United States Awarded Damages and Penalties in Government Contracting Fraud Case
Baltimore, Maryland - A federal jury has awarded the United States damages of $428,532.49 against John J. Rachel, age 72 of Nokesville Virginia, and two of the corporations he controlled, RGI, Inc. (RGI) and Computer Specialties of Maryland, Inc. (CSM) on claims that Rachel, RGI, and CSM were liable under the False Claims Act, which allows the recovery of damages for the submission of false or fraudulent claims to the federal government.
According to the evidence presented at the trial, in 1995 the IRS entered into a contract with a company to repair laptop computers used by the IRS throughout the country. The contract called for the company to charge the IRS a fixed hourly rate, plus the actual cost of parts used in the repairs. The contractor subcontracted much of the work to RGI.
Testimony showed that RGI contracted with a third party to perform certain repairs to the IRS laptops. Instead of billing the actual cost of the third party’s work, Rachel and RGI artificially inflated these costs by claiming that a shell company, CSM, had actually performed this work. When questioned about these transcations. Rachel and RGI provided the IRS with phony invoices reflecting that the work had been done by CSM at prices much higher than was actually charged by the true vendor. Trial testimony showed that the IRS paid an additional $428,532 under the contract as a direct result of the fraudulently inflated invoices.
The jury also found that Priscilla Rachel, John’s wife, was not liable for any damages. The government had argued at the trial that Mrs. Rachel had participated in and benefitted from the scheme.
Enacted during the Civil War, the False Claims Act is the government’s primary civil tool to combat fraud and abuse in federal programs and procurement. The Act allows the government to recover triple the amount of its actual damages, plus a civil penalty of $5,500 to $11,000 for each false claim.
United States Attorney Rod J. Rosenstein commended the Treasury Inspector General for Tax Administration for its investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys Michael A. DiPietro and Jamie M. Bennett, who prosecuted the case.