Individuals and companies should carefully consider the many serious risks, including criminal prosecution and forfeiture of assets, before seeking to improperly take advantage of and abuse federal programs created to advantage various socio-economic groups. These programs include Government contract set-aside programs for Veteran-Owned (VOSBs), Service-Disabled Veteran-Owned (SDVOSBs), Woman-Owned (WOSBs), and HUBZone Small Businesses. These risks are vividly demonstrated in a multi-count indictment recently announced by the U.S. Attorney’s Office for the Western District of Missouri, involving a $13.8 Million “Rent-a-Vet” scheme, seeking criminal penalties and forfeiture of assets against (1) the individual setting-up the scheme, (2) the participating “front” individual, and (3) the purported “front” SDVOSB/VOSB.
According to the indictment, Jeffrey K. Wilson, the former owner of a local construction company, set-up Patriot Company, Inc. as a “pass-through” or “front” company for his own business, and installed Paul R. Salavitch, a service-disabled veteran, as Patriot’s nominal president from July 14, 2005 to April 1, 2014. Patriot bid on and won at least 20 VOSB and SDVOSB set-aside construction contracts issued by the Veterans Administration and Army, having a combined value of more than $13.8 Million. These contracts involved construction projects in 11 states.
Among other things, the indictment cites an email in which Wilson discusses leasing an office for Patriot and asks the recipient to obtain and put in the office a few personal items from Salavitch, such as plaques or other stuff from his Army service, so that “if one stepped into it, it would look and feel like Patriot ….” According to the indictment, Salavitch had never previously managed a construction company, and had limited government contracting experience. Moreover, he worked full-time as a federal employee with the Department of Defense in Leavenworth, KS, and did not work full-time for Patriot. Most importantly, and contrary to SDVOSB program requirements, Salavitch did not actively control the day-to-day management, daily operation or long-term decision-making of Patriot.
Particularly damaging, the indictment cites a series of emails in which Salavitch was still contemplating his work start date with Patriot, at a time at which Patriot already had obtained 10 government contracts. Meanwhile, Wilson used Patriot as his personal piggy-bank, and used Patriot funds to purchase two homes, pay-off a mortgage and pay life insurance policy premiums.
The indictment alleges a conspiracy by Wilson, Salavitch and Patriot to defraud the Government. In addition, Wilson, Salavitch and Patriot are charged with four counts each of major government program fraud, and Wilson is charged with one count of fraud and two counts of money laundering. In addition to other sanctions, the indictment contains forfeiture allegations which would require Wilson and Salavitch to forfeit personal assets derived from the fraudulent behavior, totaling nearly $14 Million.
While the allegations in the indictment have not yet been proven, they reflect an all too common pattern of behavior to improperly benefit from set-aside programs, to the serious detriment of bona fide VOSBs and SDVOSBs. The broad range of the charges asserted, as well as the serious risks of jail time, criminal penalties and assets forfeiture, hopefully will deter future such conduct. Moreover, the growing government emphasis on confirming program eligibility, as well as the increasingly watchful eyes and aggressiveness of competitors and whistleblowers, greatly increase the risks of discovery and prosecution, and reduce the likelihood that future such schemes will succeed and go undiscovered for long. Individuals and companies contemplating competing in these areas should ensure that they understand and fully comply with the applicable legal criteria for the respective individual programs, and avoid the risks unwisely assumed here.