DOJ News & Litigation Updates
Former CEO of Virginia-Based Contractor to Pay $20M to Settle False Claims Act Allegations
On August 20, 2019, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc. – formerly known as Atlantic Diving Supply (ADS) agreed to pay $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining contracts set aside for small businesses, which his company was illegible to receive.
The government alleged that the executive caused ADS to falsely represent that it was qualified as a small business when, in fact, ADS was affiliated with a number of other entities and, therefore, did not meet the eligibility criteria for a small business. The government alleged that, as a result of these misrepresentations, ADS was awarded a number of small business contracts for which it was otherwise ineligible.
The settlement came in response to a qui tam law suit filed in November 2013 by Ameliorate Partners under the whistleblower provisions of the False Claims Act. Ameliorate Partners will receive $3.6 million from the settlement.
Read the DOJ press release here.
Cantor Fitzgerald and BMO Capital Settle ADR Mishandling Claims
Financial services firms Cantor Fitzgerald & Co. (Cantor Fitzgerald) and BMO Capital Markets Corporation (BMO) reached a resolution with the US Securities and Exchange Commission (SEC) concerning allegations that the firms mishandled “pre-released” American depositary receipts (ADRs). ADRs, which are securities representing shares in foreign companies, typically require a certain number of foreign shares to be held in custody at a depositary bank. The practice of “pre-release,” however, allows ADRs to be issued without depositing the foreign shares, so long as brokers receiving the ADRs have an agreement with the depositary bank and the broker or its customer owns the foreign shares corresponding to the number of shares the ADR represents.
The SEC alleged that Cantor Fitzgerald and BMO violated the Securities Act of 1933 by failing to adequately supervise their employees’ securities lending practices by receiving pre-released ADRs without ensuring the appropriate agreements were in place. The SEC further alleged that Cantor Fitzgerald and BMO should have known that the securities were not backed by foreign shares.
Neither Cantor Fitzgerald nor BMO admitted fault in the settlement, though the SEC’s orders acknowledge both parties’ cooperation. In connection with the settlement, Cantor Fitzgerald agreed to pay over $359,000 in disgorgement of ill-gotten gains, plus $88,000 in prejudgment interest, and a $200,000 penalty, for a total of over $647,000. BMO agreed to pay $2.2 million in disgorgement of ill-gotten gains, $546,000 in prejudgment interest, and a $1.2 million payment, for a total of over $3.9 million.
Read the SEC press release here.
Read the Law 360 article here.