The United States spends billions of dollars in the Middle East. While much of the money is spent on military spending, billions are also spent on reconstruction efforts. Much of that money has flowed into war torn Iraq and Afghanistan. Unfortunately, the Justice Department and Special Inspector General for Afghanistan Reconstruction claim much of our tax dollars have been misspent. A lawsuit filed under the federal False Claims Act against two corporate executives, Derish Wolff and Salvatore Pepe, is the latest skirmish in the government’s war on foreign aid fraud.
Claims Against Derish, Pepe and the Louis Berger Group, Inc. (LBG)
Much of American’s foreign aid dollars flows through the U.S. Agency for International Development (“USAID”). The agency builds schools, hospitals, water treatment plants and provides emergency humanitarian aid when disasters strike.
One of the vendors that participates in reconstruction efforts by USAID is the Louis Berger Group, Inc. (“LBG”) Based in New Jersey, the company has offices in 140 cities worldwide. Much of its work is for the United States government and various individual U.S. states.
Derish Wolff is the former CEO of the company. Salvatore Pepe served as CFO. Prosecutors claimed the two men helped mastermind a scheme to defraud taxpayers and the government by overcharging contracts administered by USAID.
In 2010, the Justice Department entered into a deferred prosecution agreement with LBG. As part of a plea deal, the company avoided prosecution and agreed to pay a $69.3 million in fines and penalties. Pepe pleaded guilty that year to criminal charges related to the overbilling scheme. Wolff later pleaded guilty in 2014 to similar charges and was ordered to pay a $4.5 million fine.
Despite the criminal convictions against both men, the government this week intervened in a whistleblower lawsuit filed in 2006. The lawsuit was originally filed by Harold Salomon, a former LBG financial analyst. The claim, filed under the False Claims Act, allows whistleblowers to sue on behalf of the United States. The government can then intervene at a later date or allow the whistleblower’s own lawyers to prosecute the case.
According to the complaint, Wolff and Pepe designed several accounting schemes to boost LBG’s billings to the government. Overhead costs were frequently billed at artificially inflated rates. The two men would also shift costs from other contracts to the USAID contracts. The scheme not only allowed LBG to overbill the government, it also gave the company an undeserved competitive advantage by allowing it to underbid competitors. By pushing costs from private clients to the government, LBG could underbid legitimate vendors.
In announcing the government’s intervention in the complaint, a Justice Department spokesperson said, “Those who do business with the U.S. government should expect appropriate consequences if they do not deal fairly. As this case demonstrates, the government will hold both corporate entities and individuals accountable if they misuse taxpayer funds.”
The Defense Criminal Investigative Service, Defense Contract Audit Agency and USAID’s Inspector General are assisting in the prosecution.
What makes this case unusual (and refreshing) is the decision to prosecute the officers civilly even after the company paid a $50.4 million fine. Since becoming Attorney General in 2015, Loretta Lynch has stated numerous times that the Justice Department plans on holding individuals responsible for the misdeeds of their companies. Obviously, she means it.
We have seen some companies, particularly banks and defense contractors, simply view fines as a cost of doing business. Prosecuting senior officers within those companies, however, may begin to send a message that the government takes fraud seriously.
Foreign Aid Fraud, the False Claims Act and the Foreign Corrupt Practices Act
Whistleblowers are the most powerful tools in the governments push to end fraud. Government auditors can only audit a tiny fraction of the thousands of companies with government contracts. Company insiders, however, have a front row seat on where fraud is taking place.
Under the federal False Claims Act, a whistleblower with inside information about fraud involving government funds or programs can bring an action in the name of the government and collect a cash award if the action is successful. Even if the government takes over the case, the whistleblower is still entitled to receive an award if monies are recovered from the wrongdoers.
Whether the government will win and how much money remains to be seen. Since both men have already been convicted criminally for their roles in the scheme, chances are good that the Justice Department will succeed. Remember that even if the individual cases are unsuccessful, there is still the $50+ million collected from the company.
In addition to the False Claims Act, whistleblowers can also receive an award under the Foreign Corrupt Practices Act. That law prohibits giving or receiving bribes from foreign officials. While these cases often don’t involve foreign aid fraud, we see many cases where U.S. companies pay bribes or make “gifts” to foreign officials in the hopes of receiving permits to operate plants or sell products in those countries.
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Interested in becoming a whistleblower? Our False Claims Act whistleblower clients have already collected over $100 million in award monies. Feel free to give us a call and let us help you discover whether your information may be useful in getting an award. Our mission is to help you stop the fraud, protect you from retaliation and get you the maximum allowed award.
To obtain an award, we investigate, file and prosecute the whistleblower lawsuit on your behalf. You never owe us any legal fees or costs unless we first recover you money.
Need more information? Visit our False Claim Act contractor fraud awards page. Better yet, contact attorney Brian Mahany at *protected email* or by telephone at (414)-704-6731 (direct). All inquiries protected by the attorney – client privilege and kept confidential.
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