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Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts


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Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Tuesday, August 20, 2019

Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts

Luke Hillier, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc., has agreed to pay the United States $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive, the Department of Justice announced today. 

“Small businesses serve a vital role in our communities and in the American economy,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “We will not hesitate to take action against those who fraudulently obtain contracts intended for small businesses.”

“This action reflects the government’s steadfast commitment to hold individuals accountable who knowingly participate in schemes that take advantage of small businesses and set-aside contracts to which they are not entitled under the law,” said U.S. Attorney for the District of Columbia Jessie K. Liu.  “The government expects people to be truthful in their dealings with the government, and the United States will investigate and pursue those that fail to live up to that expectation.”

In order to qualify as a small business, companies must satisfy defined eligibility criteria, including requirements concerning size, ownership, and operational control.  The government alleged that Hillier caused ADS to falsely represent that it qualified as a small business concern when it failed to do so, including due to its alleged affiliations with a number of other entities.  The United States alleged that, as a result of Hillier’s representations, his company was awarded numerous small business set-aside contracts for which it was ineligible.    



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The government previously resolved related claims against ADS for $16 million, and Charles Salle, the former general counsel of ADS, has agreed to pay $225,000 to resolve claims arising from his role in the alleged scheme.  The government has also obtained recoveries from other related entities that were involved in the alleged fraudulent scheme.  The combined settlements, totaling more than $36 million, rank as the largest False Claims Act recovery based on allegations of small business contracting fraud.  

“The settlements in this matter demonstrate the excellent results stemming from the joint efforts of federal agencies, including the Small Business Administration, working with the Department of Justice in responding to allegations of fraud perpetrated by participants in SBA’s procurement programs,” said SBA General Counsel Christopher M. Pilkerton.

“When individuals knowingly make misrepresentations to gain access to federal contracts set aside for small businesses, they will be held accountable,” said Inspector General Hannibal “Mike” Ware.  “These settlements send a strong message that allegations of wrongdoing will find their way into the open and will be investigated.  I want to thank the Department of Justice and our law enforcement partners for their support and dedication in this case.”


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“GSA contractors must be honest and forthcoming when doing business with the federal government,” said GSA Inspector General Carol Fortine Ochoa.  “GSA OIG and its partners will aggressively pursue those who fraudulently obtain government contracts intended for truly small businesses.”

The settlement announced today resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery.  The lawsuit was filed by Ameliorate Partners LLP in federal district court in the District of Columbia and is captioned United States ex rel. Ameliorate Partners, LLP v. ADS Tactical, Inc. et al., Case No. 13-cv-1880 (D.D.C.).  Ameliorate Partners will receive $3.6 million from the settlement with Hillier.  

This matter was handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorneys’ Offices for the District of Columbia and for the Eastern District of Virginia, with assistance from the Small Business Administration’s Office of Inspector General and the General Services Administration’s Office of Inspector General. 

The claims resolved by the settlement are allegations only, and there has been no determination of liability.






4/12/2019

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Friday, April 12, 2019

General Electric Agrees to Pay $1.5 Billion Penalty for Alleged Misrepresentations Concerning Subprime Loans Included in Residential Mortgage-Backed Securities

The Department of Justice today announced that General Electric (GE) will pay a civil penalty of $1.5 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to resolve claims involving subprime residential mortgage loans originated by WMC Mortgage (WMC), a GE subsidiary. WMC, GE, and their affiliates allegedly misrepresented the quality of WMC’s loans and the extent of WMC’s internal quality and fraud controls in connection with the marketing and sale of residential mortgage-backed securities (RMBS). FIRREA authorizes the federal government to seek civil penalties for violations of various predicate criminal offenses, including wire and mail fraud where the violation affects a federally insured financial institution.

“The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make accurate and complete representations about their products. The failure to disclose material deficiencies in those loans contributed to the financial crisis,” said Assistant Attorney General Jody Hunt. “As today’s resolution demonstrates, the Department of Justice will continue to employ FIRREA as a powerful tool for protecting our financial markets against fraud.”



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General Electric Capital Corporation (GECC), then the financial services unit of GE, acquired WMC, a subprime residential mortgage loan originator, in 2004. WMC originated more than $65 billion dollars in mortgage loans between 2005 and 2007. WMC sold the vast majority of its loans to investment banks, which, in turn, issued and sold RMBS backed by WMC loans to investors. The United States alleged that a majority of the mortgage loans WMC originated and sold for inclusion in RMBS in 2005-2007 did not comply with WMC’s representations about the loans, and that certain of WMC’s representations were reviewed by, approved by, or made with the knowledge of personnel from GE or GECC. Investors, including federally insured financial institutions, suffered billions of dollars in losses as a result of WMC’s fraudulent origination and sale of loans for inclusion in RMBS. 

