Former Usprotect Chairman Sentenced for Concealing Prior Fraud Judgments to Obtain over $150 Million in Federal Security Contracts and Tax Evasion

Evaded Paying Taxes on More than $1million in Unreported Income

June 13, 2008

Greenbelt, Maryland - U.S. District Judge Deborah K. Chasanow sentenced Richard S. Hudec, age 44, of Naples, Florida, former Chief Operating Officer of Holiday International Security, Inc.(HIS), now known as USProtect Corporation, today to 33 months in prison, followed by three years of supervised release, for attempting to evade federal income taxes and concealing numerous civil fraud judgments from federal contracting officials to obtain federal security contracts worth over $150 million, announced U.S. Attorney Rod J. Rosenstein. Judge Chasanow also ordered Hudec to forfeit $1.25 million, pay a fine of $10,000, and restitution to the IRS of $290,360.

United States Attorney Rod J. Rosenstein said, “The integrity of federal contractors is a matter of great importance. Richard Hudec repeatedly lied and violated the public trust.”

"The prosecution of individuals who intentionally conceal income and evade taxes is a vital element in maintaining public confidence in our tax system. We should not expect the honest taxpayer to foot the bill for those who hide income from the IRS." said C. Andre Martin, Special Agent in Charge of the IRS Criminal Investigation, Washington DC Field Office.

According to the criminal information and statement of facts that is part of his plea agreement, Hudec’s wife purchased HIS in May 2003 and HIS’s name was changed to USProtect Corporation. By 2005, the company provided armed and unarmed security guards for 18 federal agencies at 120 installations in 32 states and territories. From 2001 through February 2005, Hudec assisted in preparing and submitting the company’s proposals to provide security to federal agencies. As of October 2001, Hudec had been convicted of fraud in four separate federal criminal prosecutions and had numerous civil judgments for fraud and false statements entered against him.

In proposals submitted in 2002 and 2004 to provide physical security to Social Security Administration (SSA) facilities in Baltimore and the FBI Academy in Quantico, Virginia, Hudec, as either the chief financial officer or chief operating officer, caused the company to falsely certify that no principal of the company had a civil judgment for fraud or false statements rendered against him within the three years preceding the company’s proposal. This resulted in SSA awarding the company contracts worth more than $50 million and the FBI awarding the company contracts worth $3.5 million.

In November 2002, the same false certifications were made in the company’s application to the General Services Administration (GSA) to be eligible for contracts under the Federal Supply Schedule, which lists contractors from which federal agencies may purchase products or services in an expedited fashion. Based on the company’s application, GSA listed the company on the Federal Supply Schedule and beginning in 2004, the company was awarded several federal security contracts, including more than $100 million in contracts to provide security to more than 12 bases operated by the U.S. Air Force.

As a result of this scheme, the company obtained contracts worth more than $150 million through proposals that concealed the prior judgments against Hudec. Between 2001 and 2003 Hudec received more than $1 million for his services as an officer with the company. Yet for tax years 2002 and 2003 Hudec reported income of only $18,000 and $21,000 respectively, in order to evade the assessment of more than $200,000 in income taxes for those years.

In related cases, Michael B. Holiday, age 50, of Silver Spring, Maryland, the chief executive officer and owner of HIS, and Dessie Ruth Nelson, age 65, of Oakland, California, a former longtime employee of GSA, pleaded guilty to bribery and tax evasion in connection with a scheme involving three federal government contracts worth over $130 million awarded to the company to provide security to federal buildings in Maryland and California. Holiday and Nelson face a maximum sentence of 15 years in prison on the bribery charge and five years in prison for tax evasion at their sentencings scheduled for July 14, 2008 at 10:00 a.m. and 1:00 p.m., respectively.

In addition, the government has filed a complaint for forfeiture seeking up to $6.9 million from a bank account owned by USProtect, as well as a boat and two homes in Naples, Florida, which the complaint alleges were involved in money laundering transactions using proceeds of a bribery offense. This action remains pending, as do two related involuntary Chapter 7 bankruptcy cases filed by three creditors of the companies in the United States Bankruptcy Court for the District of Maryland. When the companies did not object, the Bankruptcy Court granted the involuntary petitions. Further, the Greenbelt Office of the United States Trustee Program – the Department of Justice agency that supervises bankruptcy cases and trustees – appointed a Chapter 7 trustee to identify, marshal and liquidate assets on behalf of USProtect creditors.

In October 2006, the Department of Justice launched the National Procurement Fraud Task Force designed to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in government contracting activity for national security and other government programs. The Procurement Fraud Task Force - chaired by Assistant Attorney General Alice S. Fisher for the Criminal Division - includes the United States Attorneys’ Offices, the FBI, the U.S. Inspectors General community, and a number of other federal law enforcement agencies. This case, as well as other cases brought by members of the Task Force, demonstrate the Department of Justice’s commitment to helping ensure the integrity of the government procurement process.

United States Attorney Rod J. Rosenstein praised the Federal Bureau of Investigation; the General Services Administration - Office of Inspector General; the Social Security Administration - Office of Inspector General; the Department of Homeland Security - Office of Inspector General; the Internal Revenue Service - Criminal Investigation; Treasury Inspector General for Tax Administration; and the Defense Criminal Investigative Service for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys Michael Pauzé and Jonathan Biran, who prosecuted the case.



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