New York contractors pay $4.5m to settle fraud claims

Contractors in New York state have agreed to pay $4.5m to resolve fraud allegations involving the securing of work meant for disabled veterans, the US Attorney Office announced on Monday.

Northland Associates, The Diverse Construction Group and their bonding agent, Rose & Kiernan, agreed to pay the money "to resolve allegations they fraudulently exploited contracting opportunities reserved for veteran-owned small businesses and small businesses operating in historically underutilized business zones", according to the press release.

The agreements will require Northland and its president, James Tyler, to pay $2.1m each. Diverse will pay $100,000; Rose & Kiernan has already paid $120,000.

Grant Jaquith, an officer in the US Attorney’s Office for the Northern District of New York, said: "We are committed to curtailing corruption by contractors who take opportunities set aside for small businesses owned and operated by injured veterans. We owe no less to those who sacrificed their own well-being for our safety and security."

The federal government has a policy of using government contracts to promote small businesses owned by veterans with service-related disabilities, as well as small businesses operating in economically depressed areas. To qualify, a business must report its total income and employees along with the income and employees of any affiliates.

Federal regulations disallow bids from affiliated companies if their combined income and employee numbers exceed the maximum threshold in the regulations. In this case, the companies broke this rule because Northland was an undisclosed affiliate of Diverse.

According to the US Attorney’s Office, Diverse was 51% owned by Hunter Grimes, a disabled veteran, and 49% owned by senior Northland executives. "Northland exerted influence over Diverse in various ways, including by maintaining a ‘bid calendar’ with deadlines for upcoming Northland and Diverse contracting opportunities, staffing Diverse with former Northland employees, and funnelling Diverse subcontracts to Northland for fulfilment," the office said in its press release.

Northland also took care of administrative duties for Diverse, such as handling its accounting, estimating, purchasing, contracting and clerical work.

According to the attorney general: "Witnesses recounted moving boxes of files from Northland’s Liverpool office to Diverse’s office in Plessis, Jefferson County, to make the Plessis office appear operational for government inspections."

When questioned by officials from the federal Small Business Administration in 2009 about how the two companies were connected, Tyler and Grimes misrepresented the relationship between the two businesses. "Shortly thereafter, Diverse funnelled more than $1m to Northland through a Northland subsidiary in an effort to hide the parties’ affiliation," the release said.

Grimes retired in 2015 and died later that year.

The investigation was triggered by a pair of whistleblower lawsuits filed by James Hagan and James Hohm. Hagan is a former Northland employee and minority owner of Diverse; Hohm is also a former Northland employee.

In their lawsuits, the two alleged that the companies fraudulently obtained more than $50m in government contracts.

Under the terms of the settlement, the two will get $1,000,000 of the settlement proceeds that the government receives from Northland, Diverse, and Tyler.

Image: ©GCR, illustration by Denis Carrier

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