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Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, and Michael B. Steinbach, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, announce that four individuals have been charged in two separate complaints involving public corruption allegations. The first complaint charges Manuel L. Maroño, 41, the mayor of Sweetwater, and two lobbyists, Jorge L. Forte, 41, and Richard F. Candia, 49, all of Miami, for their alleged participation in a kickback and bribery scheme (the Maroño complaint) in connection with purported federal grants for the city of Sweetwater. The second complaint charges Michael A. Pizzi, 51, the mayor of Miami Lakes and town attorney for the town of Medley, and Richard F. Candia, in a separate kickback and bribery scheme in connection with purported federal grants for both Miami Lakes and Medley (the Pizzi complaint). Both complaints charge the defendants with conspiracy to commit extortion under color of official right, in violation of Title 18, United States Code, Section 1951(a).

U.S. Attorney Wifredo A. Ferrer stated, “Our democracy suffers when, as in these cases, elected officials use their power and political influence for personal gain instead of for the public good. Public corruption, at any level of government, corrodes and undermines the public’s confidence in our system of government. We are committed to stopping this corrosion and to help restore transparency to local government.”

“For the public to have confidence in their government, they must be certain that their elected officials will not use their position for personal gain,” said Michael B. Steinbach, Special Agent in Charge, FBI Miami. “We encourage anyone who may have information about corruption to come forward and report it. This information is critical to our work. The South Florida community can be assured that public corruption will remain a top priority for the FBI.”

The defendants made their initial appearances in federal court today at 1:30 p.m. before U.S. Magistrate Judge Andrea Simonton. If convicted, the defendants face a maximum statutory penalty of up to 20 years in prison.

Investigation Background

The investigation began in approximately June 2011, when Candia began dealing with an FBI confidential source and two undercover FBI agents posing as the owners of a Chicago-based grant administration business. During meetings, the undercover agents represented to Candia that, with the aid of corrupt local public officials, they could obtain federal grant moneys, which they would then keep and distribute among themselves. After listening to the undercover agents’ proposal, Candia identified Maroño and Pizzi as potential participants in the scheme.

The Sweetwater Deal—Manuel Maroño

According to the Maroño complaint affidavit, after identifying Maroño as a potential participant in the proposed scheme, Candia introduced Maroño to the undercover agents. Maroño caused the passage of a resolution in Sweetwater that authorized the undercover agents’ company to apply for federal grant moneys on behalf of the city of Sweetwater. After the resolution was passed, Maroño and Forte personally met and negotiated with the undercover agents and accepted a series of cash payments in exchange for Maroño’s official action in support of the grant scheme. During these negotiations and meetings, Forte acted as the front man for Maroño.

To further the scheme and avoid detection, Maroño also participated in what he believed to be audit telephone calls from a federal grant auditor to confirm the grantee’s performance on the grant. During two separate audit calls, both of which were recorded, Maroño lied to and misled the auditor, who was in fact an undercover FBI agent, about the actual use of the grant money and the grantee’s performance. For their actions, Maroño and Forte received $40,000 and Candia received at least $5,000 in kickbacks in connection with the Sweetwater deal.

Lastly, Maroño, Forte, and Candia received additional payments for their assistance in identifying other public officials whom they claimed might also be interested in participating in similar grant schemes in their cities. To this end, Maroño, Forte, and Candia used Maroño’s position as President of the Florida League of Cities to introduce the scheme to other officials. Maroño and Forte received an additional $20,000 in cash for these introductions, but no other public officials ultimately participated in the scheme.

The Miami Lakes/Medley Deals—Michael Pizzi

The second complaint charges Michael Pizzi and Candia with engaging in a similar grant scheme in Miami Lakes and Medley. As more fully explained in the affidavit filed in support of the Pizzi complaint, Candia introduced Pizzi to the undercover FBI agents to help implement the grant scheme in Medley, where Pizzi was the town attorney. After a series of meetings with Candia and the undercover agents, Pizzi initially agreed to participate in the scheme in exchange for $750 in campaign contributions, which he received in three separate checks delivered to his office by the FBI confidential source.

Thereafter, to aid in the grant scheme’s success, Pizzi backdated a document that endorsed the undercover agents’ company. Pizzi also handled what he believed to be an audit telephone call from a federal grant auditor to confirm the grantee’s performance on the grant. During that call, which was recorded, Pizzi lied to and misled the auditor, who was in fact an undercover FBI agent, about the actual use of the grant money and the grantee’s performance. In return for Pizzi’s help in Medley, Pizzi received a $1,000 cash kickback and other things of value.

