The Military Fraud Blog

Raul Borcuta a former employee of a U.S. Army contractor and Zachery Taylor and Jarred Close two former U.S. Army Staff Sergeants pleaded guilty for their roles in a fraud scheme that involved a contract to provide armored vehicles to the U.S. military in Afghanistan.

According the Department of Justice’s announcement on December 19, 2012, Borcuta, in February 2010, operated a defense contracting firm in Farah Province, Afghanistan. Taylor and Close were assigned to a Provincial Reconstruction Team in Afghanistan.  A Provincial Reconstruction Team is a multi-agency civil affairs task force responsible for awarding and administering development contracts.  Taylor and Chase awarded Borcuta a $200,000 contract for the provision of two armored vehicle to be used by the governor of Farah Province.  Borcuta took the $200, 000, paid Taylor and Chase $10, 000 each for the contract and never provided the armored vehicles.

All three men are scheduled for sentencing in April, 2013.

Lusk Mechanical Contractors and Commonwealth Technologies and their owners Harry Lusk and Wendell Goodman entered into a $6.25 million settlement with the United States government to resolve allegations that they submitted false statements to the Small Business Administration (SBA) and to the United States Army.

The government alleged that Lusk Mechanical Contractors and Commonwealth Technologies, both located in the state of Kentucky, and their owners made or caused to be made false statements to the SBA to become certified as a HUBZone company.  The HUBZone is a congressional program created in 1997 to help inner cities and rural counties with low household income and high unemployment that have suffered from a lack of business investment.  Communities apply for a HUBZone designation.  Once the designation is granted, small businesses that maintain their principal office in the designated area and that meet other specified requirements may apply to the SBA for certification as a HUBZone company.  Once certified as a HUBZone company, the small businesses are given certain advantages when bidding on government contracts.

The government alleged that in February 2005, Commonwealth Technology submitted an application to the SBA stating it was a small business headquartered in a HUBZone.  Commonwealth stated in its application that its headquarters were located at 212 East Caroline Street, Irvington, Kentucky.  The government alleged that this address was just a vacant office space with no employees. However, the Commonwealth actually operated out of Lusk Mechanical’s headquarters which were not located in the  HUBZone identified in their application.  The government, furthermore, alleged that Commonwealth did not disclose it did not operate as independent company, but instead shared facilities, equipment, personnel, bonding and insurance with Lusk Mechanical.  Commonwealth also did not disclose its financial relationship with Lusk Mechanical.

Based on the false application and certification as a HUBZone Company, the government alleged that Commonwealth then received contracts with the Army to build a courthouse in Fort Knox, Kentucky and to complete maintenance and other repairs to Army facilities in Fort Knox.  The government alleged that Commonwealth Technology and Lusk Mechanical used the false certification to obtain these government contracts in violation of the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

The Department of Justice announced on November 19, 2012, that the United States government is suing Houston based Kellogg, Brown & Root Services Inc. (KBR) and its subcontractor First Kuwaiti Trading Company under the False Claims Act for submitting inflated claims under the Army’s LOGCAP III contract with KBR.

KBR is the United States Army’s primary contractor for logistical support in Iraq.  Under the Army’s Logistics Civil Augmentation Program (LOGCAP) the Army, since the program’s inception in the 1980′s, enters contracts for logistical support in the military theater whenever and wherever that support is needed. On December 14, 2001, the Army awarded KBR the LOGCAP III contract.  The contract requires KBR to provide such services as transportation, dining, facilities management and living accommodations for the United States and coalition forces.  Since 2001, the Army has paid KBR tens of billions of dollars for such logistical support.

The United States is now suing KBR and its subcontractor First Kuwaiti Trading Company  (First Kuwaiti) for false claims submitted in connection with the Bed Down Mission.  This particular mission was to replace the tents used to house soldiers with trailers, also known as living containers.  According to the United States complaint on October 16, 2003, KBR entered a $80 million contract with First Kuwaiti to supply, transport and install 2, 252 living containers at Camp Anaconda located in Iraq. The contract was to be completed y December 15, 2003. The United States alleges that in July 2004, First Kuwaiti presented to claims to KBR stating that the United States government caused delays in providing military escorts to the company’s convoys into Iraq which resulted in an increase in costs.  The United States alleges that KBR paid First Kuwaiti an additional $48.8 million and then passed those costs to the United States.

The United States claims that First Kuwaiti artificially inflated the costs of materials under its contract with KBR and knowingly misrepresented the cause for the delays in completion of the contract.  Further, the United States claims that KBR passed these inflated costs on to the United States knowing that they were improper.

