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Kilgore Flares Company and subcontractor ESM Group Inc. have agreed to pay the federal government $8 million to resolve allegations that the companies knowingly submitted or caused the submission of false claims by selling defective infrared countermeasure flares to the U.S. Army and evading customs duties, the U.S. Department of Justice announced yesterday.  Tennessee-based Kilgore Flares manufactures and sells electronics and energetic products, such as flares, to the U.S. military.  ESM Group, located in New York, manufactures magnesium powder supplied to the chemical, welding and pyrotechnics industries.  ESM imported magnesium powder used in the flares from the People’s Republic of China (PRC), which it sold to Kilgore Flares. 

The U.S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft.  A primary component of these flares is ultrafine magnesium powder, which combined with other materials, provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft’s engine.  Kilgore’s contracts with the army prohibited the use of magnesium powder from foreign countries (except Canada) in order to maintain domestic manufacturing capability in the interest of national defense. 

The United States alleged that ESM knowingly misrepresented the content of ultrafine magnesium powder imported from the PRC in order to avoid paying antidumping duties owed to the United States.  Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.  The U.S. Department of Commerce assesses and U.S. Customs and Border Protection (CBP) collects these duties to protect U.S. businesses and level the playing field for domestic products.  At the time of the imports alleged in this case, ultrafine magnesium powder from the PRC was subject to a 305 percent antidumping duty. 

The government further alleged that Kilgore used the illegally imported Chinese magnesium powder purchased from ESM in the countermeasure flares it sold to the U.S. Army.  The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and engineering specifications required by the contracts.  

Kilgore and ESM agreed to pay $6 million and $2 million, respectively, to resolve the government’s allegations. 

Prior to the civil settlements with Kilgore and ESM, five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme, including ESM’s former president, Charles Wright.  The criminal defendants were ordered to pay more than $14 million in restitution.

The settlement with ESM resolved a lawsuit filed under the whistleblower provisions of the False Claims Act.  The act permits private parties to sue on behalf of the United States those who falsely claim federal funds or, as in this case, those who avoid paying funds owed to the government.  The lawsuit was filed by Reade Manufacturing Company, a domestic manufacturer of magnesium powder.  The act also allows the whistleblower to receive a share of any funds recovered through the lawsuit.  Reade Manufacturing received $400,000 as part of the settlement with ESM.  

The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments.  We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud.  Read more about our expertise in False Claims Act cases and how you can take action.

Hayner Hoyt Corporation has agreed to pay $5 million, plus interest, to resolve allegations that its top executives and affiliates knowingly submitted or caused the submission of false claims while exploiting contracting opportunities reserved for service-disabled veterans, the U.S. Department of Justice announced yesterday.

The United States has long used government contracting to promote small businesses in general and specifically small businesses owned by veterans who have service-connected disabilities.  Congress has established a targeted procurement program for the U.S. Department of Veterans Affairs (VA), which requires the VA to set annual goals for contracting with service-disabled veteran-owned small businesses.  To be eligible for these contracts, an applicant must qualify as a “small business.”  In addition to being a small business, a service-disabled veteran must own and control the business and handle its strategic decisions and day-to-day management.

The settlement resolves allegations that the defendants orchestrated a scheme designed to take advantage of the service-disabled veteran-owned small business program to secure government contracts for a now-defunct company, 229 Constructors LLC, that Gary and Jeremy Thurston created and controlled and subcontracts for Hayner Hoyt and its affiliates.  The Thurstons – neither of whom is a veteran – exerted significant influence over 229 Constructors’ decision-making during the bid, award and performance of these contracts in various ways, including by staffing the company entirely with then-current and former Hayner Hoyt employees and their spouses.  They also provided 229 Constructors with considerable resources, which provided it with a competitive advantage over legitimate service-disabled veteran-owned small businesses neither affiliated with nor controlled by a larger, non-veteran owned corporation.  Hayner Hoyt officials caused false certifications and statements to be made to the government representing that 229 Constructors met all requirements to be a service-disabled veteran-owned small business when they knew, or should have known, that 229 Constructors did not meet such requirements.  By diverting contracts and benefits intended for our nation’s service-disabled veterans to Hayner Hoyt and its affiliates, the defendants undercut Congress’s intent of encouraging contract awards to legitimate service-disabled veteran-owned small businesses.

