Defense Contract Fraud

June 28, 2019

Following a whistleblower suit, defense contractor PAE Applied Technologies, LLC has agreed to pay $4.2 million to settle charges that it knowingly defrauded the U.S. Air Force in violation of the False Claims Act.  The alleged fraud occurred between government fiscal years 2009 to 2014 and involved charging for employee wages that were above the applicable wage caps listed on a government contract.  USAO WDOK

June 20, 2019

Two defense supply companies and their owners have agreed to a $159,390 consent judgment for improperly substituting parts intended for DOD contracts.  Liberty Air Parts, Inc., US Supply Corporation, and their operators, George and Ellen Onorato, allegedly agreed to supply brand new parts bolts, knobs, rings, and rivets, but instead substituted them with surplus parts left over from other government project.  They concealed the substitution by allegedly falsifying records and statements, in violation of the False Claims Act, and used the ability to quote prices lower than their competitors to their advantage in the contract bidding process.  As part of the consent judgment, the defendants are now prohibited from contracting with the federal government.  USAO EDPA

April 23, 2019

Oregon-based aluminum supplier Hydro Extrusion Portland, Inc., formerly known as Sapa Profiles Inc., together with its parent company, has agreed to pay $47 million to settle criminal mail fraud charges and civil claims alleging that between 1996 and 2015, the company altered the results of tensile tests measuring the consistency and reliability of extruded aluminum, and falsified certifications about products meeting testing requirements and contract specifications. Among the customers who received products that defendants knew did not meet contract specifications were NASA and the Dept. of Defense Missile Defense Agency.  The $47 million total settlement payment consists of forfeiture of $1.8 million, $34.1 million in criminal restitution to NASA, DOD, and commercial customers – $23.6 million of which is also credited to resolve civil claims under the False Claims Act – and an additional $11 million in payments to resolve civil FCA claims.  Defendant entered into a deferred prosecution agreement and has been  suspended as a U.S. government contractor.  DOJ; USAO EDVA

March 20, 2019

South Korean companies Hyundai Oilbank Co. Ltd. and S-Oil Corporation will plead guilty and pay $127 million in fines to resolve criminal and civil claims arising from the defendants’ alleged bid-rigging and price-fixing in contracts to supply fuel to U.S. military bases in South Korea.  The settlement, the second announced by DOJ in an ongoing investigation, resolves criminal conspiracy and antitrust claims, as well as civil antitrust and False Claims Act violations related to the bid-rigging conspiracy. DOJ

March 5, 2019

The United States reached a $25 million settlement against an Afghan delivery and transport subcontractor accused of violating the False Claims Act. From 2010 to 2012, Hikmat Shadman Logistics Services Company (HSLSC) and its owner, Hikmatullah Shadman, allegedly overcharged the United States millions of dollars by inflating their rates to well above those of competitors, falsifying thousands of documents, and charging for work that was never performed. In addition to the civil charges, HSLSC faced criminal charges for paying bribes to at least two U.S. service members to influence the awarding of contracts. As part of the criminal settlement, the company and its officers have agreed to seek no further business with the United States and to refrain from applying for travel visas to the United States. DOJ; USAO DC

February 22, 2019

Mark Cundiff of Macon, Georgia, was sentenced to three years in prison and ordered to pay restitution of $380,000 to the federal government.  Cundiff, a former DOD employee at Robins Air Force Base, was responsible for soliciting bids for new contracts at the base.  Cundiff accepted cash payments of $2,000-$8,00 monthly over the course of almost ten years from co-defendant Raymond Williams (previously sentenced to five years in prison) in exchange for drafting bid solicitation Performance Work Statements in such a way that the contracts could only be met by Williams and his companies, US Technology Corporation and US Technology Aerospace Engineering Corporation.  The UST companies and Williams received almost $14.5 million in government contracts as a result of the bribery scheme.  USAO MD GA

January 29, 2019

E.M. Photonics, Inc. (“EMP”) and its Chief Executive Officer, Eric Kelmelis, will pay $2.75 million to resolve allegations that they violated the False Claims Act by seeking disbursements from federal agencies for falsified labor costs and duplicative work in order to maximize charges to contracts awarded by federal agencies. From January 2009 to April 2014, EMP received funds under seven different contracts and grants awarded through the federal Small Business Innovation (“SBIR”) and Small Business Technology Transfer (“STTR”) programs. EMP and Kelmelis directed EMP employees, or caused others to direct EMP employees, to complete false timesheets and submit false invoices and public vouchers for direct labor that did not occur. EMP and Kelmelis also sought and received SBIR/STTR funding for work already performed and funded by another government agency and falsely certified that such work was, in fact, non-duplicative. The government alleged that both of these schemes were designed to maximize charges to each contract or grant. DOJ