Archive for the ‘Government Contracts’ Category

SEC to Companies: “Hands Off Whistleblowers!”

Friday, April 17th, 2015

On April 1, 2015, the SEC announced its first whistleblower protection case involving restrictive confidentiality language.  The agency charged the Houston-based engineering and technology firm KBR, Inc., with using overly restrictive language in confidentiality agreements that allegedly obstructed the whistleblowing process.

The provision at issue contained language that witnesses in certain internal investigations could be disciplined, or even terminated, for discussing the investigation with outside parties prior to receiving approval from KBR’s legal department.  Since these investigations included allegations of securities law violations, the SEC found that the provision violated Rule 21F-17 of the Securities Exchange Act of 1934, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Rule 21F-17 prohibits the enforcement or threat of enforcement of any confidentiality agreement that would impede an individual from communicating with the SEC.

While not admitting any wrongdoing, KBR agreed: to cease and desist from committing or causing any future violations of Rule 21F-17; to pay a $130,000 penalty to settle the SEC’s charges; and to amend its confidentiality agreement to make it clear that employees could report possible violations to the SEC as well as to other federal agencies without approval from the company or fear of retaliation.  The amended language includes the following statement:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

The action is noteworthy not only because it was the first of its kind, but also because the SEC found no actual instances in which KBR had prevented employees from communicating with the SEC.  Such an aggressive stance demonstrates the SEC’s commitment to the anti-retaliation provisions of the whistleblower rules.

2014 Whistleblower Recoveries

Tuesday, March 10th, 2015

In 2014, the total whistleblower recoveries amounted to just shy of $3 billion, $2.2 billion (73 percent) of which were in the health care arena.

When the Department of Justice announces a False Claims Act recovery, they put the total recovery into the headline (the total amount that the fraudster is paying as a result of the FCA action), this includes state Medicaid recoveries and Criminal penalties triggered by FCA investigations.  However, when the DoJ announces their recoveries at the end of the year they leave the state and criminal recoveries off the table.

An example may be seen in the Johnson & Johnson matter announced in November 2013.  The Department of Justice initial press release states that $2.2 billion was recovered in this matter, but nearly $500 million of the $2.2 billion was a criminal penalty and over $500 million went to states.  Half of the total recovered is actually counted in the federal FCA statistics.

Ultimately, there is no evidence that the total fraud recoveries in the health care arena are going down.  FCA actions were very high in 2014, almost entirely due to non-qui tam banking cased that are listed in the non-HHD and non-DOD part of the report.  The total FCA number jumped from $422 million (FY 2013) to $3.3 billion (FY 2014), of which $2.6 billion was brought in from non-qui tam cases.

Supplier of Food to U.S. and Coalition Troops in Afghanistan Pays $389.300,000 in Civil Damages, Criminal Fines and Penalties; Pleads Guilty to Major Fraud, Conspiracy, Other Charges

Monday, December 8th, 2014

On behalf of their client Michael Epp, the law firms Morgan Verkamp LLC (Cincinnati) and Pietragallo Gordon Alfano Bosick & Raspanti, LLP (Philadelphia) note the settlement of claims initiated by Mr. Epp alleging fraud on the part of Supreme Foodservice, the “prime vendor” of food and related items to the Department of Defense and coalition troops in Afghanistan from 2005 until at least 2009.

Under agreements finalized today between Supreme Foodservice GmBH, Justice Department lawyers in Washington, D.C. and Philadelphia, and Mr. Epp, Supreme will pay the United States $101,000,000 in damages under the False Claims Act. Supreme Foodservice GmBH and related entities have entered guilty pleas to charges of major fraud, conspiracy to commit major fraud, and wire fraud. The criminal plea agreements require payment of $288,300,000 in fines and restitution, making the total recovery on the prime vendor contract $389,300.000. The allegations are detailed in a criminal Information filed this morning in U.S. District Court in Philadelphia.

“We believe this is the largest fraud recovery against any contractor relating to the Afghanistan and Iraq wars, the largest recovery in a military procurement case initiated by a qui tam whistleblower, and one of the largest fraud recoveries against any defense contractor,” said Frederick Morgan, one of Mr. Epp’s attorneys. “That the defendants pled guilty to major fraud is testament to the tenacity of the federal prosecutors and the strength of the evidence.”

