WATERTOWN — Three companies have agreed to pay nearly $4.5 million to resolve federal allegations that they used a Plessis firm to fraudulently exploit contracting opportunities reserved for veteran-owned small businesses and small businesses operating in historically underutilized business zones, also known as HUBZones.
Northland Associates Inc., Liverpool, and its president, James Tyler, The Diverse Construction Group LLC, Plessis, and their bonding agent, Rose and Kiernan Inc., East Greenbush, have agreed to pay a $4.47 million penalty, Grant C. Jaquith, U.S. Attorney for the Northern District of New York, announced Monday.
The settlement with Northland, Diverse and Mr. Tyler resolves allegations that those parties orchestrated a scheme to secure government set-aside contracts for Diverse and subcontracts for Diverse’s undisclosed affiliate, Northland.
The federal government has long used government contracting to promote small businesses owned by veterans who have service-connected disabilities and small businesses operating in economically distressed communities. An eligible business must demonstrate to the Small Business Administration that it meets the requirements of being a small business and cannot affiliate with a larger company such that, together, the two companies exceed employee and income limitations that would make them ineligible for small business set-aside contracts.
According to a U.S. Department of Justice release, Diverse was 51 percent owned by Hunter F. Grimes III, a disabled veteran who died in 2015. Senior Northland officials owned 49 percent of Diverse. U.S. attorneys claim Northland “exerted influence” over Diverse in various ways, including by maintaining a “bid calendar” with deadlines for upcoming Northland and Diverse contracting opportunities, staffing Diverse with former Northland employees and funneling Diverse subcontracts to Northland for fulfilment.
Witnesses claimed that when SBA officials made an announced visit to Diverse’s offices in Plessis, which were located in a HUBZone, boxes of files had been moved from Northland’s Liverpool office, which was not in a zone, to make it appear the Plessis office was fully operational when it was not. According to court documents, the files were moved to Plessis for two or three days until the inspection was completed.
U.S. Attorneys say both Mr. Tyler and Mr. Grimes submitted sworn declarations that misrepresented the relationship between Northland and Diverse, with Diverse shortly after funneling more than $1 million to Northland through a Northland subsidiary in an effort to further hide the parties’ affiliation.
Rose and Kiernan is an insurance and surety brokerage company that acted as a bond broker for both Northland and Diverse on government construction projects. Its settlement with the government resolves allegations that it knew, or should have known, that Northland and Diverse were affiliated in ways that violated SBA regulations and had taken steps to hide that affiliation.
Federal attorneys claim Rose and Kiernan’s decision to help Diverse obtain funding was a “critical action in furtherance of Diverse’s and Northland’s fraud on the government” and served as a substantial factor in causing Diverse to submit false claims for payments to the United States.
As part of the settlement agreements, Northland will pay $2.125 million, Mr. Tyler will pay the same amount, Diverse will pay $100,000 and Rose and Kiernan has paid $120,000.
U.S. Attorneys said the government’s investigation was triggered by whistleblower lawsuits filed under provisions of the False Claim Act, which allows private person, known as “relators” to file civil actions on behalf of United States and share in any recovery. The relators in this case, identified in court documents as James Hagan and James Hohm, will receive $1 million of the settlement proceeds that the government receives from Northland, Diverse and Mr. Tyler.