Two Kentucky-based government contractors and their owners have agreed to pay $6.25 million to settle HUBZone fraud claims, according to a U.S. Department of Justice press release.
The costly settlement puts an end to a saga involving DOJ claims of a vacant “principal” office, undisclosed affiliation, and fraudulent statements made to the SBA and and the U.S. Army.
According to the DOJ, Commonwealth Technologies submitted a HUBZone application in 2005, representing that it was a small business with its principal office in a HUBZone. In fact, Commonwealth’s claimed principal office was a vacant location with no employees.
Commonwealth actually operated out of the offices of another company, Lusk Mechanical Contractors. The office space Commonwealth shared with Lusk was not located in a HUBZone.
In addition to sharing office space, Commonwealth and Lusk shared equipment, personnel, and bonding. And that wasn’t all they shared: one of Commonwealth’s owners was also an owner of Lusk, and the other Commonwealth owner served as Lusk’s CEO. However, none of these relationships (which almost certainly would have rendered the companies affiliated under the SBA’s size regulations) were disclosed to the SBA in Commonwealth’s HUBZone application.
After Commonwealth obtained its HUBZone certification, the company obtained Army HUBZone set-aside contracts. But eventually the good times stopped rolling. The government caught wind of the fraud and began an investigation.
Federal agents ultimately seized more than $2.5 million of the company’s assets from its bank accounts under a civil forfeiture action, and the DOJ, working closely with the SBA Office of Inspector General, sought additional penalties against the Commonwealth, Lusk and their owners.
In the settlement, Commonwealth, Lusk, and the individual owners agreed to forfeit the money previously seized by the federal agents, and pay an additional penalty of more than $3.7 million. As is common in such settlements, Commonwealth and the others involved did not admit liability.
Given the apparently blatant nature of the scheme the DOJ alleges Commonwealth to have perpetrated, I have to admit that I’m a little disappointed that no one involved in this case ended up in jail. Still, a penalty topping $6 million should catch the attention of unscrupulous contractors who might be contemplating HUBZone fraud.