Mr. Epp’s civil complaint, brought in March 2010 under the qui tam provisions of the United States Civil False Claims Act, alleges in part that Supreme Foodservice used a shell corporation to inflate the cost to the government of produce served to the troops; illegally increased the cost of bottled water by misrepresenting acquisition costs; and obtained kickbacks from vendors disguised as “prompt payment” discounts. Mr. Epp is a German citizen who worked for Supreme in Dubai, where its Prime Vendor operation was based. Such contracts are used by the military to allow it to purchase all needed food and beverage items from a single company, which procures from manufacturers and suppliers and delivers to the government. He managed Supreme’s supply chain under the Prime Vendor contract until early 2007.

In addition to the detailed knowledge of Supreme’s fraud set out in his complaint, Mr. Epp provided the government investigating teams with tens of thousands of e-mail messages and documents which were integral to the ability of the United States to bring these matters to a successful close. Morgan Verkamp personnel, led by Paralegal Specialist Mary Jones, spent thousands of hours analyzing the documents for the government teams, and Mr. Epp repeatedly traveled to Philadelphia from the Middle East to meet with the government’s attorneys and investigators. “This case demonstrates the power the False Claims Act brings to people who know about fraud against the United States taxpayers, even if they live abroad,” Morgan said. “By using the False Claims Act to bring Mr. Epp’s information to the Justice Department in a structured and cooperative manner, we were able to provide a level of assistance which would have been impossible without the qui tam law.”

The False Claims Act rewards whistleblowers for bringing information to the government, and Mr. Epp is to receive $16,160,000 pursuant to the False Claims Act’s “relator share” provision. Jennifer M. Verkamp of Morgan Verkamp said “The False Claims Act returns billions of dollars to American Taxpayers based on relatively small payments to whistleblowers. Here, for less than six percent of the total recovery, the Justice Department not only obtained a trove of information about these crimes and frauds, but also the detailed knowledge of a close observer to help connect the dots, and extensive support by private lawyers representing Mr. Epp. This is exactly what the Act was intended to achieve.”

“The False Claims Act is based on partnership between private whistleblowers and their lawyers, and the United States and its lawyers,” said Marc S. Raspanti of Pietragallo Gordon Alfano Bosick & Raspanti, “and this case exemplifies this partnership at its best.”

The Department of Justice’s civil investigation was run by Trial Attorney Art J. Coulter, Assistant Branch Director Michael Tingle, and Director Michael Granston of the Commercial Frauds Branch of the Civil Division, all of Washington, D.C.; and by Assistant United States Attorneys Colin Cherico, Joel Sweet, Mary Catherine Frye, and Margaret Hutchinson of the U.S. Attorney’s Office for the Eastern District of Pennsylvania.

The criminal investigation was run by Assistant United States Attorney Bea Witzleben, also of the Eastern District. Principal investigative support was provided by Defense Criminal Investigative Service Special Agent Kishara Gant of the DCIS Philadelphia Field Office, with support from DCIS Special Agent Andrew Dunphy.

The civil case, United States ex rel. Epp v. Supreme Foodservice A.G., No. 10-CV-1134, remains pending before Hon. Mary A. McLaughlin of the United States District Court for the Eastern District of Pennsylvania. The civil complaint, the settlement agreement, the criminal information, and other documents will be available at

After Admitting to Creating Front Company, North Florida Shipyards to Pay $1 Million

Friday, November 7th, 2014

After admitting in April 2014 to creating a front company, in order to obtain Cost Guard contracts designated for Service Disabled Veteran Owned Small Business (SDVOSB), North Florida Shipyards as well as its president, Matt Self, have agreed to pay the United States $1 million to resolve False Claim Act allegations. These allegations were first brought to light by the filing of a qui tam Complaint by whistleblowers Robert Hallstein and Earle Yearger. Hallstein and Yearger will share in $180,000 of the $1 million settlement.

The United States alleges that North Florida created Ind-Mar Services Inc. as a contracting vehicle to obtain work from the Coast Guard designated for SDVOSB. To qualify as a SDVOSB, a company must be operated and managed by service disabled veterans who also must perform at least 51% of the labor. While the Coast Guard contracted with Ind-Mar, the work was performed by North Florida and North Florida received all the profits from the contracts. The government further alleges that had they known that Ind-Mar was simply a front company, they never would have awarded them the contracts to repair five Coast Guard ships.

In December 2013, the Small Business Administration suspended North Florida, Matt Self and three others from government contracting and in April 2014, they entered into an administrative agreement with the SBA admitting to creating and operating Ind-Mar in violation of its Coast Guard contracts and SBA statutes and regulations. The investigation was coordinated by the Civil Division, the U.S. Attorney’s Office for the Middle District of Florida, the Department of Homeland Security’s-Office of Inspector General and the SBA Office of Inspector General.

For more information, click here.