In particular, the United States alleged that in 2005-2007, WMC attempted to increase its profits and meet profit goals by increasing originations. WMC loan analysts responsible for underwriting mortgage loans were encouraged to approve loans in order to meet volume targets, even where the loan applications did not meet the criteria outlined in WMC’s published underwriting guidelines, and received additional compensation based on the number of mortgages they approved. At the same time, there were significant deficiencies with respect to WMC’s quality control, which was viewed by some as an impediment to volume. In 2005, a WMC quality control manager described his department as a “toothless tiger” with inadequate resources and no authority to prevent the approval or sale of loans his department had determined were fraudulent or otherwise defective. By late third quarter 2006, managers responsible for quality control and risk management at WMC and GECC had expressed concerns that WMC’s quality and fraud controls were so lax that WMC received more mortgage applications containing fraud or other defects than its competitors. As a member of GE’s Corporate Audit Staff (CAS) involved in audits of WMC observed in April 2007, WMC “jacked up volume without controls.”



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The United States alleged that the investment banks that purchased WMC’s loans declined to buy certain mortgage loans that WMC attempted to sell due to defects in the loan file or suspected fraud. When it declined, or “kicked out” a loan, the potential purchaser typically notified WMC of its reasons for rejecting the file, including the defects identified. WMC’s general practice was to re-offer certain kicked loans to a second potential purchaser for inclusion in RMBS without disclosing that the mortgage had previously been rejected or the reasons why the first potential purchaser concluded the mortgage had defects. 

The United States alleged that by late 2005 and early 2006, investment banks were kicking out more of WMC’s loans than ever, and investors in RMBS backed by WMC loans raised concerns about the quality of loans originated by WMC because WMC borrowers were failing to repay their loans at unexpectedly high rates. WMC also began receiving increased numbers of requests from investment banks to buy back, or repurchase, loans. In March 2006, WMC reviewed a representative sample of the 1,276 loans it had repurchased in 2005, and concluded that 78 percent of the loan files reviewed contained at least one piece of false information. The results of this review were shared with WMC’s senior executive team and discussed on multiple occasions with personnel from GECC.






The United States alleged that in fall 2006, GECC took control over the strategic direction of WMC. Even in the face of increasing repurchase demands, kick-outs, and concerns about WMC’s underwriting quality, WMC continued selling its loans and making false representations about their qualities and attributes. GECC became closely involved in WMC’s whole loan sales and provided WMC with input and direction on how to sell off WMC’s remaining loans. Beginning in 2007, GECC also assumed control over WMC’s ability to grant repurchase requests. 

The investigation of WMC, GE, and GECC and this settlement were handled by the Civil Division’s Commercial Litigation Branch, with assistance from the San Francisco Field Office of the Federal Bureau of Investigation. The claims resolved by this settlement are allegations only, and there has been no admission of liability. 


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Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, April 11, 2019

Washington-Based Lawyer Indicted on Charge of Making False Statements to the Department of Justice

A federal grand jury today returned an indictment charging Gregory B. Craig, a Washington-based lawyer, with making false statements and concealing material information about his activities on behalf of Ukraine from the Department of Justice, National Security Division’s Foreign Agents Registration Act Unit (FARA Unit). 

The announcement was made by Assistant Attorney General for National Security John C. Demers, U.S. Attorney Jessie K. Liu for the District of Columbia, and Assistant Director in Charge William F. Sweeney, Jr. of the FBI’s New York Field Office.

Craig, 74, of Washington, D.C., was indicted by a grand jury in the U.S. District Court for the District of Columbia for willfully falsifying and concealing material facts from the FARA Unit, in violation of Title 18, United States Code, Section 1001(a)(1), and for making false and misleading statements to the FARA Unit, in violation Title 22, United States Code, Section 618(a)(2).


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An indictment is merely a formal charge that a defendant has committed a violation of criminal laws and is not evidence of guilt.  Every defendant is presumed innocent until, and unless, proven guilty.

The maximum penalties for the charged offenses are, respectively, five years’ imprisonment and a $250,000 fine, and five years’ imprisonment and a $10,000 fine.  The maximum statutory sentence for federal offenses is prescribed by Congress and is provided here for informational purposes.  The sentencing will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

Craig is to be arraigned at a date to be scheduled by the Court.

This case is being investigated by the FBI’s New York Field Office. It is being prosecuted by Assistant U.S. Attorneys Fernando Campoamor-Sanchez and Molly Gaston of the U.S. Attorney’s Office for the District of Columbia and Trial Attorney Jason McCullough of the Justice Department’s National Security Division.







    
   
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