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Home News Archive Settling-Up: Concluding DOJ Enforcement Actions

Settling-Up: Concluding DOJ Enforcement Actions

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It’s hard to go more than a week without reading yet another story about fraud, waste, abuse—or even outright corruption—in the US public procurement process. Today we bring you two stories about entities that have settled their issues by settling-up with the Department of Justice, and one story about DOJ dropping fraud charges because of judicial setbacks.

GSA Pricing Disclosure Failures Lead to Large Settlements

In 2004 two “former employees of U.S. contractors” filed a qui tam suit under the False Claims Act in the Eastern District of Arkansas. In their suit, whistleblowers Normal Rille and Neal Roberts “accused several IT companies of paying kickbacks to systems integrators in exchange for preferential treatment on government contracts the system integrators were working on …” according to this article. We previously reported settlements by Hewlett-Packard and EMC. Reportedly, IBM, CSC, and PricewaterhouseCoopers have also settled similar suits filed by the two “private attorneys general.” Now Cisco and its distributor Westcon Group North America have settled their issues with the DOJ, by agreeing to pay $48 million.

Still preparing for litigation—or still negotiating with the DOJ—are Accenture and Sun Microsystems.

Former U.S. Army Contracting Officer Pleads Guilty

On September 10, 2010, the DOJ announced that William Armstrong “pleaded guilty to submitting a false statement to the U.S. Army” Contracting Agency. According to the press release, Mr. Armstrong was “former chief of the construction division of the Fort Carson Directorate of Contracting” for the Army. While serving in that capacity, Mr. Armstrong was required to submit an “annual confidential financial disclosure report. Apparently, he failed to disclose “reportable gifts” on the form. As the press release notes—

Armstrong indicated on the form that he had not received any reportable gifts in the previous year when, in fact, Armstrong had received several thousand dollars worth of gifts from a construction contractor that had substantial business with the Fort Carson Directorate of Contracting, the department said.

The DOJ made sure to report—

Armstrong faces a maximum sentence of five years in prison and a $250,000 fine.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Finally, it was noted that Mr. Armstrong’s plea bargain “is the first to arise from an ongoing investigation related to the award of construction contracts at Fort Carson.” Tellingly, the DOJ’s Antitrust Division is leading the investigation.

Agility Sees Fraud Charges Dropped

We have reported on the problems faced by Kuwait-based Agility (formerly Public Warehousing Company) several times. Perhaps the most comprehensive article is this one. Suffice to say, Agility has been dealing with numerous audit issues and fraud charges. We noted the back-and-forth between the company and Federal prosecutors, reporting—

Several court hearings have been delayed as the company worked to reach a settlement with prosecutors. And the firm’s lawyers have argued that prosecutors failed to properly serve the company because it sent the indictment to the company’s U.S. subsidiaries instead of through diplomatic channels in Kuwait.

On September 3, 2010, the Associated Press reported that a judge had “blocked” fraud charges against the Kuwait parent corporation, reporting—

U.S. Magistrate Judge Alan Baverman recommended that fraud charges against the Public Warehousing Co. not go forward because the indictment had not been properly served. A federal judge must now sign off on the move.

Prosecutors then asked Friday to have remaining charges dropped against the company's U.S.-based subsidiary, Agility DGS Holdings. Prosecutor Barbara Nelan said she didn't want the subsidiary to be a ‘straw man’ that took the fall for its parent company's wrongdoing.

The Judge’s 91-page opinion concluded that efforts to serve the parent company had been “insufficient.” Although the action looks like a victory for Agility, it is not likely to be the end of the battle. As the AP article noted—

The moves aren't likely to be the end of the case. Nelan said that investigators are still gathering details on the company's contracts and she did not rule out a new indictment for the companies.

This investigation is broadening every day,’ she said.

The food supplier's attorneys, too, are bracing for new charges. Tom Bever, who represents Agility DGS Holdings, urged the judge to order prosecutors to hand over more than 15 million pages of discovery, even if the case is dismissed, so they can prepare for a new round of charges.

To wrap-up, the legal Kabuki dance involved with prosecuting fraud, waste, and abuse continues. Large U.S.-based corporations settle to avoid the risk of even larger fines and potential penalties such as debarment. Individuals settle for pleading guilty to relative minor charges in order to avoid more perilous ones. And Agility continues to nimbly dance with the DOJ, protesting its innocence while paying big bucks for high-priced attorneys.

We would say, “stay tuned for further updates”—but that really doesn’t need to be said, does it?



Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.