Later, with the intent of expanding the grant scheme to Miami Lakes, Pizzi worked to get a resolution passed in Miami Lakes that would authorize the undercover FBI agents’ company to seek additional grant funds for the city of Miami Lakes. In exchange for his work in Miami Lakes, Pizzi received additional $2,000 and $3,000 cash pay-offs.

These cases were investigated by the FBI Miami Area Public Corruption Task Force with assistance from the City of Miami Police Department, Hialeah Police Department, Miami Beach Police Department, Miami Dade Police Department, and Customs and Border Protection-Internal Affairs. The cases are being prosecuted by Assistant U.S. Attorney Jared E. Dwyer.

A complaint is only an accusation and a defendant is presumed innocent until and unless proven

Noted Antitrust and Disaster Fraud Prosecutor Joan E. Marshall Joins GeyerGorey LLP

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Joan Marshall who prosecuted the worldwide vitamins cartel and brought a series of fraud cases in the aftermath of Hurricane Katrina, has joined the firm as a partner. Previously, Ms. Marshall was with the US DOJ Antitrust Division in the Dallas Field Office. She is the tenth former DOJ prosecutor to join the new boutique law firm in less than a year.Joan Marshall_4small

FOR IMMEDIATE RELEASE

 

PRLog (Press Release) – Aug. 6, 2013 – WASHINGTON, D.C. — GeyerGorey LLP is pleased to announce that Joan E. Marshall, a former Department of Justice prosecutor, has joined the firm as partner. Ms. Marshall will open a new office for the firm, in Dallas, where she will be resident.

Ms. Marshall comes to GeyerGorey from the Antitrust Division of the Department of Justice, where she also served as a prosecutor on the Department’s Disaster Fraud Task Force and its predecessor, the Hurricane Katrina Fraud Task Force. While with the Department of Justice, Ms. Marshall supervised numerous multi-agency investigations of bid rigging, price fixing, mail fraud, wire fraud, bank fraud, bribery, perjury and obstruction of justice.

Ms. Marshall had the distinction of breaking the Dallas Field Office’s acclaimed vitamins cartel case and helped to devise, structure and carry out what became one of the most comprehensive international investigations and prosecutions of all time, resulting in more than $1 billion in collected criminal fines. She led the Antitrust Division’s bribery prosecutions involving construction of the levees surrounding New Orleans after the devastation of Hurricane Katrina. Her experience spans investigations and prosecutions involving numerous industries including wholesale groceries, milk, seafood, medical equipment, oilfield supplies, military moving and storage, road and building construction, and municipal finance.

“We are thrilled that Joan has decided to join us,” said Hays Gorey. “She adds deep experience with numerous enforcement agencies and compliments our experience in key industries like oil and gas exploration, not to mention the fraud piece. Our corporate compliance and competition expertise is a perfect fit in the Dallas-Ft. Worth market, which has the largest concentration of corporate headquarters in the United States.”

Ms. Marshall is a frequent speaker on antitrust enforcement and fraud prevention and detection and has developed numerous training programs. She is a recipient of the United States Department of Justice, Assistant Attorney General’s Award and certificates of appreciation from the United States Department of Homeland Security, Office of Inspector General, and the United States Army Criminal Investigation Command, Major Procurement Fraud Unit.

Robert Zastrow, who was Verizon’s Assistant General Counsel for 15 years before co-founding the firm in October 2012, added, “Joan’s extensive background and expertise nicely complements our firm’s unique philosophy and enriches our solid bench in the White Collar world.” Co-founder, Brad Geyer added: “We are very involved in servicing the government contractor and the non-profit and non-governmental organization community and we are excited to roll in Joan’s disaster fraud experience into our overall product offerings. It is also unusual to have career prosecutors in one firm that worked on the highest profile matters on both the criminal and civil worlds. Joan will give us a strategic presence in the Dallas market, which is home to companies in the airline, technology, energy, banking, medical and defense contracting sectors.”

Headquartered in Washington, D.C., GeyerGorey LLP specializes in white collar criminal defense, particularly investigations and cases involving allegations of economic crimes, such as violations of the federal antitrust laws (price fixing, bid rigging, territorial and customer allocation agreements), procurement fraud, securities fraud, foreign bribery (Foreign Corrupt Practices Act) and qui tam (False Claims Act) and other whistleblower actions. The firm also conducts internal investigations of possible criminal conduct and provides advice regarding compliance with U.S. antitrust, anti-bribery and other laws.

 

 

 

 

 

   

Phillip Zane’s Game Theory: Ten Years On

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Ten years ago this spring, Zane published his definitive work on game theory which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, when, and how corporations and executive management teams should disclose white collar criminal conduct.

