Thursday, September 29, 2016

Another "Rent-a-Vet" Scam Uncovered

In August 2014, a contractor plead guilty for using fronting companies to secure 45 contracts totaling $23 million that were set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs). In June 2015, a Grand Jury indicted three people from Puerto Rico for the same kind of scheme - calling it a multi-million dollar fraud. Just last month, the Justice Department announced another similar scheme where a company owner used stolen names and social security numbers to obtain $3 million in contracts that had been set aside for SDVOSBs.

Yesterday, the Justice Department announced another like-minded fraudster. The owner of a "sham Veteran Owned Company" has been sentenced to 30 months in prison and a fine of $1 million for falsely claiming SDVOSB status in securing more than $100 million in Government construction contracts.

In this case (you can read DOJ's full press release here), a fellow set up a construction company after recruiting a disable Korean War veteran to act as the company's "straw owner" for the sole purpose of obtaining federal construction contracts that had been set aside under the SDVOSB program. When the Korean War veteran's health deteriorated so he could no longer function, the true owner went out and hired another disabled veteran to serve as the figurehead owner. Since 2006, the company was able to obtain contracts worth more than $113 million under this ruse.

In 2010, one of the company's competitors challenged a bid on the basis that "it appeared that the true owner, not one of the veterans, was the person running the company. The true owner went out and hired a "large Boston law firm" to assist him, helping him to backdate documents that contained false and misleading information. That fooled the SBA (Small Business Administration) who subsequently denied the bid protest (we wonder what the law firm's culpability is in this matter).

After that scare, the owner started siphoning off money in such a way that it would not look like compensation. He did not want the books to show that he made more than the rented disabled veteran. There was a $900,000 "gift" made to the owner. There were also deposits to private bank accounts totaling $2.5 million.

Somebody, somewhere was working behind the scenes however because it wasn't too long before a grand jury issued subpoenas against the company, its owners, and other witnesses and the scheme began to unravel. The owner was found guilty by a jury last June and sentenced earlier this week to two and a half year in prison.

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