Last week, I promised a two-part blog covering the recent False Claims Act lawsuit filed by the U.S. Government against a corporation and associated individuals for a rent-a-vet-scheme. This article continues it, but I wanted to begin by informing my readers that as of last week, Undersecretary for Benefits, Alison Hickey, resigned. This comes in the wake of a scandal relating to VA executives reaping hundreds of thousand dollars in relocation fees (for positions arguably created by them, for them). A Congressional hearing is scheduled in the near future, with five VA employees subpoenaed to appear. This isn’t something I want to cover in detail, but it’s important enough to pass on.
On to Part II of last week’s cautionary tale. In the case detailed, non-veterans approached a veteran with a full-time job elsewhere, installed him as the President of a corporation, and proceeded to pursue and win $24 million in service-disabled veteran-owned small business (SDVOSB) set-aside contracts while knowing the corporation was ineligible for the work. The U.S. Government is seeking damages for multiple counts of false claims, common law fraud, and unjust enrichment (the latter not discussed here). U.S. v. Strock Contracting, Inc., et. al. (1:15cv00887).*
The purpose of this blog is to explain exactly how much trouble you can get in for a scheme like this. Unlike with commercial contracts, government contracts are subject to a number of laws that carry civil and criminal penalties. (If you attempt to defraud the federal government, it gets very, very mad. Just in case that isn’t already abundantly clear.).
Count I of the Complaint accuses the defendants of violating the False Claims Act (FCA) by presenting false or fraudulent claims for payment. A “false claim” occurs every time an ineligible company knowingly asks for payment under an SDVOSB set-aside. Think of how many invoices one submits during the life of a contract.
Count II of the Complaint accuses the defendants of violating the FCA by making or using a false record or statement. These false claims occur when a non-eligible corporation (knowing it is not eligible) seeks verification for set-asides with the VA (by going through the verification process), self-certifies on SAM, and bids on contracts.
Count III of the Complaint alleges conspiracy to violate the FCA by conspiring to submit or causing to be submitted a false claim or statement. A conspiracy claim would apply to any person who participated in a scheme – the folks who gathered the information for VetBiz submission, who hid the veteran’s non-involvement in the corporation from contracting officials. . . This means that you can be liable if you are an employee who goes along with a scheme, knowing it’s wrong.
Count IV of the Complaint is for common law fraud, which is generally a very difficult claim to prove. To be liable for fraud, one must make a misrepresentation of material fact, which someone else relies upon in acting. Here, the fraud is tied to the corporation claiming to be an SDVOSB, which was material to it obtaining contracts.
Did you notice how all of these claims are tied to the same sequence of events/scheme? This kind of endeavor puts a corporation at significant risk for treble damages, criminal penalties, high civil penalties, etc, because each invoice submitted, email sent, and bid submitted, can be a separate violation. Accordingly, if you have any question as to whether what you are doing is legal, seek out proper advice. Even if it’s an honest mistake, “I didn’t know any better” won’t work against the federal government for many types of regulatory violations (At least with the FCA, you have to act knowingly).
This cautionary tale continues. The Complaint was filed on October 7, and from the history in the Complaint, it appears the Parties were in negotiations and discussions for quite some time prior to that. I’ll cover this case more, as the situation warrants, so stay tuned…
*The facts set forth in the Complaint and here are allegations only; liability is yet to be determined.
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This kind of red tape is why, had I my own company, I would AVOID doing business with Uncle SAM!
Another excellent piece of information.