Phony Woman-Owned Contractor Forced to Pay $20 Million

800px-Bharara,_Preet_Headshot
Preet Bharara

This originally appeared on Government Executive on October 9, 2015.

The defense contractor UFC Aerospace and its former president agreed to pay $20 million after admitting to the government that the company had falsely certified itself as a woman-owned small business, the Justice Department announced on Thursday.

Beginning in 2001 until 2011, the Bay Shore, N.Y-based firm and its former president Douglas Davis engaged in civil fraud “in order to secure numerous lucrative defense subcontracts with government contractors,” said a release from the U.S. attorney’s office for New York’s Southern District in Manhattan. UFC “falsely certified to government contractors that UFC was a woman-owned small business (“WOSB”) when UFC at no point met either requirement for WOSB status under the Small Business Act,” it said in announcing that a district judge had approved the settlement.

In fact, the government said, no women were majority owners of UFC or managed or controlled UFC’s management and daily business operations and hence would not qualify for the contract set-asides. The subcontractor made these misrepresentations in the belief it would gain a competitive advantage, “and the government contractors in turn made representations to the government regarding its WOSB hiring, the announcement said.

“The Small Business Act serves the important purpose of increasing legitimate participation by woman-owned businesses, and when business owners engage in fraud that undermines this purpose, they need to be held to account,” said Manhattan U.S. Attorney Preet Bharara. He cited help in the prosecution from SBA Office of General Counsel, the SBA Office of Inspector General, the Defense Criminal Investigative Service, and the Procurement Fraud Division of the Air Force Materiel Command Law Office.”

A woman-owned business is defined in the law as one in which women own 51 percent of the company and “the management and daily business operations of the business are controlled” by women. The only ownership interest in UFC, the release said, were the wives of company leaders Douglas and John Davis through trusts that the corporate officers controlled, amounting to only 5 percent of the trusts’ assets. “Neither woman controlled or managed the company at any time. In fact, neither woman had company email accounts, attended management meetings, or spent regular time in the office during the relevant time period,” prosecutors said.

“Uncovering and pursuing fraud cases is one of SBA’s highest priorities,” said SBA General Counsel Melvin F. Williams, Jr.

SBA Inspector General Peggy Gustafson said, “This settlement sends an important message that falsely certifying a company’s status as a Woman Owned Small Business is unacceptable and bears a significant consequence.”

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