Army Contractor Agrees to $10 Million Settlement to Resolve FCA Allegations

Tuesday, November 4th, 2014

After a coordinated investigation by the Commercial Litigation Branch of the Justice Department’s Civil Division, the U.S. Attorney’s Office for the District of Colorado and the Defense Criminal Investigative Services (DCIS), First RF Corporation has agreed to pay $10 million to settle False Claim Act violations. The allegations arose over a 2005 Army contract with First RF for the sale of electronic warfare antennas. At the time, the antennas were urgently needed. First RF is accused of misrepresenting the cost to manufacture the antennas, thereby inflating the price paid to First RF by the United States’ Army. First RF is an antenna and radio system company in Boulder, Colorado. The $10 million settlement did not require First RF to admit liability.

For more information, please click here.

Whistleblower Suit Against Northrop Grumman Unsealed

Tuesday, February 4th, 2014

On Thursday, January 30, 2014, a whistleblower lawsuit alleging that Northrop Grumman defrauded the Department of Homeland Security (“DHS”) was unsealed in federal Court.  According to the suit, which was filed under the qui tam provisions of the False Claims Act by former Northrop Grumman employee Leo Danilides, Northrop Grumman violated the terms of a DHS missile-defense contract for commercial airlines under the Counter-MANPADS program.  Under the contract, which was awarded to Northrop in 2006, Northrop was required to provide improvements to earlier work it had done on creating a missile defense system for commercial airlines and to create a commercially feasible system.  Danilides alleged that Northrop failed to make any meaningful improvements to its earlier program, despite receiving $62 million from DHS. 

For more information see:

Grainger To Pay $70 Million To Resolve False Claims Act Allegations

Thursday, December 27th, 2012

Illinois-based hardware distributor, W.W. Grainger Inc., has agreed to pay $70 million to the United States to resolve allegations that it submitted false claims under contracts with the General Services Administration and the U.S. Postal Service.

For more information, please see:

Court Grants $40 Million Judgment For Qui Tam Plaintiffs

Friday, August 24th, 2012

On August 13, 2012, a U. S. District Court in Dallas, Texas entered a final judgment in the amount $40,472,759 for Qui Tam plaintiffs against a defendant for violations of the False Claims Act.  The violations stemmed from fraudulently inflated charges that were submitted by a government subcontractor to Lockheed Martin Corporation and then passed on to the United States government.  The judgment was entered against the former President and CEO of the subcontractor, who had previously pleaded guilty to conspiracy to defraud the government and been sentenced to a prison term of 7 ½ years.  The amount of the judgment represented the government’s actual damages multiplied by three consistent with the treble damages provision of the False Claims Act.

For more information, please see:

U.S. Appeals Court Finds That Low Bids By Lockheed Martin Corporation Could Violate The FCA

Thursday, August 16th, 2012

In a unanimous decision, the U.S. Court of Appeals for the Ninth Circuit determined that knowingly submitting low bids, premised on false estimates, can be a violation of the False Claims Act.  This case is based on a qui tam complaint filed in 2005 by a Lockheed Senior Research Operations Engineer, Nyle J. Hooper.  Mr. Hooper alleged that Lockheed violated the False Claims Act by (1) knowingly underbidding the contract, (2) including undisclosed freeware in software deliverables that did not convey all intellectual property rights, and (3) failing to perform all required tests or improperly conducting those tests. 

A predecessor of Lockheed was awarded a contract, which was later assumed by Lockheed, for the Range Standardization and Automation IIA project, which was administered by the Air Force.  Lockheed and two other companies bid for the project; Lockheed’s initial bid was $439.2 million, but its “best and final offer” was $432.7 million. 

For more information, please see:

St. Jude Medical Inc. To Pay $3.65 Million For Falsely Inflating Price Of Pacemakers And Defibrillators

Friday, June 8th, 2012

St. Jude Medical Inc., a medical device company based out of Little Canada, Minnesota, agreed to pay $3.65 million to the federal government to settle False Claims Act allegations that it falsely inflated the price of pacemakers and defibrillators sold to the government.

According to the to the Justice Department, St. Jude would actively market its pacemakers and defibrillators by touting extensive credits which were available to buyers if the device needed to be replaced while under warranty.  However, St. Jude knowingly failed to give these credits to device buyers, including the Department of Veterans Affairs and Department of Defense hospitals, even when the product was replaced while still under warranty.

The settlement arose from a case brought by two whistleblowers under the qui tam provisions of the False Claims Act.  As their share of the settlement, the whistleblowers will receive $730,000 as their share of the settlement.

For more information see: