U.S. Law Enforcement Disrupts Networks Used to Transfer Fraud Proceeds, Taking Over 4,000 Actions in Fifth Campaign
Five men were charged in a 71-count indictment with engaging in conspiracies to defraud several federal agencies by paying bribes and fraudulently obtaining at least $15 million in government contracts they were not entitled to though disabled-veteran set asides and other programs.
Indicted are: James A. Clark, 61, of Chipley, Florida, who owned several businesses, including Enola Contracting Services, Inc.; Eric L. Hogan, 59, of Bonaire, Georgia, who owned P&E Construction, LLC; Kenneth A. Latham, 73, of Albany, Georgia, who was employed by the U.S. Navy as a civilian engineering technician; James K. Alford, 55, of Bowling Green, Kentucky, who owned K&S Constructors, Inc., and Harvey Daniels, Jr., 40, of Marianna, Florida, who owned HDJ Security, Inc.
The charges include conspiracy to commit honest services wire fraud, conspiracy to commit wire fraud, wire fraud, conspiracy to submit false claims, false claims and major fraud.
Construction projects detailed in the indictment include contracts at the Marine Corps Logistics Base in Albany, Georgia, the VA Medical Center in Louisville, Kentucky, and the NASA Plum Brook Station near Sandusky, Ohio.
According to the indictment:
Federal departments and agencies, as directed by Congress, work with the Small Business Administration to award portions of contracts to small businesses, with specific goals for small disadvantaged business, including service-disabled veteran-owned small businesses.
Businesses must register and meet a number of criteria to be classified as small disadvantaged business – also known as the 8(a) program -- such as being at least 51 percent owned and controlled by socially and economically disadvantaged individuals. Businesses must also meet a number of criteria to be classified as a service-disabled veteran-owned small business, such as being at least 51 percent owned by a veteran with a service-connected disability who controls the management and daily operations of the company. Service-disabled veteran-owned small businesses are permitted to enter into joint ventures with other companies but must meet specific requirements to do so.
The defendants and others engaged in several criminal schemes designed to deprive the government of its right to honest services of its employees through bribes and kickbacks, and to submit false claims and defraud the United States by obtaining government contracts set aside for qualified companies to which they were otherwise ineligible to obtain by fraudulently using proxy and pass-through companies.
P&E, through Hogan and Clark, made false statements, misrepresentations and omissions of facts. Hogan on several occasions certified P&E was a service-disabled veteran-owned small business. It also registered as a joint venture with Enola, with Hogan listed as president and Clark as vice president of the joint venture. HDJ Security was enrolled in the 8(a) program. Daniels self-identified as the president of HDJ, the sole owner of the company and to be socially disadvantaged.
In one scheme, Latham accepted a series of bribes and kickbacks from Hogan and Clark -- including cash, meals, a hunting trip, a fence, and an all-terrain vehicle -- in return for Latham using his official position with the Navy to benefit Hogan, Clark and their businesses. These benefits included assistance in finding and securing government contracts, approval of invoices for payments to pass-through companies used by Hogan and Clark to obtain set-aside contracts for which their companies were not otherwise eligible, and concealing Clark and Hogan’s use of pass-through companies to obtain bonding.
Another scheme involved defrauding the VA and the TK by fraudulently representing that P&E and Hogan independently qualified for the service-disabled veteran-owned small business program despite Clark’s involvement in providing bonding for and equity ownership in P&E.
Clark, Hogan, Alford, Daniels and others defrauded the government by using purported service-disabled veteran-owned small businesses and 8(a) businesses as proxies to bid on and obtain set-aside contracts.
Arrow Construction, which was registered in the 8(a) program, was awarded a $2.8 million contract for work at the Marine Corps Logistics Base in Albany, Georgia, in September 2011. Clark and Arrow officials Kent Reynolds and Jennifer Dillard (who both have been previously charged in the Northern District of Ohio) agreed that about 90 percent of the value of the contract was passed through to Clark and Enola, in violation of the 8(a) program.
