8(A) SBA Fraud Cases :: Defending Federal Government Contractor Allegations in Small Business Fraud Cases

SBA OIG and Other Investigations Agencies Have Stepped Up Procurement Fraud Cases for 8a Government Contracts

The Eastern District Court bought the gravel down on two federal contractor executives for SBA 8a small business fraud and abused the Small Business Administration’s (SBA) 8a contracting program to obtain more than $31 million in contracts unlawfully. See case where defendants were sentenced to 27 and 15 months in prison for federal contract fraud.

Small business owners, and government executives alike, can experience severe penalties for SBA fraud cases with government contracts for small businesses, criminal or civil, for procurement violations for 8a Program fraud.

In Government contract fraud cases, many companies fall short of adequate legal representation because they retain traditional legal defense counsel without experience in federal contract law. This gives the government attorneys an advantage in the case.

However, there are many situations where prosecutors or criminal defense attorneys may not quite understand how federal indictments and SBA government contract fraud charges must incorporate the underlying statutes that govern the 8a certification, HUBZone or other small business programs.

Underlying Theories of Federal Contract Fraud & SBA Fraud Cases. Where 8a Government Contractors Are Targeted 

Typically, common allegations in federal contract fraud cases involve small business contracts or 8a small business fraud against a contractor will include:

• Adopting and furthering a procurement fraud scheme that attempts to defraud the government for funds that SBA 8a contracting programs do not allow
• A non-disadvantaged member being in control of the business against SBA Program regulations
• Wire Fraud
• Conspiracy in government contract fraud
• SBA fraud cases with pass through procurement fraud scheme practices

Practical issues that lead to criminal liability

When you win and are performing government contracts, criminal liability for fraud against the government relates back even to the bidding stage. Actually, many of the allegations in a federal contract fraud case do not surface until the contract is well into the performance stage and when invoices and being submitted for payments. During the bidding, performance or negotiation stages there is a reason why the government requires certifications of the truth of the information submitted. Practical issues that lead to criminal liability in a government contract fraud case includes:

• progress payment fraud or certifying that subcontractors have been paid
• bidding on a contract when the subcontractor is receiving virtually all of the compensation,
• fraud regarding nonconforming materials,
• mischarging the government, and
• defective pricing
• Failure to comply with Buy American Act requirements
• Operating under an improper pass-through scheme
• Intentionally providing false information when submitting applications

Applying the proper proof for underlying claims filed by the prosecutor

Federal prosecutors in their complaint may make general allegations such as:

• The defendant was not in control of the business in question
• The defendant was affiliated with another defendant
• Two Defendants conspired to defraud the government

Understanding the underlying statutory rules associated with these allegations can help a small business fraud defendant when responding to such criminal allegations. Many of these allegations also rest within the sole jurisdiction of the SBA. Appeal decisions are rendered by the SBA Office of Hearings and Appeals (SBA OHA).

Tip: Is the federal prosecutor somehow now applying a more relaxed standard that OHA decides its cases

Tip: Did the SBA have knowledge about the facts of the very case at issue and somehow did nothing for a period of time?

By applying the underlying statutory regulations that govern specific legal terms of art under procurement laws, the result would be that the SBA 8a Program participants, or other government fraud defendants, would be subject to one set of laws under a civil analysis, termination actions by the SBA, and be subject to a different standard under criminal litigation for the pass-through scheme. See information about the FAR mandatory Disclosure Rule.

How to Defend Against SBA Fraud in the 8(a) Program and Small Business Fraud Cases

Each case is driven by a unique set of facts. As a general rule, some of the common defenses used by government fraud defense lawyers include constructive fraud and that you did not intentionally engage in the fraudulent activity (which is referred to as “constructive fraud”). The second most used fraud defense is the Good Faith (Lack of Intent).  The good-faith defense to fraud allegations in the SBA 8(a) focuses on aggressively defending against evidence that is intended to defraud the government. challenging the government’s evidence in SBA fraud cases where they want to show that you intended to engage in a fraudulent artifice or scheme.

Major Fraud Against the Federal Government

Major Fraud against the federal government can become very problematic to litigate. First, the amount of the claim must be after the initial analysis. Major fraud occurs in cases above $1 million. Under 18 U.S.C. 1031 it is a federal crime to engage in any scheme or artifice to defraud the United States relative to federal grant monies, federal contract monies or any other government program money. This can include contracts with the U. S. Military or any other department or agency, contracts with the General Services Administration, for example, Medicare fraud, Medicaid fraud and/or any other program which is federally funded.

SBA Fraud Complaints – Protecting Your Rights in Government Contract Fraud Cases is Essential: When it comes to government contracting for small companies, businesses and individuals have certain constitutional rights whether they are state or federal. For example, certain indicted defendants for SBA fraud cases and pass-through procurement fraud scheme practices may not have been provided their administrative due process rights whereas the SBA small business fraud complaints may not have given notice that someone is doing something wrong.

The SBA typically terminates an 8a government contractor from the program for non-compliance with 8(a) rules. The SBA is required to notify the participant of its intent to terminate and give some level of the process. See 13 CFR 124.304 

Still, in some federal indictments, facts may show there was no action by the SBA when the suspected government contract fraud occurs but yet there is a criminal indictment in existence. See Criminal Defense for Defrauding SBA Disadvantaged Small Business Program

SBA 8(a) Federal Contractor Small Business Fraud Cases – Pass-Through Scheme & Criminal Conspiracy in the 8a Program: Many SBA contract fraud cases include an allegation of a conspiracy between defendants and using a procurement fraud schemes approaches. The U.S. attorney will have to show the relevant elements of the conspiracy charge. He would have to show not just that fraud occurred but that the two defendants planned to get the outcome.

A problem can occur when one of the parties in good faith believes that it is in compliance with procurement statutory provisions, or has no reason to believe that it is conspiring to defraud the government. How does the federal prosecutor apply these facts to the case?

• These are all issues of contention in SBA 8a contracting criminal litigation.

Having the right federal contract fraud defense attorney that understands the nuances of SBA contract fraud complaints and federal small business programs in government contracting is essential when addressing indictments and SBA 8(a) criminal charges.

For help in 8(a) SBA fraud cases, HUBZOne or 8a small business fraud cases against your company for using a pass-through scheme, contact Watson’s contract and procurement government contract fraud defense lawyers at 1-866-601-5518. Speak to Theodore Watson.