Investigations Newsletter: Contractors to Pay Over $2.8 Million to Settle Small Business Contract Fraud Allegations

Arent Fox

DOJ News & Litigation Updates

Contractors to Pay Over $2.8 Million to Settle Small Business Contract Fraud Allegations

On June 2, 2020, the Department of Justice announced that Ross Group Construction Corporation and its affiliates agreed to pay over $2.8 million to settle allegations that the Oklahoma-based contractor group violated the False Claims Act.

Because of its size, the Ross Group could not meet the defined eligibility criteria, including those concerning size, for purposes of the US Small Business Administration programs. The DOJ alleged, however, that the Ross Group created two companies, PentaCon LLC and C3 LLC, in order to obtain contracts that were set aside for small businesses. The Ross Group allegedly maintained effective control over the day-to-day and long-term management decisions of the two companies, including by controlling their financial affairs and business operations, and thus the companies were ineligible for the SBA contracts. The DOJ alleged that Ross Group concealed their affiliation with the companies and knowingly misrepresented their eligibility for the contracts, thereby inducing the government to award them the SBA contracts.

This settlement resolves a lawsuit filed in the Western District of Oklahoma under the whistleblower provisions of the False Claims Act. The whistleblower will receive approximately $520,000 of the settlement.

See here for the DOJ press release.

Mississippi Department of Human Services to Pay $5 Million to Resolve False Claims Act Allegations For SNAP Quality Control

On June 1, 2020, the DOJ announced that the Mississippi Department of Human Services agreed to pay $5 million to resolve False Claims Act allegations pertaining to its administration of the US Department of Agriculture’s Supplemental Nutrition Assistance Program.

The federal government relies on states to administer SNAP benefits, including by determining whether applicants are eligible for the benefits. In addition to reimbursement for a portion of the states’ administrative expenses, USDA also pays annual performance bonuses to states with the lowest and most improved error rates in making SNAP eligibility determinations. DOJ alleged that MDHS submitted false quality control data and information to the USDA when it implemented recommendations from a consultant that injected bias into MDHS’s quality control process. The DOJ alleged that, as a result, MDHS received undeserved performance bonuses for the 2012 and 2013 fiscal years.

This marks the sixth settlement with a state agency for the manipulation of its SNAP quality control findings: the DOJ previously reached settlements with agencies in Virginia, Wisconsin, Texas, Louisiana, and Alaska. The United States has now recovered over $41 million in connection with this investigation.

See here for the DOJ press release.

SEC Updates

ICO Issuer to Return Money for Distribution to Investors

On May 28, 2020, the Securities and Exchange Commission announced charges against BitClave PTE Ltd., a blockchain services company headquartered in California, for conducting an unregistered initial coin offering (ICO) of digital asset securities. In its offering materials, BitClave explained that it planned to use the ICO proceeds to develop, administer, and market a blockchain-based search platform for targeted consumer advertising.

According to the SEC, BitClave raised over $25 million by selling Consumer Activity Tokens but failed to register its offers and sales of CAT in violation of the registration provisions of the federal securities laws. Without admitting or denying these findings, BitClave agreed to pay disgorgement of $25,500,000, prejudgment interest of $3,444,197, and a penalty of $400,000. The SEC’s order established a Fair Fund to return monies to the approximately 9,500 injured investors. BitClave also agreed to transfer the remaining CAT in its control to the fund administrator for permanent disabling and request the removal of its CAT from all digital asset trading platforms.

See here for the SEC press release.

Our Analysis

DOJ Updates Corporate Compliance Guidance, Continues Focus on Risk, Reporting, and Training

Earlier this week, the US Department of Justice published updated guidance on how it evaluates corporate compliance programs when conducting investigations, making charging decisions, and negotiating pleas or other agreements.

The document, entitled “Evaluation of Corporate Compliance Programs,” was first released in February 2017. Before this week’s update, the guidance was last published in April 2019.

Lest you were expecting the DOJ to soften its tone around corporate compliance, the substance of the guidance remains largely unchanged. As Assistant Attorney General Brian Benczkowski reportedly said in a statement, “the updates we have made are in keeping with our continued efforts as prosecutors to improve our own policies and practices to ensure transparency and the effective and consistent enforcement of our laws.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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