Manhattan U.S. Attorney Files And Settles Civil Fraud Lawsuit Against UFC Aerospace And Douglas B. Davis For Engaging In Fraudulent Conduct In Violation Of The Small Business Act

Preet Bharara, the United States Attorney for the Southern District of New York, Melvin F. Williams, Jr., General Counsel of the U.S. Small Business Administration (“SBA”), Peggy E. Gustafson, SBA Inspector General, and Craig W. Rupert, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (“DCIS”), announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against UFC AEROSPACE LLC (“UFC”) and DOUGLAS B. DAVIS, the former president of UFC, for engaging in fraudulent conduct in violation of the Small Business Act, 15 U.S.C. § 632(n), in order to secure numerous lucrative defense subcontracts with government contractors.  As alleged in the amended complaint-in-intervention, UFC falsely certified to government contractors that UFC was a woman-owned small business (“WOSB”) when UFC at no point met either requirement for WOSB status under the Small Business Act.  Specifically, no women were majority owners of UFC or managed or controlled UFC’s management and daily business operations.  UFC made these misrepresentations, as the amended complaint-in-intervention alleges, because it believed that WOSB status provided a competitive advantage in obtaining contracts that it knew were funded by the United States government, and the government contractors in turn made representations to the government regarding its WOSB hiring.  In the settlement, approved in Manhattan federal court by U.S. District Judge William H. Pauley III, UFC and DAVIS admitted and accepted responsibility for the fact that UFC never qualified for WOSB credit under the Small Business Act and will pay the Government $20,015,956.92.

Manhattan U.S. Attorney Preet Bharara said:  “The Small Business Act serves the important purpose of increasing legitimate participation by woman-owned businesses, and when business owners engage in fraud that undermines this purpose, they need to be held to account.  I want to thank the SBA Office of General Counsel, the SBA Office of Inspector General, the Defense Criminal Investigative Service, and the Procurement Fraud Division of the Air Force Materiel Command Law Office for their invaluable work on this case.”

SBA General Counsel Melvin F. Williams, Jr., said: “This case represents the cooperative effort of SBA’s Offices of the General Counsel and the Inspector General and the Department of Justice to uncover and remedy fraud in our procurement programs.  Uncovering and pursuing fraud cases is one of SBA’s highest priorities.”

SBA Inspector General Peggy E. Gustafson said: “This settlement sends an important message that falsely certifying a company’s status as a Woman Owned Small Business is unacceptable and bears a significant consequence.  We will continue to aggressively pursue parties that wrongfully obtain both prime and subcontracting opportunities for small businesses that are legitimately owned and controlled by women.  I want to thank the U.S. Department of Justice for its dedication to reaching a settlement in this case.”

DCIS Special Agent in Charge Craig W. Rupert said: “This settlement is evidence of the continuing efforts of the Defense Criminal Investigative Service and our law enforcement partners to assure integrity within the Defense procurement process.  The Department of Defense relies on numerous certifications from our contractors and any fraud in this process has a serious impact throughout this industry.  DCIS will continue to aggressively pursue allegations of fraud and corruption harmful to U.S. taxpayers and the Department.”       

The following allegations are based on the amended complaint-in-intervention filed Monday in Manhattan Federal court:

The Small Business Act, which provides that it is the policy of the United States that small businesses owned and controlled by women should have the “maximum practicable opportunity to participate in the performance of [federal] contracts,” defines a “woman owned small business” (“WOSB”) to mean that women own 51% of the company and “the management and daily business operations of the business are controlled” by women.  15 U.S.C. §§ 637(d)(1), 632(n).  Prime contractors that obtain federal funds are required to negotiate with the procuring authority a subcontracting plan setting forth, among other things, what percentage of the work will be given to WOSBs, and the Comprehensive Subcontracting Plan Group of the Defense Contract Management Agency is responsible for ensuring that Government defense contractors meet all of the requirements for hiring small businesses, including WOSBs.

UFC began claiming WOSB status at least beginning in late 2001, by representing to contractors UFC knew were doing work with the federal government that it was a WOSB.  UFC falsely relied on the purported ownership interest of the wives of the actual owners, John Davis and DOUGLAS DAVIS, to make these representations.  UFC continued to represent that it was a WOSB at various times until 2011, and earned millions of dollars on the contracts procured with those representations.  UFC did so because it understood that this status mattered both to the contractors and to the Government, and it believed that it was obtaining a competitive advantage by claiming to be a WOSB.  However, at no time during the entire time period from 2001 to 2011 did UFC ever qualify under the Small Business Act as a WOSB.  The only ownership interest that the wives of John and DOUGLAS DAVIS had in UFC was through trusts that were entirely controlled by John and DOUGLAS DAVIS, and under which the women were entitled to a maximum of only 5% of the trusts’ assets.  Moreover, neither woman controlled or managed the company at any time.  In fact, neither woman had company email accounts, attended management meetings, or spent regular time in the office during the relevant time period.

In the stipulation of settlement with the Government, defendant DOUGLAS DAVIS admitted, acknowledged, and accepted responsibility for the following:  From 2001 to 2011, he was the President of UFC and controlled the management and business operations of UFC, and UFC certified that it was a WOSB to contractors UFC knew were conducting millions of dollars of business with the United States in order to obtain a competitive advantage with those contractors.  At no time during the relevant period did UFC actually meet either of the statutory requirements for claiming WOSB status.

Defendant UFC admitted, acknowledged, and accepted responsibility for the fact that at various times between the years 2001 and 2011 inclusive, UFC certified that it was a WOSB to contractors that were conducting millions of dollars of business with the United States in order to obtain a competitive advantage with these contractors, even though at no point did UFC meet the statutory requirements for claiming WOSB status.

Mr. Bharara praised the SBA Office of General Counsel, the SBA Office of Inspector General, the Defense Criminal Investigative Service, and the Procurement Fraud Division of the Air Force Materiel Command Law Office for their invaluable work on this case.                                

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Ellen London and Mara E. Trager are in charge of the case.