Investigations Newsletter: Engineering Firm Settles $37 Million False Claims Act Allegations

Arent Fox

Engineering Firm Settles $37 Million False Claims Act Allegations

As part of a settlement agreement with the Department of Justice, QuantaDyn Corporation has agreed to pay $37,757,713.91 in restitution to resolve allegations that it engaged in a bribery scheme to steer government contracts for training simulators. QuantaDyn’s majority owner, President, and Chief Executive Officer has also agreed to pay $500,000 to resolve his independent False Claims Act liability.

QuantaDyn, a software engineering firm, specializes in developing training simulation systems for the Department of Defense as both a prime contractor and a subcontractor. The government alleged that QuantaDyn bribed an Air Force contracting official to provide QuantaDyn with procurement-sensitive information pre- and post-award of government contracts to the company, in order to steer the award of government contracts for training simulators to QuantaDyn. As a result of this bribery scheme, QuantaDyn allegedly caused a prime contractor to submit false invoices to the Department of Defense.

In addition to the civil settlement, the United States and QuantaDyn have also entered into a plea agreement to resolve criminal allegations brought against the company in an unsealed indictment. QuantaDyn agreed to plead guilty to conspiracy to commit wire fraud, serve five years of probation, and pay a criminal penalty of $6,300,000, and forfeiture of $7,099,863.77.

Read the press release here.

Montana Investment Broker Sentenced to 87 Months in Prison for Investment-Fraud Scheme

A Montana-based individual was sentenced to 87 months in prison for his role in an investment-fraud conspiracy to promote fictitious investments and loan instruments. Following a one-week jury trial, the defendant was convicted of one count of conspiracy to commit securities fraud and wire fraud, four counts of wire fraud, and four counts of securities fraud. The evidence presented at trial demonstrated that the defendant and his co-conspirators represented to potential investors that they could obtain lucrative investment opportunities and substantial cash loans through a Swiss company known as Malom Group AG (Malom)—which stood for “Make A Lot Of Money”—in exchange for an up-front payment ranging from $100,000 to $1 million. Rather than making these investments, however, the defendant and his co-conspirators distributed the money the victims wired into the co-conspirators’ escrow account for their own personal use. To effectuate the fraud, the defendant and his co-conspirators allegedly provided fabricated bank documents purporting to show that Malom held hundreds of millions of dollars in overseas bank accounts, as well as documents falsely evidencing Malom’s history in closing similar deals. Losses to the victims from the scheme collectively amounted to more than $3.8 million. According to the evidence presented at trial, the defendant fled to Canada shortly before he was indicted in 2013; he was arrested there in 2014 and was extradited back to the United States in 2018.

In addition to his prison sentence, the defendant was also ordered to pay $6,075,000 in restitution and to forfeit $830,000. Two of the defendant’s co-conspirators were found guilty of conspiracy and multiple counts of wire fraud and securities fraud after a jury trial and were each similarly sentenced to 87 months in prison. A third co-conspirator pled guilty to conspiracy to commit wire fraud and securities fraud and was sentenced to 60 months in prison. The remaining two co-conspirators charged in connection with this scheme remain at large outside the United States.

Read the press release here.

The Scripps Research Institute To Pay $10 Million To Settle Alleged Research Grant Fraud

The Scripps Research Institute, a non-profit biomedical research institute, has agreed to pay $10 million to resolve allegations that it violated the False Claims Act by improperly charging research grants funded by the National Institutes of Health for time spent by researchers on extraneous activities, such as developing, preparing, and writing new grant applications; teaching; and other administrative activities.

TSRI receives millions of dollars in funding each year from research grants provided by the NIH. According to the government, between 2008 and 2016, TSRI failed to have a system in place to properly account for time spent on activities that were not related to the NIH-funded research grants and could not be charged directly to NIH-funded projects. As a result, TSRI improperly charged NIH-funded projects for time spent by faculty on developing, preparing, and writing new grant applications, which should have been considered indirect costs, and for other activities unrelated to the funded projects, such as teaching, TSRI committee work, and other administrative tasks.

The settlement agreement is the product of a whistleblower lawsuit brought initially by a former TSRI employee under the qui tam provisions of the False Claims Act. The whistleblower will receive $1.75 million from the government’s recovery. The claims resolved by the settlements are allegations only; there has been no determination of liability.

Read the press release here.

Former Business Executive Sentenced to Prison for $4 Million Bribery Scheme

A former executive for an Arlington company (referred to as Company A) was sentenced to 42 months in prison for his role in a $4 million bribery and fraud scheme related to Department of Defense contracts to provide support services for wounded military veterans. The government alleged that the defendant received over $4 million in illegal kickbacks from an Oregon-based company (referred to as Company B), so that Company A would give favorable treatment to Company B in connection with the award of Department of Defense subcontracts. From 2012 through 2015, Company A paid Company B more than $16 million for Company B to run various athletic camps and other activities for wounded veterans across the United States. The defendant allegedly demanded that Company B pay him varying percentages of Company B’s profits on work received from Company A, and ultimately received approximately $4.1 million over that three-year period. The defendant also allegedly instructed Company B employees on how to mark up their invoices and sought to conceal the fraud and obstruct the government’s investigation by creating fake business plans to make the payments look legitimate.

Read the press release here.

Marketing Company Owners Plead Guilty to Drug-Addicted Patient Referral Scheme

Two California individuals pled guilty in connection with a conspiracy to broker patients as part of a wide-scale fraud scheme to direct recruiters to bribe drug-addicted individuals to enroll in drug rehabilitation and pay referral fees in exchange for those referrals.

One defendant pled guilty to an information charging one count of conspiracy to commit health care fraud, and the second defendant pled guilty to an information charging one count of conspiracy to violate the Eliminating Kickbacks in Recovery Act (EKRA), which bars the payment of kickbacks in exchange for the referral of patients to drug treatment facilities. Three other individuals have previously pled guilty to conspiracy to commit health care fraud for their roles in the scheme.

The defendants and their conspirators allegedly owned and operated a marketing company in California, which they used to bribe individuals addicted to heroin and other drugs to enter into drug rehabilitation centers and thereby generate referral fees from those facilities.

The marketing company maintained contractual relationships with drug treatment facilities across the country, including a facility operated by one of the defendants. The marketing company also engaged a nationwide network of recruiters to identify and recruit potential drug-addicted patients whose treatments would be covered by private insurance. The recruiters bribed the patients for as much as several thousand dollars to seek treatment at these drug rehabilitation facilities and arranged and paid for their cross-country travel to the facilities. The rehab facilities typically paid the marketing company a fee of $5,000 to $10,000 per patient referral, which the defendants distributed among themselves and the recruiters. The conspiracy allegedly caused millions of dollars of losses for health insurers. The two defendants face a maximum potential penalty of 10 years in prison and a $250,000 fine or twice the gross gain or loss from the offense, and five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense, respectively. Sentencing for both defendants is scheduled for January 20, 2021.

Read the press release here.

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