HDJ was awarded a contract for work at the Marine Corps Logistics Base in Albany, Georgia, in September 2012. HDJ was paid approximately $2.6 million. Clark, Hogan and Daniels agreed to pass through approximately 95 percent of the value of the contract to Clark, Hogan, Enola and P&E, in violation of the terms of the 8(a) program.
The VA in June 2011 awarded a contract to P&E Construction for work at the VA Medical Center in Louisville, Kentucky. The VA paid P&E approximately $4.5 million that the company would not have received if the VA knew P&E was acting as a pass-through for K&S and that it was back-bonded by Clark and Enola.
P&E submitted a winning bid in February 2013 for a contract for construction services at the NASA Plum Brook Station near Sandusky, Ohio. NASA paid P&E approximately $5.6 million that the company would not have received if NASA knew it was acting as a pass-through for K&S and that P&E was back-bonded by Clark and Enola.
“These programs were created to help companies owned by disabled veterans and other struggling small businesses,” U.S. Attorney Justin E. Herdman said. “The defendants in this case took advantage of these programs to fraudulently obtain taxpayer money.”
Michael J. Missal, Inspector General for the U.S. Department of Veterans Affairs, said: “The VA’s Service Disabled Veteran Owned Small Business Program supports qualified veterans who have served and sacrificed for their country. We will continue to work with our law enforcement partners to identify and prosecute individuals who wrongfully and fraudulently exploit these federal contracting opportunities that are meant only for service-disabled veterans.”
“I commend the outstanding investigative efforts of the NASA OIG, NCIS, DCIS, SBA-OIG, VA-OIG, DCAA, and AFOSI Agents, and the work of the USAO for the Northern District of Ohio,” said NASA Inspector General Paul Martin. “Their teamwork uncovered evidence of a criminal scheme that prevented legitimate small businesses from obtaining lucrative contracts that the defendants obtained through fraud.”
"The acceptance of bribes and kickbacks is both a violation of law and the trust the Department of the Navy places in its employees," said NCIS Director Andrew Traver. "NCIS will continue to protect the Department of the Navy from these fraudulent schemes to ensure readiness of the fleet."
"Protecting the U.S. Department of Defense (DoD's) contracting process and ensuring the integrity of DoD employees are top investigative priorities for the Defense Criminal Investigative Service (DCIS)," stated Leigh-Alistair Barzey, Special Agent-in-Charge of the DCIS Northeast Field Office. "Today's indictment of five individuals, including an employee of the U.S. Navy, is the direct result of a joint investigative effort and demonstrates the DCIS' ongoing commitment to work with its law enforcement partners and the U.S. Attorney's Office to identify, investigate and prosecute those who seek to fraudulently profit at the expense of the DoD's procurement system."
"Conspiring to commit fraud is no way to gain or extend access to SBA’s set-aside contracting programs,” said SBA Inspector General Hannibal “Mike” Ware. “OIG is committed to rooting out fraud in SBA’s programs and bringing those responsible to justice. I want to thank the U.S. Attorney’s office and our law enforcement partners for their support and dedication to pursuing justice in this case.”
If convicted, the defendants’ sentences will be determined by the Court after review of factors unique to this case, including the defendant’s prior criminal record, if any, the defendant’s role in the offense and the characteristics of the violation. In all cases the sentence will not exceed the statutory maximum and in most cases it will be less than the maximum.
This case was investigated by National Aeronautics and Space Administration -- Office of Inspector General, the Defense Criminal Investigative Service, Naval Criminal Investigative Service, Department of Veterans Affairs -- Office of Inspector General, Small Business Administration -- Office of Inspector General, Defense Contract Audit Agency and the Air Force Office of Special Investigations. It is being prosecuted by Assistant U.S. Attorneys Om Kakani and Alejandro A. Abreu.
An indictment is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.