The investigation revealed that Ralph Bennett – a service-disabled veteran who allegedly ran 229 Constructors, served as its president and oversaw its $14.4 million government-contracts portfolio – was not involved in making important business decisions for the company.  He was instead responsible for overseeing Hayner Hoyt’s tool inventory and plowing snow from Hayner Hoyt’s property.  Jeremy Thurston set up an email account in Bennett’s name in such a way that all emails received by the veteran were automatically forwarded to him.  After the government began to question 229 Constructors’ affiliation with Hayner Hoyt, Gary Thurston wrote others that he and Jeremy Thurston would likely terminate operations of 229 Constructors.  A few months later, service-disabled veteran Bennett and Steve Benedict, who was simultaneously the “co-owner” of 229 Constructors and listed on Hayner Hoyt’s website as one of its five “key” officials, transferred a total of $52,000 to Gary Thurston’s personal bank account, allegedly to show their appreciation for the assistance he had provided.

Defendants make various admissions in the settlement agreement, including that their conduct violated federal regulations designed to encourage contract awards to legitimate service-disabled veteran-owned small businesses.  They also admit that 229 Constructors provided more than $1.3 million in service-disabled veteran-owned small business subcontracts to Hayner Hoyt, LeMoyne Interiors, and Doyner, and that those companies generated $296,819 in gross profits as a result.

The government’s investigation was triggered by a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act, which allows private persons, known as “relators,” to file civil actions on behalf of the United States and share in any recovery.  The relator in this case will receive $875,000 of the settlement proceeds.  The case is docketed with the U.S. District Court for the Northern District of New York under number 14-cv-830.

The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments.  We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud.  Read more about our expertise in False Claims Act cases and how you can take action.

Ohio-based ArmorSource, LLC has agreed to pay the federal government $3 million to resolve allegations that the company knowingly submitted or caused the submission of false claims in connection to a U.S. Army contract, the U.S. Department of Justice announced yesterday.

In 2006, the Army contracted with ArmorSource to manufacture the Advanced Combat Helmet or ACH for use by soldiers in combat.  ACH helmets are made of Kevlar, an armored material, and are worn to provide ballistic protection for the soldier.  The United States alleged that ArmorSource delivered ACH helmets to the Army that were manufactured and tested using methods that did not conform to contract requirements and that failed to meet contract performance standards.  In May 2010, the Army began recalling the helmets after several lots failed ballistic safety tests.

ArmorSource subcontracted the manufacturing to Federal Prison Industries, Inc., which operates under the trade name UNICOR.  This settlement resolves a lawsuit filed by whistleblowers Melessa Ponzio and Sharon Clubb, FPI employees, under the qui tam or whistleblower provisions of the False Claims Act.  The Act permits private individuals to sue on behalf of the government those who falsely claim federal funds and to receive a share of any recovery.  Ms. Ponzio and Ms. Clubb will receive $450,000.

The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments.  We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud.  Read more about our expertise in False Claims Act cases and how you can take action.

Security and aerospace company Lockheed Martin has agreed to pay the federal government $5 million to resolve allegations that the company knowingly submitted or caused the submission of false claims by misrepresenting their compliance with the Resource Conservation and Recovery Act (RCRA) to the Department of Energy (DOE), the U.S. Department of Justice announced yesterday.  Lockheed Martin is a global security, aerospace, and information technology company that provides energy, environmental, and other services to government and commercial customers.

The government’s lawsuit alleged that Lockheed Martin violated RCRA, the statute that establishes how hazardous wastes must be managed, by failing to identify and report hazardous waste produced and stored at the facility, and failing to properly handle and dispose of the waste.  The government further alleged that this conduct resulted in false claims for payment under Lockheed Martin’s contracts with the Department of Energy.       

