In the government contracting sphere, being able to qualify for one or more of the U.S. Small Business Administration’s (SBA) small business set-aside programs or self-certify as a small business can help open doors to new contracting opportunities for companies without having to compete against billion-dollar businesses. But making a false certification of size or status to participate in these programs or bid on set-aside contracts can cause problems for your business and may even lead to criminal liability. A contractor’s recent conviction for wire fraud highlights the risk government contractors face when making inaccurate representations to the government, giving insight on ways to identify and address issues should they arise.
According to a U.S. Department of Justice press release announcing the jury verdict and conviction, SDB Engineers & Constructors (SDB), a subcontractor working on two large National Aeronautics and Space Administration (NASA) prime contracts to build NASA’s Kennedy Space Center, attempted to game the federal procurement system in 2014 and 2015., SBD’s general manager, knowing the lucrative benefits that come with SBA set-aside certifications, falsely certified that SDB was a woman-owned small business (WOSB) to both the government and the prime contractors in order to obtain and perform the NASA subcontracts, when in fact no woman controlled any of SDB’s daily business operations. Ultimately, SDB received more than $6 million in fraudulently obtained contract payments, with profits totaling approximately $1 million. After trial, a federal jury convicted the general manager of one count of conspiracy to commit wire fraud and five counts of wire fraud.
Perpetrating a fraud on the government will implicate criminal liability for wire fraud under 18 U.S.C. § 1343 when the mechanism of the fraudulently induced payment is electronic. There are four elements of wire fraud:
- that the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money;
- that the defendant did so with the intent to defraud;
- that it was reasonably foreseeable that interstate wire communications would be used; and
- that interstate wire communications were in fact used.
Those convicted of wire fraud can face fines and up to 20 years in prison—or even 30 years in prison if the fraud affects a financial institution or is connected to a presidentially-declared disaster or emergency. The general manager faces a maximum penalty of 20 years in prison when sentenced.
In addition to wire fraud, if a government contractor (or principal of a government contractor) fraudulently misrepresents the contractor’s size or status, the company and the individual making or contributing to the certification also can face criminal liability under various other criminal statutes, including the False Claims Act (which also has a civil component). In short, improper certifications as to size or status can have significant implications for government contractors.
If you have questions about wire fraud or identifying and mitigating risks related to government contract compliance requirements for your business, please contact Megan Benevento, the author of this blog, or a member of PilieroMazza’s or Litigation & Dispute Resolution Group