In an ongoing case of 8(a) fraud, the Eastern District Court recently sentenced two key federal contractor executives, Joseph Richards, 52, and David Lux, 66. The two executives pleaded guilty to unlawfully acquiring over $31 million in contracts through abuse of the 8(a) program instituted by the Small Business Association (SBA) and conspiracy to commit government fraud. This program provides the opportunity for socially disadvantaged and minority businesses to grow their business through federal contract preferences.
This scheme centered on an Arlington, VA security contracting firm that lawfully qualified for the 8(a) program prior to 2003, as the president and CEO was African American, and a female. When she left the company in 2003, Keith Hedman became the sole owner, and the company lost eligibility for the 8(a) program. Later that same year, Hedman created a new company and installed a Portuguese historically socially disadvantaged female to act as head of this new company, allowing this new firm to again qualify for the 8(a) program. Behind the scenes however, Hedman had control of the company, and defrauded the SBA. Richards and Lux, had ownership stakes in this new company and plead guilty, along with 6 other defendants.
The government offers many opportunities for small and disadvantaged businesses to thrive. With special contract preferences and the revenue those provide, there could be a temptation unlawfully take advantage of the government. The lesson to be learned from this trial, however, it is that committing fraud is never the answer. These opportunities do not outweigh the ethical, moral, and criminal consequences of committing such an act. This being said, there is an even broader message to be understood from this trial: conduct business in accordance to all rules, regulations, and terms of the contract. Making false claims to the government for payment, whether malicious or neglectful in nature, can cause serious consequences to future dealings with federal agencies. Educating employees on the importance of ethics and contract compliance, as well as on procurement regulations can prevent major problems.
Be sure to contact us with questions on compliance and other regulations.
Carina Linder is an Engagement Manager with more than five years of experience in GSA contract proposal writing and contract negotiations. Her expertise is in contract compliance consulting, Federal Acquisition Regulations (FAR) and procurement procedures.