On October 29, 2014, the Department of Justice (DOJ) announced that North Florida Shipyards (NFSY), and its president, Matt Self, agreed to pay the U.S. government $1 million to settle accusations that they violated the False Claims Act (FCA) when they allegedly created and operated a front company in order to qualify for government contracts intended for Service Disabled Veteran Owned Small Business (SDVOSBs). By doing so, they violated the Small Business Administration (SBA) statues and regulations, which are designed to prevent large companies, such as NFSY from receiving government contracts designed specifically to support entrepreneurs and small businesses.  The whistleblowers, Robert Hallstein and Earle Yerger, will receive $180,000 under the qui tam provisions of the FCA.

NFSY is a large company that operates ship repair and conversion facilities in Jacksonville, Florida that does not qualify as a SDVOSB. However, according to the lawsuit filed by Robert Hallstein and Earle Yerger on behalf of the Government, NFSY allegedly found its way around these criteria when it created a front company called Ind-Mar Services in order to meet the qualifications as a SDVOSB which allowed it to bid on government Coast Guard contracts to repair five ships.

A front company is an entity or subsidiary of a larger company that in many instances is created by an individual or company to avoid scrutiny, negative press or in the case of NFSY – to allegedly conceal illegal activities. Although SDVOSB requires that a company must be operated and managed by service disabled veterans that must perform at least 51 percent of the labor, Ind-Mar Services, operated by NFSY, did not meet these requirements. However, NFSY reaped the benefits of a SDVOSB by performing all the work outlined in the Coast Guard contract and collecting all the profits.  As a result of the whistleblowers allegations against NFSY, in December 2013, NFSY, its president, Matt Self, and Ind-Mar were investigated by the SBA and suspended from all government contracting for violating the FCA.

Special programs designed to assist service disabled veterans are an important part of SBA’s business development mission. Many government contracts are awarded pursuant to various “preferences,” that favor small business, or businesses owned and operated by veterans, women or minorities.  When a large company pretends to be a small business, and is awarded a government contract, this severely undermines the goals of the preference programs, and it is unlawful.