A small business and its owner have agreed to pay $250,000 to resolve HUBZone fraud allegations, including a claim that the company’s HUBZone office was a “virtual” location where no employees actually worked.

According to a Department of Justice press release, Air Ideal, Inc. and its majority owner have also agreed to pay the government five percent of the company’s gross revenues over the next five years.

If you are a regular reader, you may recall my December 2014 post on the government’s “virtual office” allegations.  The DOJ contended that when Air Ideal, Inc. applied for HUBZone certification in 2010, the company falsely claimed to maintain a principal office in a HUBZone.  In fact, the DOJ said, this HUBZone location was a “virtual office,” and no Air Ideal employees worked there.  Air Ideal’s true principal office was in a non-HUBZone location.

The DOJ alleged that Air Ideal not only misrepresented its principal office location, but submitted a fabricated lease to the SBA in connection with its HUBZone application.  Air Ideal apparently was quite successful in the HUBZone program, generating “millions of dollars” in revenues from HUBZone set-aside contracts.  When the government began investigating, Air Ideal allegedly fabricated another office lease document and submitted it to the investigators.

As is often the case, the allegations against Air Ideal came to light as part of a whistleblower (or “qui tam“) lawsuit brought under the False Claims Act.  The whistleblower will receive $42,500 as her share of the settlement.

For most small businesses (and most small business owners) $250,000 is no drop in the bucket.  Still, I have to wonder why the government agreed to a settlement far less than the “millions of dollars” Air Ideal allegedly obtained through fraudulent means, and why Air Ideal’s owner escaped serving even a single day behind bars.  After all, if the government’s allegations are correct, this case did not involve a gray area; the Department of Justice contends that Air Ideal and its owner intentionally falsified documents to improperly obtain HUBZone certification–then provided another false document to the government investigators themselves.  If the government had the means to prove those allegations, it seems to me that Air Ideal may have gotten a rather favorable deal.