Whistleblowers Profit from Reporting MBE and DBE Fraud

Big payouts for reporting fraud pose big risks for companies engaged in fraud

Posted by Jared Jacobson in Ethics & Compliance, Whistleblower on August 27th, 2014

Minority Business Enterprises (MBE) and Disadvantaged Business Enterprises (DBE) are entities whose ownership is comprised of predominantly minority and disadvantaged individuals. Many government contracts require participation by either an MBE or DBE in order to be awarded the contract. If a company meets the MBE or DBE criteria, a company may be entitled to compete for, and ultimately obtain if successful, a very lucrative state or federal government contract. The federal government is becoming increasingly more critical of these relationships due to the nature of the financial advantage a company gains by certifying that it is MBE or DBE owned.

Bait and Switch

As government contracts may be extremely difficult to obtain and therefore, competition for such contracts is so high, the government has been finding more and more companies that have been falsely representing themselves as either an MBE or DBE or alternatively, representing that they have a strong affiliation with an MBE or DBE. However, in the latter scenario, it has been discovered that a substantial portion, if not all, of the work and funds allocated to the MBE or DBE from the federal government do not actually wind up with such MBE or DBE entity. Instead, another company may actually be performing the work and providing a small amount, if any, of the federal contracted work and funds to the entity officially awarded the favored contract.

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Securing a federal government contract, for example, to build a federal agency facility or any other government-funded project, if done under false pretenses, including representing an entity as MBE or DBE qualified, can lead to a False Claims Act, specifically, a Qui Tam claim.

Simply put, the federal False Claims Act was designed to hold accountable any individual or business that commits various types of fraud against the federal government, a/k/a “Fraud on the government.” The law permits (and protects retaliation against) the defrauding business’s employees or any non-employee who is intimately aware of the fraud, including independent contractors, to “blow the whistle” and file a qui tam claim.

Big Payoff for Whistleblowers

The whistleblower is called the relator and if successful, can typically collect between 20 and 30 per cent of any funds recovered by the government. It is not unheard of for the government to settle a case against a large government contractor for $100 million. A relator in this example would receive $20 million to $30 million.

The law provides for a bounty such as this because as the government cannot be in all places at once policing illegal behavior, it has the effect of encouraging private citizens to come forward, often through private attorneys, when they know of a company ripping off the United States taxpayers and are willing to stand up and say something about it.

When companies apply to perform work under a federally-funded program, it is imperative that all information contained in the application is true and accurate as of the date of filing, including any financial statements and whether or not such entity is properly qualified as MBE or DBE. If not, the company may face liability under the False Claims Act, both from a criminal prosecution standpoint as well as civilly, at the hands of a whistleblower.

Whistleblowers can be employees, independent contractors, vendors, accountants, compliance or human resources personnel, as well as any other individuals who have personal knowledge of the fraud and is the first to file the case. Filing Qui Tam and whistleblower cases involving fraud against the government can be tricky so it is important to find a qualified whistleblower attorney who has experience navigating the complex law.

Jared Jacoboson
Jared Jacoboson

Attorney and founder of The Law Firm of Jacobson & Rooks, LLC

Jared Jacobson is one of the founding members of The Law Firm of Jacobson & Rooks, LLC. Jared Jacobson represents individual employees and executives as well as counsels employers in conducting workplace investigations to mitigate risks of employment and whistleblower litigation. Jared regularly performs human resource audits to ensure compliance with state (PA, NJ and NY) and federal discrimination, misclassification and wage and hour laws, as well as the risks associated with whistleblowers. Jared helps his clients understand the importance of investing in pre-emptive annual policy audits and work-place training as well as performing a proper investigation when a complaint is filed or threatened which can be invaluable when compared with the alternative.

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