8(a) Fraud: Contractor Fraudulently Obtained $52 Million, Says DOJ

A Maryland man has pleaded guilty in an 8(a) fraud case involving a company that received more than $52 million in 8(a) contracts to which it was not entitled.

According to a Department of Justice press release, Vernon Smith pleaded guilty to charges that he (not the company’ s disadvantaged majority owner) exercised complete control over the company’s day-to-day management and long term decision making.

The DOJ alleges that Smith arranged for Anthony Wright, an African American who was a former employee of Smith’s, to form a company called Platinum One Contracting.  Wright was the 60% owner and held the title of President.  Smith’s son owned the remaining 40% and was identified as the company’s vice president.  In reality, though, Smith exercised complete control over the company.

Platinum One applied to the 8(a) program without disclosing Smith’s involvement.  After Platinum One was admitted to the 8(a) program, Smith and other officers were paid far more than Wright, in violation of SBA rules.  Platinum One went on to win more then $52 million in 8(a) contracts.  Over the years, Platinum One continued to submit annual update forms to the SBA, each failing to disclose Smith’s involvement.

On Friday, Smith pleaded guilty to conspiring to defraud the United States.  Smith faces up to five years in prison, plus the possibility of additional penalties.  Smith will be sentenced on July 2.

Smith is not the only individual facing criminal sanctions for the scheme.  Wright, Platinum One’s nominal disadvantaged majority owner, previously pleaded guilty, as well.  Wright will be sentenced on June 23.

It is good to see the government pursuing criminal penalties against 8(a) fraudsters.  Hopefully, news of prosecutions like that in the Platinum One case will deter others who might be tempted to abuse the government’s set-aside programs.

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