Booz Allen to pay $377 million for false accusations to US authorities

Defense contractor Booz Allen Hamilton has agreed to pay $377 million to settle a long-running Justice Department lawsuit alleging the northern Virginia-based company overcharged the U.S. government to help cover losses in other areas of its business, federal authorities announced Friday.

The resolution, which comes six years after prosecutors filed the charges, represents one of the largest financial settlements for a defense company under the federal False Claims Act, officials said.

“This settlement, which is one of the largest procurement fraud settlements in history, shows that the United States will pursue even the largest companies and the most complex cases where taxpayer funds are alleged to have been stolen,” Matthew M. Graves, United States Attorney for the District of Columbia, said in a statement.

A related federal investigation into the company ended in 2021 without charges, while a separate investigation by the Securities and Exchange Commission into the matter remains open.

Booz Allen Hamilton’s criminal investigation could last several years, CEO says

The details of the case had been under court seal until Friday. But Booz Allen Hamilton officials had publicly disclosed the federal investigation in 2017, stating that investigators were examining “highly technical elements of the company’s cost accounting and indirect cost charging practices with the U.S. government.”

The publicly traded company signaled to shareholders in May that it expected a costly settlement, ordering a $226 million write-down related to the case and warning that the final amount could be much higher.

The company did not immediately respond to requests for comment on Friday.

Jacob T. Elberg, a former federal prosecutor, said the settlement was among the largest financial awards in cases outside of health care. But he said companies are not necessarily required to admit wrongdoing, and suggested Booz’s share price could rise if investors believe the legal uncertainty surrounding the case has been resolved.

“There is a very real debate about whether the consequences here are significant enough to deter,” Elberg said.

The Justice Department opened the investigation in 2016 after receiving complaints from a whistleblower, Sarah Feinberg, who had resigned from the company that year. She claimed the company overcharged the federal government to reduce millions of dollars in annual losses related to its work with the private sector and foreign governments.

Booz “has been, and continues to be, desperate to grow that part of its business to diversify again, in part to appease public investors,” prosecutors wrote in the lawsuit filed in July 2017. They alleged that Booz knowingly collected more than $250 million in fraudulent fees from the U.S. and counted the 2019 amount.

Feinberg is a former US Marine Corps officer whose first stint with Booz focused on assisting the military drawdown forces in Afghanistan. The lawsuit stated that she returned to the company in 2015 to work for the chief financial officer and was assigned to a three-person team responsible for improving the company’s financial statements.

Feinberg discovered two things, according to the complaint.

First, Booz appeared to discount the financial costs of his work with companies and foreign governments, in some cases in the tens of millions of dollars, the complaint alleges. Second, it lumped the costs it incurred in performing government contracts with costs from its work for corporate clients and foreign governments. Booz then fraudulently billed the US government for excess fees that helped cover the financial losses for the unrelated work.

“When Booz’s costs at the end of a fiscal year in a particular cost center/band exceed revenues… Booz occasionally goes back to its US government client and demands additional reimbursements to further subsidize the unexpectedly large, and unallowable, costs,” the complaint states.

Feinberg resigned in August 2016 after supervisors ignored or downplayed her warnings about compliance risks and did not support her push for changes, according to the complaint. She later filed a “qui tam” lawsuit, which is a type of whistleblower case in which plaintiffs can be financially rewarded for disclosing wrongdoing.

In a resignation letter dated Aug. 8, 2016, Feinberg wrote that the company “currently incurs more financial and compliance risk than I feel comfortable defending as a member of the Corporate Finance team.”

She stands to be personally awarded nearly $70 million of the overall settlement, although much of this amount will go to legal fees and taxes.

“It is encouraging to see that there is some level of accountability for Booz Allen’s actions,” Feinberg said in a statement to The Washington Post. “I hope this situation inspires more people to stand up for justice and reveal the truth. And I hope this settlement encourages more whistleblowers to come forward when their companies refuse to do the right thing.”

Source link

Back to top button