Coast Produce was awarded a contract to provide fresh fruits and vegetables to military dining facilities and Navy ships in the Southern California area. Under the terms of the contract, Coast Produce was to have charged the Government its cost (i.e. the prices it paid to its suppliers) plus an additional $1.50 per unit "distribution fee" that included Coast's overhead, packaging, transportation, profit, etc. The distribution fee did not vary with the price of the item. Thus, whether the price of vegetables or produced went up or down, the amount which Coast was paid for its role in sourcing and delivering them did not. Evidently, $1.50 per unit was not enough for Coast.
Coast began overcharging the Government for the cost of the produce in several ways. First, they instructed suppliers to provide inflated quotes for produce, which the company then submitted to the Government as pricing support while simultaneously instructing the two suppliers to actually bill at their regular lower prices. Second, Coast charged the Government more than it paid for bananas and pineapples under long-term fixed-price supply contracts. Finally, Coast submitted artificially high quotes to the Government from vendors it hand no intention of buying from - in order to set a payment rate, but then actually purchasing the produce it supplied at lower prices and pocketing the difference.
A whistleblower surfaced the allegations in 2008 when he filed a civil complaint in Federal court. The Government enjoined the suit and it took until last month to settle. Coast agreed to pay $4 million to resolve the civil allegations (admitting to no wrongdoing, of course) and the whistleblower received about $1 million of that amount. In should be noted that when the Government enjoins a whistleblower suit, most of the legal costs are subsumed by the Government resulting in the relator, not the attorneys, keeping most of the proceeds - in this case, most of the $1 million.
In a related matter, once the civil suit was settled, the Government slapped a criminal information against Coast alleging that the company altered or falsified records. The information alleged that Coast provided false invoices to the Government when it requested evidence concerning the prices Coast was paying for produce it provided the military. The criminal information was filed pursuant to a Deferred Prosecution Agreement in which the Government agreed to defer any criminal case against Coast for two years in return for the company's agreement to implement various compliance and remedial measures during that period.
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