The United States is also suing KBR under the anti fraud section of the Contract Disputes Act and for breach of contract.  A contractors is liable under the Contracts Disputes Act if the contractor certifies that they are entitled to money under a contract and any part of their claims is unsupported due to misrepresentation of fact or fraud.

The Department of Justice on Wednesday, October 24, 2012, announced that Diyana Montes of Houston, Texas, and former employee of Kellogg, Brown and Root, (KBR) pleaded guilty to approving invoices for payment for trucking services Montes knew were not performed in exchange for monetary kickbacks.

KBR is a private contractor with operations in Afghanistan.  Diyana Montes was a KBR employee between April 2008 and December 2008 stationed at the Bagram Airfield, Afghanistan. KBR had a contract with the United States government for the provision of services to the Army’s Movement Control Branch.

The Movement Control Branch is responsible for contracting with local Afghan trucking companies to transport United States military equipment, fuel, and other supplies throughout Afghanistan.  To accomplish its mission, the Movement Control Branch coordinated the requests for trucking services from various United States military branches with various private contractors to ensure the local Afghan trucking companies fulfilled these requests.  Each request required the use of specific documents including the transportation movement requests (TMRs), which authorized the use of the local trucks for these transportation requests and services.

As a KBR employee, Montes was responsible for receiving the TMRs from various contractors, reconciling any discrepancies between the amount for services described in the TMR and the amount for services the contractors included on their invoices.  Once Montes completed the reconciliation, she then sent them to other contracting personnel, who, relying on her review would approve payment to the local trucking companies.

Montes frequently reviewed the TMRs provided by the Afghanistan Trade Transportation company.  The Afghanistan Trade Transportation company (ATT) contracted with the United States government for trucking services.  In exchange for approximately $50,000 from ATT,  consisting of $35,000 wired to her United States bank account and $15,000 paid in cash, Montes approved and moved forward  ATT’s invoices for services that were not provided.  Montes knew at the time she reviewed the ATT invoices that the company had fraudulently filled out the paperwork, invoicing for services it had not provided.  With this knowledge, Montes nonetheless passed the invoices on for approval for payment.

Montes plead guilty to one count of bribery for her role in this scheme to fraudulently bill the United States Army for trucking services that were not provided.

On September 21, 2012, the Department of Justice announce that Lucent Technologies World Services, Inc. a subsidiary of Alcatel-Lucent, agreed to pay $4.2 million to settle the false claims allegations raised in the qui tam lawsuit U.S. ex. rel. Geoffrey K. Wilson v. Alcatel-Lucent, a foreign corporation, et al.

Lucent Technologies World Services, Inc.  (LTWSI) was awarded a $250 million contract with the U.S. Army in 2004 to build the Advanced First Responder Network, a 911 emergency response and first responder communications system designed to enable Iraqis to summon emergency personnel in times of emergencies. The allegations in the lawsuit brought by Geoffrey K. Wilson, a former LTWSI contract manager on the project, state that LTWSI submitted claims for payment for equipment, service and contract performance award fees based on inaccurate certifications that LTWSI preformed and successfully completed certain testing of the Network’s radio transmission sites, as well as validation of the entire network to ensure it was operational prior to acceptance by the United States and transfer to the Iraqi government.  These inaccurate certifications were submitted to the United States Army between January and July of 2005.

The claims settled by this agreement are allegations only and do not constitute a determination of liability.

The Department of Justice announced that Jill Ann Charpia former co-owner of Sourcing Specialist, LLC plead guilty on August 9, 2012, to falsifying official documents in connection with Iraq reconstruction government contracts.

In 2008 Charpia contracted with the United States to provide a turn-key housing facility located outside Iraq’s International Zone to assist multi-national firms that wanted to develop business in Iraq.  She then submitted two fraudulent invoices to the Department of Defense Joint Contracting Command Iraq/Afghanistan. One invoice in the amount of $700,000 was for the rental of two villas in Baghdad.  The other invoice in the amount of $570,000 was for the purchase of three armored vehicles.  Charpia admitted to fabricating the invoices and forging the signatures on the documents.  She also admitted she never purchased the armored vehicles and paid only half ($350,000) of the submitted cost for the villas.

Charpia faces a maximum of five years in prison and a fine up to $250,000. Charpia as part of her plea agreement agreed to pay $920,000 plus interest as restitution to the United States.

The Department of Justice recently announced that an ongoing investigation into wide-ranging schemes to obtain fraudulent recruiting bonuses has led to eight soldiers pleading guilty to such fraudulent activity which resulted in the payment of $244,000 in fraudulent recruitment bonuses.

