Paragon Systems to Pay $52 Million to Settle DOJ Charges of Fraudulently Securing Government Security Contracts Set Aside for Veteran- and Female-Owned Businesses
On November 12, the Department of Justice (DOJ) announced that Virginia-based contractor Paragon Systems agreed to pay $52 million to settle DOJ and whistleblower charges of violating the False Claims Act by fraudulently securing government security contracts set aside for small businesses owned by women and veterans. Paragon is one of the government’s largest providers of specialized security, fire and emergency response, and mission support services. It also provides security guards at federal buildings across the country.
Certain government contracts can only be awarded to small businesses owned by women, veterans, or individuals from socially- or economically-disadvantaged groups. The goal of these government “set-aside” programs is to level the business playing field and provide special opportunities to individuals the government wants to provide extra support. Enforcing the strict requirements of these set-aside programs has been a perennial enforcement priority for DOJ.
The Department of Homeland Security (DHS) is just one of numerous federal agencies that have set-aside contracts reserved for small businesses owned by women, service-disabled veterans, and other individuals it deems worthy or in need of an extra lift. According to the government, Paragon executives created fake businesses to qualify for several set-aside contracts DHS had for security services at various federal buildings.
The scheme allegedly involved Paragon’s most senior executives—including its president, vice president of business development, vice president of operations, and compliance manager—inserting female relatives and friends as figurehead owners of fabricated small businesses to secure the DHS set-aside contracts. These Paragon-controlled companies then subcontracted substantially all the work under the contracts back to Paragon.
In announcing the settlement, the government took pains to highlight the importance of the set-aside programs and its commitment to going after those who defraud them: “The settlement sends a clear message that the Federal Government will continue to investigate and prosecute fraud, waste, and abuse to protect small businesses owned by service-disabled veterans and other socially and economically disadvantaged individuals.”
The settlement also settles additional charges that the made-up businesses funneled millions of dollars back to Paragon officials in violation of the Anti-Kickback Act. The government claims more than 300 payments totaling more than $11 million were made, disguised as “consulting payments” to various shell companies the Paragon executives formed for this purpose.
The allegations that led to the settlement were originated by Todd Pattison, the president of a competing security services company, under the whistleblower provisions of the False Claims Act which authorize private individuals to bring lawsuits on behalf of the government against those who defraud the government. In return, successful whistleblowers are entitled to up to 30% of any government recovery. Pattison will receive more than $9 million dollars of the government’s recovery in this matter.
If you would like to learn more about set-aside contract fraud or what it means to be a whistleblower under the False Claims Act, please don’t hesitate to contact us. We will connect you with an experienced member of our whistleblower team for a free and confidential consult.