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$48.5 Million False Claims Act Settlement with Entities that Fraudulently Obtained Set-Aside Contracts Highlights Possibility for Further Whistleblower Action

On February 23, 2022, two United States Attorney’s Offices, in Albany, NY, and Spokane, WA, jointly announced a record $48.5 million False Claims Act settlement with TriMark, a large foodservice equipment supplier, two TriMark subsidiaries, and one of its executives to resolve allegations that they obtained government set-aside contracts under the false auspices of three small businesses that actually qualified for the contracts.

The settlement agreement contains a lengthy description of the facts, all of which the defendants admitted. (Notably, the DOJ Civil Fraud Section is not referenced in the settlement agreement and appears not to have played a role in the case, despite the size of the settlement.) In short, the TriMark entities entered into a series of arrangements with small businesses that qualified for government set-aside contracts because they were owned by veterans or service-disabled veterans. Under these arrangements, the TriMark entities supplied almost all of the equipment that the government ostensibly purchased from the small businesses, and the small businesses earned only a small mark-up. To effectuate the scheme, TriMark employees sometimes posed as employees of the small businesses in communicating with the government and also ghostwrote e-mails to the government on behalf of the small businesses.

Further, according to the facts the defendants admitted, the TriMark entities knew the potential consequences of their subterfuge. At one point, for example, an executive of one of the small businesses sent an e-mail to a TriMark employee expressing concern that “a federal contractor that receives an award after incorrectly representing itself as a small business may face False Claims Act (“FCA”) exposure for three times its total contract proceeds, plus other damages.” In response, the TriMark employee told the small business executive to “calm down and enjoy your weekend.” Later, when the Small Business Administration inquired about TriMark’s relationship to one of the small businesses, TriMark, through counsel, falsely represented that the small business “independently generates and conducts its business.”

Frauds involving set-aside contracts are all too common, but the TriMark settlement is the largest to date involving this type of fraud on the government. The whistleblower who brought the TriMark case stands to receive a False Claims Act award of approximately $11 million. Further whistleblower qui tam cases under the False Claims Act could generate similar awards.