Avoid Liability for HUBZone Fraud and False Claims Act Violations

tips for HUBZone fraud and false claims act chargesSmall businesses seeking to avoid liability for HUBZone fraud should develop internal policies and controls that focus on compliance with SBA rules and regulations. More and more companies are finding themselves subject to False Claims Act violations and civil and criminal penalties. At Watson & Associates, our HUBZone fraud lawyers are able to defend small firms and government contractors facing government investigations and criminal penalties for fraud.

What is a HUBZone?

“HUBZone” or “Historically Underutilized Business Zone,” primarily focuses on underutilized areas of poverty, and poor economies throughout the United States. Congress, using its legislative powers, has authorized the Small Business Administration (“SBA”) to oversee the program and to essentially develop contracting opportunities for small businesses located in a HUBZone.

HUBZone Requirements

To qualify as a HUBZone owned business companies must:

• Be a small business under SBA small business regulations.
• Be at least 51% owned and controlled by U.S. Citizens, a community development corporation, an agricultural cooperative, a Native Hawaiian organization, or an Indian tribe
• Have its principal place of business located in a HUBZone, and
• Have at least 35% of its employees live in a HUBZone

HUBZone Fraud and the False Claims Act

As a HUBZone-certified company, you can find yourself violating SBA regulations without sometimes realizing it. As a result, you may be exposed to a Whistleblower or Qui Tam lawsuit. In many cases, the SBA OIG or DOJ may investigate your company and charge you with procurement fraud or False Claims Act Violations. See information about false claims retaliation.

Common reasons for allegations of HUBZone Fraud include: Falsifying documents or misrepresenting your employee requirements; submitting false statements in your HUBZone application, developing pass-through contracts, and not meeting the limitations on subcontracting regulations.

False Claim Act Civil and Criminal Charges

The False Claims Act targets any person or company that knowingly submits fraudulent claims to the government. Violators can now be liable for treble damages plus jail time in criminal cases.
For every instance that your company acquired a government contract, submitted a false invoice, or some other incident, the federal law enforcement agencies will apply the treble damage allowance for each incident. Private citizens, often employees, can file a Qui Tam Lawsuit on behalf of the United States. In such cases, the government can choose to take over the case, and the Qui Tam Relator or Whistleblower can collect portions of the government’s financial recovery amount.

Common Reasons for HUBZone Fraud

Lack of ownership and control of the company: When looking and ownership and control of a HUBZone company, SBA looks at stock certificates and stock ledgers to decide if you meet the ownership and control requirements. The SBA is also aware that some states do not require you to issue stock certificates. In that situation, the SBA will look at your company’s articles of incorporation and/or by-laws. If the articles or by-laws require that you issue stock certificates, even though the state in which your business is incorporated does not require the issuance of stock certificates, SBA will require you to produce those stock certificates to demonstrate ownership and control. Complex situations can arise when the SBA looks at the ability of another company to control a small business. This is but one reason to consider having a HUBZone fraud defense lawyer on your team. See information about hiring criminal defense attorneys for cases involving government contracts. 

Misrepresenting Principal Place of Business: In one case, the Justice Department charged a HUBZone company with fraud because the company owner operated from a virtual office. The DOJ, in its fraud case, stated that the company falsely claimed to have a principal office in a HUBZone – No employees worked at the virtual office. You want to make sure that when you apply for HUBZone certification that you present valid leases and actually operate out of a true main office. Submitting false documentation increases the chance of going through both civil false claims and criminal false claims lawsuits.

Using Other Locations to Then Funnel Products to HUBZone Location: Operating from legitimate HUBZone locations is critical to avoid criminal and civil False Claims liability resulting from HUBZone Fraud. This was the case for Northland Associates, Inc. HUBZone fraud lawyers will have a difficult time getting these types of cases completely dismissed because the facts tend to convince a jury that the small business committed fraud against the federal government.

HUBZone Fraud Based on Affiliation

Your relationships with other businesses or individuals can lead the SBA may consider the other companies as affiliates. The term “affiliate” under 13 CFR 121.103 is very heavily litigated and can cause your company to be investigated by the Federal Government. When you are alleged to have committed HUBZone fraud, you will have to show that your company together with your affiliates, still meet the SBA size requirement for your NAICS code. Having a government contract fraud attorney on your team that understands SBA HUBZone rules can be a huge benefit.

False Claims Act & HUBZone Fraud Interaction

As stated earlier, when you apply for HUBZone certification, receive government contracts, or even submit fraudulent invoices, they are all reasons how HUBZone fraud can turn into False Claims Act civil or criminal charges. The government thinks that when you obtain a benefit, funds, or a contract, the taxpayer is entitled to damages because the small business submitted false claims to the government.

If You are Targeted for HUBZone Fraud Call an Attorney

If you are a small business facing a federal investigation for HUBZone fraud, indicted a facing a criminal trial, call one of our False Claims Act and HUBZone Attorneys immediately. Call Toll Free at 1.866.601.5518 for a Free Confidential Inquiry.