While most of our readers are familiar with the various online supergiants, ADS, Inc. is one of the largest gear contracting companies in the country – they just focus on servicing government customers. As one of the four primary contractors in the Defense Logistics Agency Tailored Logistics Support Program (commonly known by its acronym, “TLS”), they are one of the premier suppliers to the DoD of COTS and near-COTS equipment.

Announced on August 10th, The United States Department of Justice announced a $16 Million settlement between it and ADS, “…to settle False Claims Act allegations concerning fraudulently obtained small business contracts.” In short, the DoJ alleged that ADS used various small business companies that it owned or had a significant stake in to bid on “”Small Business Set Aside” contracts.

The DOJ’s formal (and long) statement is below.

Virginia Beach, Virginia-based contractor ADS Inc. and its subsidiaries have agreed to pay the United States $16 million to settle allegations that they violated the False Claims Act by knowingly conspiring with and causing purported small businesses to submit false claims for payment in connection with fraudulently obtained small business contracts, the Department of Justice announced today. The settlement further resolves allegations that ADS engaged in improper bid rigging relating to certain of the fraudulently obtained contracts. The settlement with ADS ranks as one of the largest recoveries involving alleged fraud in connection with small business contracting eligibility.

“Small or disadvantaged businesses serve as important engines of economic growth, and the United States utilizes small business set-aside contracts to aide those businesses in their development,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “When ineligible companies improperly obtain set-aside contracts, they prevent the small business community from receiving the assistance that Congress intended.”

In order to qualify as a small business, companies must meet defined eligibility criteria, including requirements concerning size, ownership, and operational control. The settlement with ADS resolves allegations that ADS, together with several purported small businesses that it controlled, fraudulently induced the government to award certain small business set-aside contracts by misrepresenting eligibility requirements. The purported small businesses affiliated with ADS include Mythics Inc., London Bridge Trading Co. Ltd., as well as MJL Enterprises LLC, which falsely claimed to be an eligible service-disabled veteran-owned company, and SEK Solutions LLC and Karda Systems LLC, both of which falsely claimed to qualify as socially or economically disadvantaged businesses under the Small Business Administration’s 8(a) Business Development Program. ADS and its affiliates allegedly concealed the companies’ affiliations with ADS and knowingly made misrepresentations concerning the size of the businesses and their eligibility as service-disabled or 8(a) qualified businesses. Finally, the settlement resolves allegations that ADS engaged in illegal bid rigging schemes that inflated or distorted prices charged to the government under certain contracts.

“This settlement reflects the government’s commitment to ensure that its business partners are truthful in their dealings with the United States,” said U.S. Attorney Channing D. Phillips for the District of Columbia. “Contractors who attempt to disguise or misrepresent themselves to obtain funds reserved to promote small and disadvantaged businesses will be held accountable for their fraud on the public fisc.”

“The actions of ADS and its affiliated entities deprived legitimate small businesses of valuable federal contracting opportunities.” said Acting Inspector General Hannibal “Mike” Ware. “OIG will aggressively pursue companies that, through false statements, wrongfully benefit from small business set-aside contracts. I want to thank the Department of Justice for its leadership and dedication to serving justice in this case.”

“This case is yet another example of the tremendous results achieved through the joint efforts of the SBA, the Department of Justice, and other partner agencies, to uncover and forcefully respond to civil fraud committed by those participating in Federal Government contracting programs,” said SBA General Counsel Christopher M. Pilkerton. “This case involved fraud perpetrated in the Service-Disabled Veteran-Owned Small Business Contracting Program and the 8(a) Program for disadvantaged individuals. Identifying and aggressively pursuing instances of civil fraud by participants in these procurement programs and other set aside contracting programs, is one of SBA’s top priorities.”

The settlement with ADS resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The civil lawsuit was filed in federal district court in the District of Columbia by Ameliorate Partners LLP. As part of today’s resolution, the whistleblower will receive approximately $2.9 million.

The settlement is the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorneys’ Offices for the District of Columbia and the Eastern District of Virginia, the Small Business Administration’s Office of Inspector General, and the General Services Administration’s Office of Inspector General.

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

ADS was quick to note the final sentence, that the settlement was on allegations only, not proven facts. Specifically, they state that there was “…no such findings, including any of fraud,” and that the company decided to settle after incurring millions in legal fees and value-added time lost from government questioning and document requests.

Their formal response is below:

Virginia Beach, Va. – Virginia Beach-based ADS, Inc. has agreed to settle a civil investigation brought by the Department of Justice (DOJ) as a result of a qui tam lawsuit filed by a private party.

The settlement marks the end of the DOJ’s investigation into the company’s past eligibility to bid on federal set aside contracts, and other allegations regarding bidding on contracts. ADS believes it has always complied with standards promulgated by the Small Business Administration (SBA). Notwithstanding any incorrect comments to the contrary, the DOJ did not intervene in the case, ADS settled the matter with no admission of liability on any of the allegations underlying the investigation, and there were no such findings, including any of fraud. ADS made the decision to settle after incurring millions of dollars in legal fees and countless hours of time value over three years responding to interrogatories and burdensome document requests by the government, hindering the company’s ability to continue serving its customers and employing its people.

“After spending many months cooperating closely with the government’s investigation, we concluded that our company, our customers, and our employees would be best served by putting this matter behind us. We are pleased that we were able to settle the matter amicably and that the settlement does not impede in any way ADS’s continuing service to all of its customers under its current contracts,” said ADS Communications Director, Caitlin Stojanovich.

“ADS strives and will continue to strive to assure compliance with all legal requirements and our Office of Compliance will work to keep meeting that critical goal,” stated Nikki Williams who leads the Office of Compliance for ADS and is responsible for ensuring the company continues to operate in full compliance with all applicable laws and regulations.

“We are focusing on the future of our business as we move ahead and continue to be committed to doing the right things for our customers and our employees,” Stojanovich added. “ADS has always taken the very best care of our men and women in uniform and that is what we will continue to do.