SDVOSB Fraud: $5 Million Settlement In Rent-A-Vet Case

A New York business has agreed to pay $5 million, plus interest, to resolve allegations that its CEO, President, and others engaged in a scheme to fraudulently obtain SDVOSB set-aside contracts.

According to a Department of Justice press release, the CEO and President of Hayner Hoyt Corporation created a company supposedly run by a service-disabled veteran.  However, the veteran in question was not involved in making important business decisions, but was instead responsible for overseeing Hayner Hoyt’s tool inventory and plowing snow from Hayner Hoyt’s property.  Although the DOJ is perhaps too polite to use the term “rent-a-vet” in its press release, that’s exactly what this scheme sounds like.

According to the DOJ, Hayner Hoyt’s CEO, Gary Thurston, and its President, Jeremy Thurston, created a company called 229 Constructors LLC.  Neither Thurston is a veteran.  229 Constructors was supposedly run by Ralph Bennett, a service-disabled veteran employed by Hayner Hoyt.

Mr. Bennett, however, apparently had little involvement in 229 Constructors’ business.  In fact, Jeremy Thurston “set up an email account in Bennett’s name in such a way that all emails received by the veteran were automatically forwarded to him.”  Instead of running 229 Constructors, Mr. Bennett “was responsible for overseeing Hayner Hoyt’s tool inventory and plowing snow from Hayner Hoyt’s property.”

The DOJ alleges that the Thurstons staffed 229 Constructors “entirely with then-current and former Hayner Hoyt employees and their spouses,” and “exerted significant influence over 229 Constructors’ decision-making during the bid, award, and performance” of SDVOSB contracts.  Hayner Hoyt also provided 229 Constructors with “considerable resources,” which gave 229 Constructors “a competitive advantage over legitimate service-disabled veteran-owned small businesses neither affiliated with nor controlled by a larger, non-veteran owned corporation.”

As these matters so often do, this scheme came to light when a so-called qui tam whistleblower (who is not named in the DOJ press release) filed a civil False Claims Act case against Hayner Hoyt.  The whistleblower will receive $875,000 of the settlement proceeds.

The SDVOSB and affiliation rules can be complex and confusing, and sometimes good companies inadvertently end up on the wrong side of the line.  This doesn’t sound like one of those cases.  If the DOJ’s allegations are correct, this was nothing short of a premeditated rent-a-vet scheme designed to steer SDVOSB contracts into the hands of undeserving non-veterans.  Now, Hayner Hoyt is $5 million poorer as a result.

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