Executives at two Arlington, Va.-based businesses have pleaded guilty to
fraudulently obtaining more than $31 million in government contract
payments that should have gone to disadvantaged small businesses.
The guilty pleas were announced today by U.S. Attorney for the Eastern
District of Virginia Neil H. MacBride, Acting Assistant Attorney General
Mythili Raman of the Justice Department’s Criminal Division and NASA
Inspector General Paul K. Martin.
“These executives used their knowledge and experience to abuse a
program created to ensure minority small business owners could compete
for government contracts,” said U.S. Attorney MacBride. “They not only
illegally obtained millions from the United States, they also victimized
legitimate minority owners who didn’t get the bids.”
“Keith Hedman and his co-conspirators fraudulently obtained valuable
government contracts intended for minority-owned small businesses, and
pocketed millions of dollars for themselves,” said Acting Assistant
Attorney General Raman. “They abused an important government program,
and will now face the consequences.”
“This investigation confirmed that these executives repeatedly took
actions that gave them a fraudulent advantage in the contracting
process,” said NASA Inspector General Martin. “I commend the
outstanding efforts of our agents and our law enforcement partners
involved in this case in protecting the integrity of the 8(a) program.”
According to court documents, Keith Hedman, 53, of Arlington, formed an
Arlington-based security service consulting company in approximately
2001. Hedman formed the company, listed as Company A in court filings,
with an African-American woman who was listed as its president and CEO
to enable the company to participate in the Small Business
Administration’s (SBA) Section 8(a) program, which enables certain small
businesses to receive sole-source and competitive-bid contracts set
aside for minority-owned and disadvantaged small businesses. In 2001,
Hedman’s company received approval to participate in the 8(a) program on
the basis of the African-American president and CEO’s listed role, but
when she left the company in 2003, Hedman became its sole owner and the
company was no longer 8(a)-eligible.
Hedman admitted that in 2003 he created a shell company, listed as
Company B in court records, to ensure he could continue to gain access
to 8(a) contracting preferences for which Company A was not qualified.
Prior to applying for the shell company’s 8(a) status, Hedman selected
an employee, Dawn Hamilton, 48, of Brownsville, Md., to serve as a
figurehead owner based on her Portuguese heritage and history of social
disadvantage, when in reality the new company would be managed by Hedman
and senior leadership at Company A. To deceive the SBA, they falsely
claimed that Hamilton formed and founded the company and that she was
the only member of the company’s management. They continued to mislead
the SBA through 2012, even lying to the SBA to overcome a protest filed
by another company accusing Hedman’s former company and the shell
company of being inappropriately affiliated.
From Company B’s creation through February 2012, Hedman – not Hamilton –
exercised ultimate decision-making authority and control over the
company by controlling its finances, allocation of personnel and
government contracting activities. Hedman nonetheless maintained the
impression that Hamilton was leading the company, including through
forgeries of signatures by Hamilton to documents she had not seen or
drafted. Hedman also retained ultimate control over the shell
business’s bank accounts throughout its existence. In 2011, Hedman
withdrew $1 million in cash from Company B’s accounts and gave the funds
in cash to Hamilton and three other co-conspirators. In total, Hedman
and Hamilton secured through the shell company more than $31 million in
government contract payments, which generated more than $6 million in
salary and payments for the conspirators that they were not entitled to
receive.
In addition, Hedman admitted that he agreed to pay a $50,000 bribe
through the shell business to a U.S. government contracting official for
the official’s help in securing contracts for Company B.
Hedman and Hamilton pleaded guilty on March 13 and March 15, 2013,
respectively, in U.S. District Court for the Eastern District of
Virginia to major government fraud and face a maximum penalty of 10
years in prison and a multimillion-dollar fine for that charge. Hedman
also pleaded guilty to conspiracy to commit bribery, which carries a
maximum penalty of five years in prison. Hedman agreed to forfeit more
than $6.3 million, and Hamilton agreed to forfeit more than $1.2
million. Hedman is scheduled to be sentenced on June 21, 2013, before
U.S. District Judge Gerald Bruce Lee. Hamilton’s sentencing is
scheduled for June 21, 2013, before U.S. District Judge T. S. Ellis,
III.
In addition, the following individuals have also pleaded guilty to major fraud or conspiracy to commit major fraud:
• David George Lux, 62, of Springfield, Va., pleaded guilty today before
U.S. District Judge Leonie M. Brinkema. Lux served as the chief
financial officer at Company A from 2007 through February 2012 and
performed work for Company B throughout that time while officially on
Company A’s payroll. He is scheduled to be sentenced on June 14, 2013,
by Judge Brinkema.
• Joseph Richards, 51, of Arlington, pleaded guilty on March 14, 2013,
before U.S. District Judge Brinkema in the Eastern District of
Virginia. Richards served as the chief operating officer and chief of
staff for Company A from 2005 through 2008 and then vice president from
2010 through February 2012. He also served as Company B’s chief of
staff from 2008 through 2010. According to court documents, Richards
performed work for Company B throughout his time at both companies. He
is scheduled to be sentenced on June 14, 2013, by Judge Brinkema.
• David Sanborn, 60, of Lexington, S.C., pleaded guilty on March 13,
2013, before U.S. District Judge Claude M. Hilton in the Eastern
District of Virginia. Sanborn served as vice president at Company A
from 2001 through 2009 and the company’s president from 2010 through
February 2012. According to court documents, Sanborn performed work for
Company B from its inception while on Company A’s payroll. He is
scheduled to be sentenced on June 28, 2013, by Judge Hilton.
This case was investigated by the NASA Office of the Inspector General
(OIG), the SBA OIG, the Defense Criminal Investigative Service, the
General Services Administration OIG and the Department of Homeland
Security OIG. Assistant U.S. Attorneys Chad Golder and Ryan Faulconer, a
former Trial Attorney for the Criminal Division’s Fraud Section, are
prosecuting the case on behalf of the United States.