Department of Justice press release that was issued April 21, 2017 stated that owners of San Diego area local construction and telecommunications companies were arraigned in federal court on charges that they fraudulently obtained more than $11 million in federal contracts specifically set aside for service-disabled veteran-owned businesses.
The indictment alleges that the defendants participated in a conspiracy to defraud the government by forming a joint venture and falsely representing that the JV qualified as service-disabled veteran-owned small businesses (SDVOSB).
Based on the false claim to SDVOSB eligibility, the conspirators fraudulently obtained approximately $11 million in federal government construction contracts or task orders with the Department of Veteran Affairs (VA) and the Army Corps of Engineers.
To appear qualified, the companies initially executed an agreement to create the joint venture, which stated that one company would be the managing partner, employ a project manager for each of the set-aside contracts, and receive the majority of the JV’s profits.
However, six months later, the parties signed a secret side agreement that made clear the JV was ineligible under the SDVOSB program. The side agreement also stated that the other company would run the construction jobs and keep 98% of every payment.
All four defendants are also facing civil charges in United States v. Otero, et al., Case No. 15CV0441-JAH, a case alleging violations of the false claims act based on the similar misconduct.
So the moral of the story is that if you are trying to defraud the government, you will get caught. It is particularly distasteful to me that companies represent themselves as service-disabled when they do not qualify for that designation. It’s offensive to all the millions of former service members who are service-disabled and deserve the benefits intended under the SDVOSB rules.