Phillip Zane be the only attorney whose colleagues and clients might expect to see an open book on games and strategy on his desk.

Ten years ago this spring, Zane published The Price Fixer’s Dilemma:  Applying Game Theory to the Decision of Whether to Plead Guilty to Antitrust Crimes, 48 Antitrust Bull. 1 (2003), which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, and when, to settle high-stakes antitrust cases.

Zane’s article strongly suggested that in a number of common situations, pleading guilty (or even seeking the protections of the corporate leniency program) is not always justified.  Zane’s article used a repeated, or iterative, version of the prisoner’s dilemma to demonstrate that pleading guilty was not always the best strategy for antitrust defendants facing criminal prosecution and civil liability in multiple proceedings or jurisdictions.

At the time, a few of the brainier Antitrust Division prosecutors breathed a sigh of relief when the defense bar did not seem to notice and they failed to incorporate Zane’s research into their negotiating strategies.

In 2007, Zane published “An Introduction to Game Theory for Antitrust Lawyers,” which he used in a unit of an antitrust class he taught at George Mason University School of Law. That paper was another milestone on the way to making game theory concepts accessible and useful to the antitrust defense bar.

Zane’s work, which now used game theory to criticize the settlement of the second Microsoft case and the Government’s approach to conscious parallelism, as well as the leniency program, was met with official grumblings within the Antitrust Division.

GeyerGorey LLP was founded on the principle that the chances for achieving the best possible outcome are maximized by having access to multiple, top-notch, cross-disciplinary legal minds that are synced together by an organizational and compensation structure that encourages sharing of ideas and information in client relationships.

As international enforcement agencies sprouted and developed criminal capabilities and as more hybrid matters included prosecutors from US enforcement agency components with sometimes overlapping jurisdictions, such as the Antitrust, Criminal, Civil and Tax Divisions of the Department of Justice, and the alphabet soup of regulatory agencies, particularly the Securities and Exchange Commission, it became apparent that Zane’s game-theoretic approach has application in almost every significant decision we could be called upon to make.  Since Zane has joined us we have been working to factor in the increased risks associated with what we call hybrid conduct (conduct that violates more than a single statute).  Our tools of analysis for identifying risks for violations of competition laws, anti-corruption laws, anti-money-laundering laws, and other prohibitions, include sophisticated game-theoretic techniques, as well as, of course, the noses of former seasoned prosecutors, taking into account, each particular client’s tolerance for risk.

To take one example, an internal investigation might show both possible price fixing and bribery of foreign government officials.  How, given the potential for multiple prosecutions, should decisions to defend or cooperate be assessed?  And how might such decisions trigger interest by the Tax Division, the SEC, the Commodities Futures Trading Commission, the Federal Energy Regulatory Commission or other regulators.  When should a corporation launch an internal investigation?  When should it make a mandatory disclosure?  What should it disclose and to which agency, in what order?  When should it seek leniency and when should it instead stand silent?  These tools are valuable in the civil context as well:  When should it abandon a proposed merger or instead oppose an enforcement agency’s challenge to a proposed deal?

These are truly the most difficult questions a lawyer advising large corporations is required to address.  We are well positioned to help answer these questions.

Cheating in Contracts: A $30 Million Case of Corruption

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Cheating in Contracts
A $30 Million Case of Corruption

07/19/13

 

Five aces

It’s been billed as the “largest domestic bribery and bid-rigging scheme in the history of federal contracting cases.”

 

Specifically, over a five-year period, more than $30 million was illegally siphoned from federal coffers by a ring of crooked public officials and government contractors in the D.C. area operating via bribes, kickbacks, and other dirty dealings.

 

A big fix, especially in lean budget times. The plot was thickening, too—a billion-dollar government contract was about to be steered illegally into favored hands in exchange for sizeable payments under the table.

 

But ultimately the hammer fell, and fell hard, following a massive, multi-year investigation by the FBI and its partners called Five Aces (a reference to cheating by stacking the deck) that came to light in October 2011 after the first arrests. A total of 15 federal employees and contractors—plus one company, Nova Datacom—have since pled guilty. That includes the mastermind of the conspiracy, Kerry Khan, who just last week was sentenced to nearly 20 years in prison.

 

Khan, while serving as a program manager and contracting officer’s technical representative for the U.S. Army Corps of Engineers, cooked up the bribery scheme in 2006 with his co-worker Michael Alexander to take their own piece of the contracting pie.

