ESC contractor, US Attorney agree on $15M Fraud suit settlement Published Aug. 27, 2009 By Peter J. Camp ESC Staff Judge Advocate's Office HANSCOM AIR FORCE BASE, Mass. -- Earlier this month, the United States Attorney and Dynamics Research Corporation, known as DRC, reached a settlement agreement in a False Claims Act suit filed by the United States. DRC, an advisory and assistance services government contractor supporting the Air Force's Electronic Systems Center, agreed to pay $15 million, plus interest, to settle allegations that two of its former corporate officers ran a kickback scheme that resulted in false payments to themselves for computer equipment and services. The corporation that employed the officers, and which settled the suit, said it was unaware of the former officers' misconduct. The U.S. Attorney prosecuted the two former officers of the company, Paul Arguin and Victor Garber, in a separate criminal action, resulting in guilty pleas in 2002 for conspiring to defraud the United States. Mr. Arguin and Mr. Garber served as support contractors within the Theater Battle Management Core Systems (TBMCS) Program at Hanscom Air Force Base, Massachusetts. Mr. Arguin was sentenced to five years in prison and ordered to pay $3.2 million in restitution. Mr. Garber was sentenced to one year and eight months in prison and ordered to pay $2.8 million in restitution. The $15 million recovered in the settlement agreement with the company is over and above the restitution figures from the criminal cases. The United States' total recovery in these actions exceeds by approximately $10 million dollars the losses it estimated as a result of the misconduct. In its suit against DRC, the United States sought damages and penalties from the DRC under the False Claims Act, the Anti-Kickback Act, and for breach of contract. The suit alleged that from 1997 to 2000, DRC, through the actions of Mr. Arguin and Mr. Garber, steered Air Force contracts for computer equipment and services to companies owned by the men, along with Mr. Arguin's wife and others, in exchange for kickbacks and deceptively inflated contract prices that produced windfall profits for Mr. Arguin and Mr. Garber. In one of the schemes, Mr. Arguin and Mr. Garber substituted generic computer chips in memory storage devices for name-brand band chips that were called for under the contract, causing the Air Force to overpay for chips that did not meet military specifications. The suit also alleged that DRC failed to provide honest contract services by failing its contractual obligation to provide financial reporting statements for all its employees on the contract. "The Air Force monitors contracts for fraudulent activity to ensure we deliver the required capability to the war fighter and to maintain proper stewardship of taxpayer dollars," said ESC Staff Judge Advocate Col. Douglas Murdock. "Working together with other federal agencies on the Boston Area Procurement Fraud Working Group, we will continue to actively pursue criminal and civil remedies against any contractors who try to get away with cheating the government." Acting United States Attorney Michael Loucks said: "This case demonstrates that we will continue to hold the government's contractors responsible for providing honest and unbiased services to the United States. Kickbacks of the type at issue in this case undermine the integrity of government programs, and we will continue to pursue such schemes aggressively both against individuals involved and the contractors responsible for their employees' behavior." This case was uncovered through an anonymous tip and investigated by special agents from the Air Force Office of Special Investigations, Detachment 102, the Defense Criminal Investigative Service, the General Services Administration's Office of the Inspector General, and the Defense Contract Audit Agency. It was supported by members of the Hanscom Air Force Base contracting community, as well as the Electronic Systems Center Legal Office and the United States Attorney's Office for the District of Massachusetts. ESC attorneys describe this case as a lesson learned, saying instances of procurement personnel acting outside the scope of their normal or expected duties in awarding or administering contracts, their ownership of undisclosed business interests, or unexplained payments in excess of fair market value are clues that fraud may be occurring in the workplace. Adequate supervision of the contracting process not only helps uncover fraud, but also creates an environment that deters it, they said. Suspicious activity suggesting contracting fraud can be reported to installation law enforcement agencies (e.g., at Hanscom, AFOSI Detachment 102, 781-377-4605); the installation procurement fraud counsel (e.g., at Hanscom, Mr. Peter Camp, 781-377-4077); or to the DOD Inspector General's Hotline (800-424-9098; email@example.com). The Air Force Materiel Command publishes a guide book of fraud indicators, available for download from a '.mil' computer at https://www.afmc-mil.wpafb.af.mil/hq-afmc/ja/lo/lojaf/indicator.pdf.