Florida Contractors and Owner Agree to Pay $7.7M to Resolve False Claims Act Allegations

On June 29, 2023, the United States Department of Justice (“DOJ”) announced it reached an agreement with “HX5 LLC and its owner and Chief Executive Officer, Margarita Howard, located in Fort Walton Beach, Florida, and an affiliated joint venture HX5 Sierra LLC, located in Cleveland, Ohio” (collectively, “HX5 Parties”) whereby the HX5 Parties would pay $7,759,693.92 to resolve allegations that they violated the False Claims Act (“Act”).[1] Under the Act, a private individual who has knowledge of past or present fraud on the United States government may sue on the Government’s behalf to recover the fraudulently obtained monies.^[2] If the suit is successful, the private party may receive a percentage (15‒30%, depending on various factors) of the civil penalties and damages recovered by the United States.^[3]

In this case, the whistleblower was Vantage Systems Inc. (“Vantage”), who filed a qui tam action on behalf of the United States against the HX5 Parties.[4] Vantage alleged the HX5 Parties violated the Act by knowingly providing false information to the United States Small Business Administration (“SBA”) relating to the HX5 Parties’ eligibility for the SBA 8(a) Business Development program (the “SBA Program”).[5] By allegedly providing this false information, the HX5 Parties were able to be eligible for the SBA Program, thus enabling the HX5 Parties to obtain six federal contracts that they otherwise would not have received.[6]

“[The SBA Program] is intended to help small businesses owned and controlled by socially and economically disadvantaged individuals.”[7] To be eligible for this program, businesses must meet the following criteria: (1) be a small business, (2) not be a previous participant in the 8(a) program, (3) be at least 51% owned and controlled by United States citizens who are socially and economically disadvantaged, (4) have a personal net worth of $850,000 or less, adjusted gross income of $400,000 or less, and assets totaling $6.5 million or less, (5) demonstrate good character, and (6) demonstrate the potential for success.[8] By meeting the above criteria, participating businesses are eligible to receive federal contracting preferences.[9]

The HX5 Parties allegedly fraudulently positioned themselves to meet the above criteria, thus continue to be part of the SBA Program, by not reporting distributions and payments made to Ms. Howard’s family members and providing false information to the SBA regarding Ms. Howard’s assets.[10] Had the HX5 Parties provided accurate information, “it would have resulted in [the HX5 Parties’] termination from the [SBA Program,] which in turn would also have made [them] ineligible for 8(a) set-aside contracts.”[11] As a result of the false statements, however, the HX5 Parties were able to maintain their status as a SBA Program participant, thus allowing them to be awarded SBA Program set-aside contracts from the federal government for which they were not truly eligible.[12]

Speaking on the nature of the violations, Principal Deputy Assistant Attorney General Brian M. Boynton stated “[w]hen companies misrepresent their eligibility for [SBA Program] contracts, they prevent others from receiving the business opportunities Congress intended.”[13] Special Agent in Charge Amaleka McCall-Brathwaite of the SBA’s Office of Inspector General East Region added “[t]oday’s settlement sends a strong message that those responsible will be held accountable. I want to thank the [DOJ] and our law enforcement partners for their support and dedication to pursuit of justice in this case.”[14]

The case, captioned U.S. ex rel. Vantage Systems, Inc. v. HX5 LLC, et al., No. 20-cv-3649 was filed in the U.S. District Court for the Northern District of Florida.[15] In connection with settlement of the case, Vantage will receive $1,357,964 of the federal government’s overall recovery.[16]

If you know of a company that has violated or is currently violating the False Claims Act, contact the attorneys at Rabin Kammerer Johnson at (561) 659-7878.

[1] Florida Contractors and Owner to Pay More than $7.7 Million to Resolve False Claims Act Allegations Relating to Procurement of Small Business Contracts, The United States Department of Justice (June 29, 2023), https://www.justice.gov/opa/pr/florida-contractors-and-owner-pay-more-77-million-resolve-false-claims-act-allegations.

[2]  See, e.g., West Palm Beach False Claims Act Lawyer, Rabin Kammerer Johnson (last visited July 13, 2023), https://www.complexbusinesslitigation.com/west-palm-beach-whistleblower-lawyer/false-claims-act/.

[3] Id.

[4] The United States Department of Justice, supra note 1.

[5] Id.

[6] Id.

[7] Id.

[8] 8(a) Business Development Program, U.S. Small Business Association (last visited July 13, 2023), https://www.sba.gov/federal-contracting/contracting-assistance-programs/8a-business-development-program#id-program-overview.

[9] Id.

[10] The United States Department of Justice, supra note 1.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.