 

The case evolved into a complicated conspiracy, involving six different companies and several shady practices. The FBI began its investigation in the summer of 2009, when we received a tip indicating that an area business was submitting phony references and evaluations to boost its chances of getting government contracts. The company, we discovered, also had a disabled veteran falsely posing as its owner—which gave it an advantage under federal contracting laws.

 

We soon learned that Khan and his criminal colleague had created a network of crooked contractors who agreed to pay them bribes and kickbacks in exchange for winning deals. In most of those cases, the contracts were fulfilled and the work done, but often times there were extra charges disguised as “overhead” on the bills…and most of that money ended up in Khan’s pockets. In other instances, Khan awarded contracts to straw subcontractors and paid fake invoices submitted by the fictitious companies.

 

For the members of the criminal conspiracy, it was a lucrative enterprise—especially for Khan, who was paid, directly and indirectly, more than $12 million. Khan used the money to live large: in addition to paying off his mortgage and remodeling his house, he purchased flat screen TVs, computers, luxury watches, airline tickets, accommodations in five-star hotels, high-end liquor, and a dozen properties in three states. And apparently, money is thicker than blood in some cases—Khan got his son and brother involved in the scheme (both have since pled guilty).

 

Five Aces was a multi-agency undertaking from the start, with the FBI and its partners uncovering vital evidence using sophisticated investigative techniques, including consensual recordings by cooperating witnesses and court-authorized wiretaps. We heard details about crimes directly from the mouths of the criminals committing them.

 

Justice has been served, and just as importantly, more than $32 million is being rightfully returned to the U.S. government and the American people. It’s another case in point as to why the FBI continues to focus squarely on public corruption as its top criminal investigative priority.

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

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

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

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

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

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

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

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

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

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

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

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

GGLLP Alert: Changes to the False Claims Act Under the Patient Protection and Affordable Care Act

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Changes to the False Claims Act Under the Patient Protection and Affordable Care Act

The 2010 Patient Protection and Affordable Care Act (PPACA) made a number of significant changes to the False Claims Act, including the following:

Original Source Requirement.  A plaintiff may now overcome the public disclosure if he or she qualifies as an “original source.”  The PPACA revised the definition of this term.  Previously, an original source had to have “direct and independent knowledge of the information on which the allegations [were] based.”  Now, an original source may be a person who merely has “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”  See 31 U.S.C. 3730(e)(4)(B).

Changes to the Public Disclosure Bar.  Previously, relators were precluded from proceeding if there had been a public disclosure of information.  This disclosure could have occurred in news reports, a Freedom of Information Act response, court proceedings or in any number of ways.  Thus, the public disclosure bar often served as a basis for dismissal.  The PPACA amended the False Claims Act to allow the government to have the final say on whether a court could properly dismiss a case based on a public disclosure.  The statute now provides that “the court shall dismiss an action unless opposed by the Government, if substantially the same allegations or transaction alleged in the action or claim were publicly disclosed.”  See 31 U.S.C. 3730(e)(4)(A).

Overpayments.  In the prior law, there was confusion as to the “obligation” under the False Claims Act not to retain overpayments and when such overpayments had to be returned after their discovery.  Now, under the PPACA, overpayments under Medicare and Medicaid must be reported and returned within 60 days of discovery, or the date a corresponding hospital report is due.  The failure timely to report and return an overpayment exposes a provider to False Claims Act liability.

Statutory Anti-Kickback Liability. The federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (AKS), makes it a crime for any person to solicit, receive, offer or pay remuneration (monetary or otherwise) in exchange for referring patients to receive certain services that are paid for by the government.  Previously, many courts had interpreted the False Claims Act to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to liability under the False Claims Act (in addition to AKS penalties). Even though this was the majority rule, some courts held otherwise and the issue was always present in every case.  The PPACA changed the language of the AKS to provide that claims submitted in violation of the AKS automatically constitute false claims for purposes of the False Claims Act.  Further, the new language provides that “a person need not have actual knowledge … or specific intent to commit a violation” of the AKS.

Caddell Construction Agrees to Pay $1,150,000 to Resolve False Claims Allegations

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United States Alleges that Company Falsely Claimed Payment For Native American-Owned Business Participation

The Justice Department announced today that Alabama-based Caddell Construction has agreed to pay to the United States $1,150,000 to settle allegations that it violated the False Claims Act by falsely reporting to the Army Corps of Engineers that it hired and mentored a Native American-owned company to work on construction projects at Fort Bragg, N.C., and Fort Campbell, Ky.