Between 2005 and 2008, the U.S. Army, the U.S. Army Reserves and the National Guard Bureau entered into contracts with a third party to administer recruiting programs that provided monetary bonuses to U.S. soldiers to recruit U.S. civilians into the three programs.  Additionally, the U.S. Army managed its own recruiting program that offered bonuses to soldiers who referred individuals to the U.S. Army and Army Reserves.

In order to participate in the referral programs, the soldiers needed to set up an online sponsor or recruiting assistant accounts.  Participating soldiers could receive up to $2,000 in bonus payments for their referrals of civilians to join the U.S. Army programs.  Once a participating solider reached certain established benchmark that solider would receive a bonus in the form of a direct deposit or prepaid debit card payments.

Several of the eight soldiers conspired together to “earn” the fraudulent bonuses.  They would set up recruiting assistant accounts in a certain soldier’s name. They would then falsely claim that that particular solider was responsible for referring certain civilians to join the U.S. Army when in fact that particular solider had not made the referrals.

These referring soldiers were in fact receiving information from an active duty recruiter Sergeant First Class Jesus Torres-Alvarez from El Paso, Texas.  Torres-Alvarez admitted to selling the names and Social Security numbers of “potential” soldiers to his co-conspirators to use for means of earning the recruitment bonuses.

The government has been assisted in its investigation by one of the co-conspirators, Sergeant Ernest Gonzales of San Antonio, Texas.  Gonzales provided the government helpful information relating to the schemes and his co-conspirators.

The investigation continues by agents from the San Antonio Fraud Resident Agency of the Major Procurement Fraud Unit, United States Army Criminal Investigation Command.

The Department of Justice on Tuesday, June 26, 2012 announced the settlement of the qui tam case U.S. ex rel Siska v. Ward Diesel Filter Systems, Inc. brought by whistleblower Ted Siska.

The lawsuit alleged that Ward Diesel Filter Systems, Inc., (Ward Diesel) headquartered in Elmira, New York routinely overcharged the government agencies under its GSA contracts for the purchase of the company’s diesel filter systems.  Ward Diesel manufactures filtering systems for diesel engines on fire trucks.  Under it government contracts, the company provided these systems to the Department of the Army, the Department of the Navy, Department of Interior, the Air Force, Marine Corps and Department of Energy.

Under its contracts Ward Diesel was required to truthfully provide its commercial pricing during the contracting process; identify a group of most-favored customers and to provide more favorable prices to the GSA than those offered to the most-favored customers.  Additionally, Ward Diesel was required to notify GSA of any additional discounts offered to the most-favored customers.  The United States alleged that the company failed to fulfill any of these contractual obligations.

Under the settlement terms, Ward Diesel agreed to pay the United States $628,000 to resolve the false claims allegations.  The whistleblower, Ted Siska will receive $94,200 of this settlement.

The Department of Justice announced on Friday, June 1, 2012, the resolution of the False Claims Act lawsuit against Calnet Inc., an intelligence analysis, information technology, and language services company headquartered in Reston, Virginia.

The lawsuit, brought by former Calnet Inc. employee Kimthy Chao alleged that Calnet Inc. overstated provisional indirect and overhead rates on three of its contracts with the government.  Calnet Inc. contracted with the government to provide translation and linguist services at Guantanamo Bay and other facilities beginning in 2005.  Calnet Inc. was the prime contractor on two of the three contracts and a subcontractor on one of the contracts.  Calnet Inc. submitted the false claims for payment to the Department of Defense.

Under the settlement, Calnet Inc. has agreed to pay the United States $18.1 million to resolve the allegations.  The whistleblower, Kimthy Chao will receive a monetary share in accordance with the False Claims Act of $2,669,724.

On Monday, April 23, 2012, the Department of Justice announced its recent settlement with ATK Launch Systems Inc. that resolved allegations ATK sold dangerous and defective illumination flares to the Army and the Air Force from 2000 to 2006.  The defective illumination flares, LUU-2 and LUU-19, are used for nighttime combat, covert, search and rescue operations.  The flares burn in an excess of 3,000 degrees Fahrenheit for over five minutes.  Troops in Afghanistan and Iraq exclusively have used ATK illumination flares.

The government alleged that ATK’s flares could not withstand a ten foot drop without exploding or igniting as required by specifications.  The government alleged that ATK was aware that the flares did not meet such specifications when it submitted claims for payment to the Department of Defense.

ATK will pay the United States $21 million in cash and provide approximately $16 million for in-kind services repairing the 76,000 defective flares still in government inventory.

An ATK employee filed a qui tam action bringing this fraudulent behavior to the government’s attention.  David D. Barlow, United States Attorney for the District of Utah, stated

This settlement demonstrates our commitment to aggressively go after contractors who recklessly disregard and deliberately ignore critical safety defects in munitions used by America’s uniformed fighting men and women…