Of the $5 million settlement amount, Lockheed Martin will pay $4 million to resolve the government’s False Claims Act allegations and its subsidiaries (Lockheed Martin Energy Systems and Lockheed Martin Utility Services) will each pay $500,000 – $1 million total – in RCRA civil penalties.

Lockheed Martin operated the Paducah Gaseous Diffusion Plant under contracts with the Department of Energy and a government corporation, the U.S. Enrichment Corporation.  During that time, Lockheed Martin was responsible for the facility’s uranium enrichment operations.  Enriching uranium increases the proportion of uranium atoms that can be used to produce nuclear fuel for weapons and civilian energy production.  As the name of the plant suggests, the process used was called “gaseous diffusion.” 

In addition to uranium enrichment, Lockheed Martin was responsible for environmental restoration, waste management, and custodial care at the site, which occupies 3,500 acres in McCracken County, Kentucky.  Uranium enrichment operations ceased at the plant in 2013.  The government is working with other contractors to remediate contamination at and near the site consistent with the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). 

The settlement resolves two lawsuits filed under the qui tam, or whistleblower, provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The lawsuits were filed by the Natural Resources Defense Council, Inc. and several former employees of Lockheed Martin who worked at the Paducah facility.  The United States partially intervened in the lawsuits, which were then consolidated into one action.  The whistleblowers will collectively receive $920,000 from the United States’ portion of the settlement.  

The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments.  We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud.  Read more about our expertise in False Claims Act cases and how you can take action.

Fifty-one hospitals in 15 states have agreed to pay the federal government more than $23 million to settle allegations that the hospitals knowingly submitted or caused the submission of false claims to federal health care program Medicare for cardiac devices that were implanted in Medicare patients in violation of coverage requirements, the U.S. Department of Justice announced today.  These settlements represent the final stage of a nationwide investigation into the practices of hundreds of hospitals improperly billing Medicare for these devices.  With these additional agreements, the Justice Department’s investigation has now yielded settlements with more than 500 hospitals totaling more than $280 million. 

An implantable cardioverter defibrillator, or ICD, is an electronic device that is implanted near and connected to the heart.  It detects and treats chaotic, extremely fast, life-threatening heart rhythms, called fibrillations, by delivering a shock to the heart, restoring the heart’s normal rhythm.  It is similar in function to an external defibrillator (often found in offices and other buildings) except that it is small enough to be implanted in a patient’s chest.  Only patients with certain clinical characteristics and risk factors qualify for an ICD covered by Medicare. 

Medicare coverage for the device, which costs approximately $25,000, is governed by a National Coverage Determination (NCD).  The Centers for Medicare and Medicaid Services implemented the NCD based on clinical trials and the guidance and testimony of cardiologists and other health care providers, professional cardiology societies, cardiac device manufacturers and patient advocates.  The NCD provides that ICDs generally should not be implanted in patients who have recently suffered a heart attack or recently had heart bypass surgery or angioplasty.  The medical purpose of a waiting period - 40 days for a heart attack and 90 days for bypass/angioplasty - is to give the heart an opportunity to improve function on its own to the point that an ICD may not be necessary.  The NCD expressly prohibits implantation of ICDs during these waiting periods, with certain exceptions.  The Department of Justice alleged that each of the settling hospitals implanted ICDs during the periods prohibited by the NCD.  

The department previously settled with 457 hospitals for more than $250 million. 

The settlements announced today involve 51 hospitals, which are listed on the chart at the USDOJ website.  Most of the settling defendants were named in a qui tam, or whistleblower, lawsuit brought under the False Claims Act, which permits private citizens to bring lawsuits on behalf of the United States and receive a portion of the proceeds of any settlement or judgment awarded against a defendant.  The lawsuit was filed in federal district court in the Southern District of Florida by Leatrice Ford Richards, a cardiac nurse, and Thomas Schuhmann, a health care reimbursement consultant.  The whistleblowers have received more than $3.5 million from the settlements announced today. 

The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments.  We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud.  Read more about our expertise in False Claims Act cases and how you can take action.