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California IT-Provider will pay $5.8 million to Settle FCA Suit

dollar-billThe U.S. Attorney for the Central District of California recently settled a False Claims Act (“FCA”) lawsuit with the information technology company En Pointe Gov. for $5.8 million dollars.

The lawsuit alleged that En Pointe Gov. fraudulently represented itself as a small business in order to bid on government contracts that were specifically set-aside for small businesses.  En Pointe Gov. did not meet small business qualifications.

The case was filed in 2014 in the Central District of California by Minburn Technology Group, LLC and whistleblower Anthony Colangelo, who is the managing member of Minburn. Minburn subcontracted with EnPointe to provide database IT-services.

In an FCA suit, individuals (“whistleblowers”), file lawsuits on behalf of the government with allegations that fraud has been committed against a federal government program.  Whistleblowers, if successful, are entitled to share in any recovery received by the government.

Based in Gardena, California, En Pointe functions as an IT service provider for clients in various sectors, including education, healthcare, and foreign and domestic governments.  The companies resell hardware products like computers, servers, and printers, and provide IT consulting services related to systems management, IT security, and data backup and recovery.

The Small Business Administration (“SBA”) was created as a federal agency in 1953, with the mission “to maintain and strengthen the nation’s economy by establishing and committing to the viability of small businesses…”

The SBA establishes guidelines, like other government agencies, based on service type and sets size-standards based on the number of employees within a company and the volume of the company’s receipts.  The agency then uses those guidelines to determine whether the contractor can be classified as a small business.  Businesses self-certify and register under the SBA’s guidelines in order to be eligible to bid on contracts that are specifically established for small businesses.

Within Colangelo’s complaint, he alleged that En Pointe Gov., Inc. fraudulently stated, represented, and certified that it was a small business over 200 times to the United States government, which led to the company being awarded millions of dollars in government contracts that it did not qualify for. In fact, En Pointe Gov. is a large, global IT-products and services company with thousands of employees and annual revenues in excess of $300 million dollars.

By misrepresenting the company as a small business, En Pointe Gov. fraudulently obtained at least $48 million in government contracts. In a particularly salient company oversight, En Pointe’s sales to the GSA alone exceeded the revenue-size standards established by the SBA for industry categories for which En Pointe claims it was a small business.

Under the SBA’s Small Business Act (“Act”), approximately 23% of federal contracts are set aside for small businesses.  En Pointe’s alleged false claims effectively led to an improper “squeeze” on legitimate small businesses within the IT-sector that wanted to provide services to the government, but could not compete with En Pointe’s quotes for services.  The whistleblower, like all False Claims Act plaintiffs, alleged that the company’s false claims resulted in the abuse of government contracts that are largely funded by U.S. taxpayers.

The complaint also alleged that En Pointe Gov. under-reported its sales information to the General Services Administration to the tune of $123 million, which allowed the company to circumvent paying close to $1 million in fees.  Those fees will be recovered as a part of the Department of Justice’s settlement with the company.

Minburn and Colangelo will receive $1.4 million of the $5.8 million settlement for their involvement in the case.

Navigating the path to “blowing the whistle” is complicated, often challenging, and can bring personal or professional hardship.  But, blowing the whistle is often a matter of significant moral import and may bring the whistleblower a substantial financial windfall.  These considerations can be facilitated and softened with the help of an experienced.

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