Whistleblower Lawsuit Results in Defense Contractor Paying $16 Million to Resolve Small Business Contracting FCA Allegations

On August 10, 2017, ADS, Inc., a Virginia-based defense contractor, and its subsidiaries agreed to pay the United States $16 million to settle allegations that they violated the False Claims Act by knowingly conspiring with and causing purported small businesses to submit false claims for payment in connection with fraudulently obtained small business contracts.  The settlement also resolves allegations that ADS engaged in improper bid rigging relating to the fraudulently obtained contracts.

The case was originally brought to the government’s attention when a whistleblower filed a lawsuit under the qui tam, or whistleblower provisions, of the False Claims Act.  This law allows private parties, with knowledge of fraud against the government, to file suit on behalf of the United States and share in a portion of the government’s recovery.  Whistleblowers who file suit under the False Claims Act are generally entitled to between 15-30 percent of the government’s total recovery.  The whistleblower in this case, Ameliorate Partners LLP, will receive approximately $2.9 million as its part of the $16 million settlement.

“Small or disadvantaged businesses serve as important engines of economic growth, and the United States utilizes small business set-aside contracts to aide those businesses in their development,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “When ineligible companies improperly obtain set-aside contracts, they prevent the small business community from receiving the assistance that Congress intended.”

In order to qualify as a small business, companies must meet defined eligibility criteria, including requirements concerning size, ownership, and operational control. The settlement with ADS resolves allegations that ADS, together with several purported small businesses that it controlled, fraudulently induced the government to award certain small business set-aside contracts by misrepresenting eligibility requirements. The purported small businesses affiliated with ADS include Mythics Inc., London Bridge Trading Co. Ltd., as well as MJL Enterprises LLC, which falsely claimed to be an eligible service-disabled veteran-owned company, and SEK Solutions LLC and Karda Systems LLC, both of which falsely claimed to qualify as socially or economically disadvantaged businesses under the Small Business Administration’s 8(a) Business Development Program.

Frohsin Barger & Walthall would like to congratulate and thank Ameliorate Partners LLP, for bringing this fraud to light as well as the Civil Division’s Commercial Litigation Branch, the U.S. Attorneys’ Offices for the District of Columbia and the Eastern District of Virginia, the Small Business Administration’s Office of Inspector General, and the General Services Administration’s Office of Inspector General for their efforts in reaching this settlement.

For more information of government contracting fraud, click here.

For more information on the False Claims Act, click here.

Read the full Department of Justice press release here.