The Justice Department just announced that a Federal Grand Jury indicted three men with a 12-year fraud involving over $200 million in Government contracts - contracts intended for small business but actually performed by large businesses. This latest case is hardly unique. We've been reporting for some time about large companies using using straw owners to get work intended for small businesses. What is surprising about this case is the magnitude ($200 million) and its duration (12 years).
The defendants were charged with a conspiracy to commit fraud. The conspiracy involved operating construction companies with straw owners who qualified as a disadvantaged individual or as a service-disabled veteran, but who did not actually control the companies. The conspirators fraudulently obtained small business program certifications to win Government contracts to which they were not entitled. Thus, they enriched themselves, undermined the small business programs, and deprived honest small businesses the opportunities for work.
There were at least three companies involved.
- Nuvo Construction was misrepresented to be majority-owned and controlled by a person referred to as JL in order to obtain certifications as a Small Disadvantaged Business. In reality, JL worked full-time for a different company and did not actually control Nuvo.
- C3T was misrepresented to be majority owned and controlled by a person referred to as TA to obtain verification as a Service-Disabled Veteran-Owned Small Business. In reality, TA had virtually no involvement in C3T.
- Pagasa was misrepresented to be a majority owned and controlled by a person referred to as OM in order to obtain certification as a Small Disadvantaged Business. In reality, OM relied on the assistance of conspirators to form Pagasa.
When interviewed, the principles involved in the scheme made materially false statements to investigators. But in the end, the Government found enough information for the indictment. They laundered proceeds of the fraud scheme in order to disguise and conceal the nature, source, and location of those fraud proceeds. They transferred fraud proceeds from these company accounts to accounts that they controlled.
Now the individuals are faced with the prospect of significant jail time and fines. Already the Government has confiscated more than $2.2 million from bank accounts and a Corvette.
You can read more about this case in the DOJ press release.