Business Crimes Hotline

COLORADO

Construction Company Fined for Fraudulently Obtaining Federal Contracts

MCC Construction Company, a Colorado construction management company and general contractor, has agreed to pay $1.76 million in criminal penalties and forfeiture for fraudulently obtaining government contracts that were meant for small, disadvantaged businesses. The Department of Justice (DOJ) announced the agreement on Feb. 2, 2016, and pledged to continue “to protect the integrity of the government contracting process.”

The charges stem from MCC's abuse of the SBA 8(a) business development program, which is administered by the U.S. Small Business Administration. Under SBA 8(a), the Small Business Administration offers exclusive access to government contracts to firms that are majority owned and controlled by socially and economically disadvantaged individuals. Participants are eligible for sole-source contracts up to $4 million, and larger joint venture projects in which the disadvantaged business performs 15% or more of the work with its own employees.

According to the plea agreement filed in the District Court for the District of Columbia, MCC conspired with two SBA 8(a)-eligible companies to obtain government contracts from the Small Business Administration, with the understanding that MCC would perform the work and provide the disadvantaged companies with a cut of the contract amount. Through this fraudulent scheme, MCC managed to win 27 government contracts worth over $70 million from 2008 to 2011.

MCC allowed the 8(a) companies to keep 3% of the value of the contract for serving as a “front” with the Small Business Administration. In some cases, MCC obtained a government contract on behalf of a disadvantaged company without first informing the company itself of the plan. To facilitate the scheme, MCC performed the required accounting and reporting for the 8(a) companies, falsely represented to the government that its employees actually worked for the 8(a) companies, and conspired with the disadvantaged companies to hire “straw employees” who were, in fact, controlled and paid for by MCC.

MCC's criminal penalty consists of $1,269,294 in forfeited profit earned on these contracts, and a $500,000 fine. The plea agreement is subject to the approval of the district court at a sentencing hearing scheduled for March 15, 2016.

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NEW YORK

Morgan Stanley Pays $3 Billion Fine

On Feb. 11, Morgan Stanley agreed to a $2.6 billion penalty to settle claims stemming from the investment bank's marketing, sale and issuance of residential mortgage-backed securities (RMBS) in 2006 and 2007. The agreement was spearheaded by the Financial Fraud Enhancement Task Force's RMBS Working Group, a collaborative effort between the SEC, DOJ, New York State Attorney General's Office to investigate RMBS misconduct that helped lead to the 2008 financial crisis. Investors suffered billions of dollars in losses from investing in RMBS issues by Morgan Stanley, leading up to the financial crisis.

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