Competitors Cheating? False Claims Act Whistleblowers Throw ‘em under the Bus - Part I

Editorial & Opinion by ,
Competitors Cheating? False Claims Act Whistleblowers Throw ‘em under the Bus  - Part I

Tired of competing for government funding with dishonest companies? Unfortunately, we can’t force fraudsters to take a truth serum when applying for government funding or using taxpayer dollars, and all too often companies are looking for loopholes and devious ways to get around the law for a profit.

For those legitimate businesses that work hard to follow regulations and laws – all the while incurring substantial compliance costs - getting undercut by cheaters who ignore or flat out defy the rules is crushing.  When your competitors are breaking the law, competition can be straight up impossible.

Schuylkill DBE Fraud: Taking Advantage of the Disadvantaged

Consider Schuylkill Products Inc., a Pennsylvania-based manufacturer of concrete bridge beams. These guys were offered more than $136 million in government contracts, with one stipulation - that they subcontract a certain amount of work to a “disadvantaged business enterprise” (DBE). Sounds great right? This important federal program is in place to support our nation’s small businesses.

But Schuylkill wanted the money and didn’t want to pay a subcontractor any of it. So they created their very own minority-owned Marikina Construction Corp. an alleged false front company that didn’t physically exist. Marikina appeared as the subcontractor, and Schuylkill did the work and kept the profits for themselves.

Luckily the bad guys got busted. The co-owner and COO of Schuylkill got 4 years in prison and a $25,000 fine for the over $136 million DBE fraud.

Strock Contracting Tries to Circumvent SDVO Rules

And what about Strock Contracting Inc.? These guys collected millions in government contracts awarded by the Army, Air Force and Veterans Affairs Department that were intended for service-disabled, veteran-owned (SDVO) small businesses. Congress established the SDVO program to provide economic opportunities for veterans and help them compete in the American economy.

Obviously there are specific requirements necessary to get SDVO small business funding and Strock Contracting didn’t meet them. So they created Veteran Enterprises Company, Inc. (VECO), an alleged sham business whose operations were actually controlled by Strock. It doesn’t get much lower than that.

The U.S. caught up with them and recently filed a False Claims Act complaint against Strock Contracting. But these are just two of the thousands of cases of fraud out there that go undetected and continue to plague legitimate business owners and the American economy.

False Claims Act – The Competitor Company’s White Knight

So what if you suspect your competitor is edging you out of the game using fraudulent tactics? Equally frustrating can be the fact that your complaints could be dismissed by authorities due to your apparent “conflict of interest” in the outcome. 

You could report violations to regulators and call the authorities, but it may take years to get the ball rolling, if anything happens at all. Investigating illegal behavior takes resources - lots of resources - and the government isn’t equipped with enough to pursue every complaint.

Business owners can feel helpless in situations like this. But there is a solution to stopping cheating competitors – a solution that can result in your collecting a large cash award to offset any losses you may have suffered due to your competitor’s misconduct.

The Federal False Claims Act (FCA) allows individuals to file actions on behalf of the government against violators that defraud the government, and the whistleblower is entitled to 10-30% of the total money recovered in a verdict or settlement.

Whistleblowers Aren’t Always Insiders – A Competitor Works Nicely

Most folks are under the impression that a whistleblower has to be a former employee, colleague or other insider to meet the FCA’s “original source” requirement. But whistleblowers can be anyone, including competitors.

No specific relationship with the wrongdoer is required to bring a qui tam complaint. The whistleblower doesn’t even have to be directly harmed by the illegal acts. The main requirement is that the whistleblower possesses information that the public does not have access to.

Quite a few folks are taking advantage of the FCA to help put a stop to a competitor’s underhanded actions. Take Josh Harman. This Virginia guardrail company owner started to investigate car accidents involving guardrails made by competitor company, Trinity Industries Inc., when he discovered they had suddenly changed their design.

This change allegedly corresponded with over 40 deaths and 100 injuries. The big finding was that Trinity hadn’t reported their design change to the Federal Highway Administration. In June 2015, the U.S. fined Trinity $663 million for defrauding the government, of which Harman was awarded 30% - or $199 million – plus an additional $19 million in court fees.

Not only are law-abiding companies wishing to compete on a level playing field the victims of fraud, abuse and waste but also false and fraudulent claims steal taxpayer dollars meant to support our nation’s economy.

Throwing your competition under the bus by blowing the whistle on a competitor may seem a bit brutal, but consider the consequences of not reporting knowledge of fraud. Your industry suffers from lack of an even playing field, keeping your company from reaching its true potential. Fraud functions to destroy our nation’s economy, and we all have a duty to ensure that taxpayer dollars are spent correctly.