The Army Corps contracted with Caddell between 2003 and 2005 to build barracks at the two bases. As part of the contracts, Caddell represented that it would hire and mentor Mountain Chief Management Services, a Native American-owned company, under the Department of Defense’s Mentor-Protégé and Indian Incentive Programs.   The Mentor-Protégé Program reimburses companies for the time and cost of mentoring small disadvantaged businesses, while the Indian Incentive Program provides a rebate to contractors for subcontracting with Native American-owned businesses.

The United States alleged that from April 2003 to March 2005, Caddell falsely represented in its invoices and supporting documents that it was mentoring Mountain Chief and that Mountain Chief was performing work on the construction projects.   According to the government, Mountain Chief allegedly was merely a pass-through entity used by Caddell to claim payments under the two programs, and didn’t perform the work or receive the mentoring services for which Caddell received payment.

“Contractors that subvert important government programs, such as those designed to benefit small and Native American-owned businesses, will be held accountable,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division of the Department of Justice.  “We will work tirelessly to ensure that participants in federal programs and benefits receive only the money to which they are entitled.”

Caddell’s former director of business development, Mark Hill, and Mountain Chief’s former president, Daniel Chattin, were indicted on related charges in federal district court for the Middle District of Alabama in January 2012.   Both are awaiting trial.   In December 2012, Caddell entered into a non-prosecution agreement with the United States under which it agreed to pay the United States $2 million and to cooperate in the ongoing criminal matter.

The civil case was handled by the Civil Division of the Department of Justice, with investigative assistance provided by the General Services Administration Office of Inspector General and the Defense Criminal Investigative Service.

Tanzania’s Contract Registration Board Holds First Procurement Fraud Best Practices Workshop With Assistance From GeyerGorey LLP

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From February 25 through March 1st 2013, at the Grand Hyatt in Dubai, United Arab Emirates, the Contractors’ Registration Board (CRB) of Tanzania hosted the first in a series of comprehensive multi-day procurement fraud training programs.

FOR IMMEDIATE RELEASE

PRLog (Press Release) – Mar. 21, 2013 – From February 25 through March 1st 2013, at the Grand Hyatt in Dubai, United Arab Emirates, the Contractors’ Registration Board (CRB) of Tanzania hosted the first in a series of comprehensive multi-day procurement fraud training programs.

Chief Executive Officer Bonaface Megage announced that the CRB intended this program to be the beginning of a national procurement fraud initiative established to promote the early detection, prevention and prosecution of procurement fraud associated with increased contracting activity for government programs necessary to support a growing Tanzanian economy.  “In the weeks and months to come, we will be reaching out to other agencies within Tanzania and asking them for their support in our continuing efforts to eliminate fraud from the procurement process,” stated CRB’s Chairman of the Board Consolata Ngimbwa.  “We wanted to create the leading best practices contracting program in our region of the world and that is why we invited business sector leaders in the Tanzanian economy to incorporate their experiences and help us shape a fraud enforcement program that is in parity with other international programs and yet still unique to Tanzania.”
Conceived and coordinated under the capable guidance and supervision of Professor Charles Inyangete, of T-Mortgage Limited, a noted scholar, advisor and consultant on the African continent involving procurement, finance, economic policy, banking and financial risk, the conference incorporated three full days of instruction and included a final day “Master Class” that blended US case hypotheticals with Tanzanian enforcement experience.  “We were immensely pleased with the advice, counsel and three days of instruction provided by Bradford L Geyer (from GeyerGorey LLP, an American law firm based out of New York and Washington D.C. that specializes on international fraud enforcement programs, compliance and white collar defense).  “Mr. Geyer used a five year period of American experience of Overseas Contingency Operations Contracting and compared and contrasted it with the challenges we face here in Tanzania.  While doing so, he familiarized our participants with cutting edge technologies in best contracting practices and compliance that focused on competition, antitrust, Foreign Corrupt Practices Act (FCPA), anti-money laundering, reporting structures, document control and preservation, and risk management.”

CRB Vice Chairman Joseph Tango stated that “[Tanzanians] and the international community are committed to preserving our ethical contracting environment in Tanzania.  We recognize that the companies we need to engage desire to operate in a competitive environment that is predictable, ethical and safe from corruption. This should be a welcome call especially to European and American companies who seek to become responsible business partners in our development efforts, but it is also a warning shot to those who would seek to corrupt and pervert our system.  Currently, our system like every other on the globe faces challenges in this regard, but we stand committed to overcoming these challenges.”

The participants in the first Tanzanian Contract and Procurement Fraud Workshop were selected from inside and outside of Tanzanian government for their expertise, experience and leadership qualities and had agreed by consensus to incorporate the technologies they learned at the conference back to their home offices to share with colleagues.