Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Jul 22
2013

Conspirators Get Prison Time for Defrauding Small Business 8(a) Program

White-collar crime can involve any number of types of fraud against the government or private parties. One that isn’t usually thought about but can result in serious jail time involves conspiracies to obtain government contracts fraudulently by setting up bogus small and minority-owned businesses in order to qualify for government preferences.

In the past few months in the Eastern District of Virginia, several businesspeople have been sentenced to serve time in prison after pleading guilty to their roles in a scheme that improperly won them more than $31 million in government contracts that were intended for small, minority-owned businesses but were diverted fraudulently to other businesses that didn’t qualify.

In June, businessman Joseph Richards was sentenced to 27 months in federal prison after he pleaded guilty to his role in the scheme. He was the first major participant to be sentenced.

Richards and his co-conspirators were gaming the system and abusing the federal program that provides so-called 8(a) set-asides for minority businesses. As outlined in a statement of facts to which Richards stipulated, he and the co-conspirators set up “Company B,” a shell company owned by a woman named Dawn Hamilton, who is of Portuguese descent and thus eligible for the set-aside. However, Hamilton was only a figurehead owner, and “Company A,” run by Richards and other non-minority individuals, actually did the work on the government contracts. Earlier this month, Hamilton was sentenced to four years in federal prison.

For example, the memorandum states: “From 2009 until at least February 2012, when [Hamilton] began to work more frequently for Company B, Richards knew that [Hamilton] nevertheless reported to [co-conspirator Keith Hedman], who controlled Company B notwithstanding [Hamilton’s] “on-paper” Company B ownership. Richards also knew that [Hedman] kept a stamp of [Hamilton’s] signature in [Hedman’s] desk drawer and that [Hedman] repeatedly used the stamp to forge [Hamilton’s] name and signature on various documents, including checks and other documents submitted to the U.S. government.” Hedman, the ringleader of the scheme, was sentenced to six years in prison.

In order to make their scheme work, Richards and his co-conspirators repeatedly created fraudulent documents, including fraudulent leases and false responses to government inquiries about their 8(a) status.

These guilty pleas and sentences are indications that federal prosecutors are capable of going after government contract fraud in a concerted manner. The investigation that landed these guilty pleas, among others, was conducted by a large inter-agency team, including the offices of inspector general of the National Aeronautics and Space Administration, the Small Business Administration, the General Services Administration, the Department of Health and Human Services, and the Defense Criminal Investigative Service, with assistance from the Defense Contract Audit Agency.

The fact that the companies involved actually performed the work satisfactorily for various government agencies is, of course, no defense. It is a basic type of fraud to make false representations to obtain benefits – in this case government contracts – to which one is not entitled by law.

Of course, it’s pretty clear that for every one of these scams that are investigated by authorities and end in guilty pleas, there must be five or ten that are never found out. If the Small Business Administration and other agencies got wind of more of these conspiracies, they could do more to ensure that truly deserving companies received these set-aside contracts.

Ifrah Law is a leading white-collar criminal defense firm that focuses on government contracting.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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