The U.S. Department of Justice has indicated David E. Gorski, an owner of Legion Construction, Inc., for alleged service-disabled veteran-owned small business fraud.  The indictment alleges that Gorski, a non-veteran, fraudulently represented that Legion was a SDVOSB to win federal SDVOSB set-aside contracts, and used genuine service-disabled veterans as figureheads in an attempt to avoid detection.

VetBizCentral, an organization providing various services to veteran entrepreneurs, has posted a full copy of the Gorski indictment on its website.  The allegations are well worth a closer look.

According to the DOJ, sometime in late 2005 or early 2006, Gorski met with a genuine service-disabled veteran, called “Veteran A” in the indictment, and explained that Gorski needed “veteran status” to take advantage of federal SDVOSB contracting opportunities.

Gorski subsequently established Legion as a Massachusetts corporation, listing Veteran A as the President and Gorski as the Vice President and Secretary.  Legion then self-certified as a SDVOSB on ORCA and in VetBiz (this was before VetBiz required VA verification), and began bidding upon and winning various SDVOSB set-aside contracts.

Veteran A made no financial contribution to Legion and performed no work for Legion at the time.  However, Legion put both Veteran A and Veteran A’s wife on payroll.  Sometime in 2007, Gorski also put his own wife on payroll, although she remained employed full-time elsewhere.  The DOJ alleges that Gorski put his wife on Legion’s payroll in order to conceal the fact that he was paying himself more than Veteran A–in violation of the “highest compensated employee” SDVOSB eligibility requirement.

Gorski subsequently brought in a second veteran, “Veteran B.”  Gorski required Veteran A to relinquish much of his stock in the company to Veteran B, without compensation.  After Veteran B’s arrival, Gorski owned 49% of Legion, Veteran B owned 40 percent, and Veteran A a mere 11 percent.

Gorski then caused Veteran A and Veteran B to sign employment agreements giving Gorski, the nominal “Vice President”, authority to terminate Veterans A and B.  The agreements also required Veterans A and B to sell their stock back to Legion upon their separation from Legion for any reason at the specified price of $3.88 per share.

Gorski continued to be much higher paid than either veteran.  In 2008, Legion paid Veteran A $42,400 and Veteran B $119,316.  Meanwhile, Legion paid Gorski $364,836 and his wife $26,500.

In March 2010, a competitor filed a SBA protest, challenging Legion’s status as an eligible SDVOSB.  In response, Gorski arranged for Veteran B to purchase Veteran A’s 11 percent interest, rendering Veteran B the nominal 51%  owner of the company (a deal which also involved a cash payment to Gorski).  Then, the DOJ alleged, Gorski caused Legion to respond to the SBA protest by claiming that Veteran B had purchased the shares in February–before the bid protest was filed–even though that was patently untrue.  The SBA subsequently denied the SDVOSB eligibility protest against Legion.

It is unclear exactly how the DOJ learned of the scheme, but the indictment mentions that in 2010, Gorski told Legion’s accountant that he wanted to circumvent the “highest paid employee” restriction, and provided the accountant with other incriminating documents.  Perhaps the accountant blew the whistle.  If so, kudos to the accountant.  In any event, Gorski now faces charges of conspiracy to defraud the United States and four counts of wire fraud.  Neither the DOJ press release nor the indictment mention whether charges have been filed (or will be filed) against Veterans A and B.

Like everyone in this great land of ours, David Gorski is entitled to a presumption of innocence.  Nevertheless, the allegations made by the DOJ are striking.  The DOJ paints the picture of a man who was well aware of the SDVOSB eligibility requirements, but intentionally evaded them for his own enrichment.  If the allegations are true, Mr. Gorski richly deserves the opportunity to witness first-hand the inner workings of a particular federal agency: The Bureau of Prisons.