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Kentucky Defense Contractors Settle False Claims Allegations for $6.25 Million

Fraud in military contracting costs the American taxpayers millions of dollars each year. The Justice Department has reached a settlement in a recent instance of fraudulent procurement involving services provided to the U.S. Army in Fort Knox, Kentucky.

Lusk Mechanical Contractors and Commonwealth Technologies, along with the companies’ owners, Harry Lusk and Wendell Goodman, will pay $6.25 million to settle allegations that they presented false statements both to the Army and to the Small Business Administration (SBA).

The matter centers around the Historically Underutilized Business Zone (HUBZone) program established by Congress in 1997 to help rural counties and inner cities with high unemployment rates. Many of these areas lack sufficient investment in the community. A small business that meets certain requirements and has its principal office in a HUBZone is eligible to apply for certification as a HUBZone company. If the SBA issues the certification, the business is given preference when bidding on government contracts.

The Justice Department alleged that the parties in the Fort Knox investigation had made false statements to the SBA so they could obtain HUBZone certification for Commonwealth Technology and then bid on various jobs in Fort Knox.

In February 2005, Commonwealth filed an application with the SBA claiming to be a small business with its principal place of business in Irvington, Kentucky, a designated HUBZone. In reality, the government alleged, Commonwealth operated out of Lusk Mechanical’s headquarters, which was not in a HUBZone area. According to the government, the Irvington location was an empty office with no employees. Nor did the businesses and their owners disclose that Commonwealth and Lusk were financially integrated and shared the same facilities and personnel.

Once Commonwealth had the falsely-obtained certification, the U.S. charged, it won Army contracts to construct a courthouse and make repairs to Army facilities in Fort Knox. But those contracts were reserved for qualified HUBZone companies. According to the Justice Department, the parties’ conduct violated the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the federal False Claims Act.

Lusk Mechanical, Commonwealth, Goodman, and Lusk have consented to pay $3,741,739.96, in settlement and to forfeit $2,506,260.24 that had already been seized from their bank accounts by federal agents in a civil forfeiture action.

Whistleblowers Help to Stop Fraud in Military Contracts

Military contract fraud schemes like the one in Kentucky are frequently uncovered by a whistleblower who comes forward to file a False Claims Act lawsuit. Whistleblowers assist the government in reducing military contract fraud. To encourage whistleblowers to take the often-difficult step of filing a lawsuit, the qui tam provisions of the False Claims Act permit individual whistleblowers to share in the government’s recovery.

It’s important to understand your legal rights under the False Claims Act. Waters & Kraus’ qui tam attorneys can help. Send us an email or call our whistleblower lawyers at 800.226.9880 to learn more about our practice and how we can help.

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