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Defendant Illegally Obtained Federal Contracts Meant for Small, Disadvantaged Businesses
Michelle Cho, an officer of Far East Construction Corporation (Far East) and other construction companies, pleaded guilty today to a federal charge of conspiring to commit wire fraud. Cho also agreed to pay forfeiture in the amount of $169,166 and pay a criminal fine in the amount of $35,000.
The plea agreement was announced by Acting Assistant Attorney General Renata Hesse of the Justice Department’s Antitrust Division; U.S. Attorney Channing D. Phillips of the U.S. Attorney’s Office for the District of Columbia; Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office; Inspector General Peggy E. Gustafson for the Small Business Administration (SBA); Inspector General Carol Fortine Ochoa of the U.S. General Services
Administration (GSA); Special Agent in Charge Brian J. Reihms of the Central Field Office of the Defense Criminal Investigative Service (DCIS) and Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).
According to court documents filed as part of the plea, Cho utilized two straw companies, including Far East, to conspire with MCC Construction Company (MCC) and others to defraud the SBA. Cho’s two companies were eligible to receive federal government contracts set asides for small, disadvantaged businesses. Cho and MCC understood that MCC would, illegally, perform all of the work on these contracts. In so doing, MCC was able to win 27 government contracts worth over $70 million from 2008 to 2011. The scope and duration of the scheme resulted in a significant number of opportunities lost to legitimate small and disadvantaged businesses.
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“Michelle Cho knowingly participated in a long-standing scheme that manipulated federal contracts designated for small, disadvantaged businesses,” said Acting Assistant Attorney General Hesse. “We will continue to work with our law enforcement partners to protect the integrity of the procurement system.”
“Michelle Cho sought to unjustly enrich herself by participating in a fraudulent scheme that blatantly undermined a program to designate federal contracts for small disadvantaged businesses,” said U.S. Attorney Phillips. “Companies that benefit from the Small Business Administration’s 8(a) program are expected to perform the agreed-upon work in return for taxpayer dollars. This prosecution shows our determination to maintain the integrity of federal contracting programs so that benefits go only to deserving businesses.”
“This conspiracy to deceive and defraud the federal government caused funds to be diverted illegally and cheated small businesses out of fair federal contracting opportunities,” said Assistant Director in Charge Abbate. “The FBI remains vigilant to such abuses of the system and will continue to work with our partners to bring to justice anyone who perpetrates fraud against the government.”
“Today’s guilty plea signifies our commitment to bringing individuals that conspire to fraudulently gain access to set-aside Federal contracting opportunities to justice,” said SBA Inspector General Gustafson. “Fraudulently passing work to ineligible businesses subverts the intent of SBA’s preferential contracting programs to assist small businesses as engines of economic development and job creation. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their leadership and dedication to serving justice.”
“We will continue to investigate and hold accountable those who game the government procurement process at the expense American taxpayers and legitimate small businesses,” said GSA Inspector General Ochoa.
“The Defense Criminal Investigative Service is committed to working with our partner agencies to combat fraud impacting the Department of Defense's vital programs and operations and maintain the integrity of the procurement system,” said Special Agent in Charge Reihms.
“Today's plea is a fitting end for those who conspire to defraud the government,” said Director Robey. “The Major Procurement Fraud Unit is proud to work with our federal law enforcement partners to protect the coffers of the U.S. government from those who break the law and threaten the readiness of the U.S. Army.”
Cho, 45, of Downers Grove, Illinois, was charged in a criminal information on October 12, 2016 in the U.S. District Court for the District of Columbia with one count of conspiring to commit wire fraud. She waived the requirement of being charged by way of federal indictment, agreed to the filing of the information and accepted responsibility for her criminal conduct. The charge carries a statutory maximum of five years in prison and potential financial penalties.
The Honorable Ketanji Brown Jackson scheduled sentencing for March 7, 2017.
The court documents state that Cho and MCC violated the provisions of the SBA 8(a) program, which is designed to award contracts to businesses that are owned by “one or more socially and economically disadvantaged individuals.” To qualify for the 8(a) program, a business must be at least 51 percent owned and controlled by a U.S. citizen (or citizens) of good character who meets the SBA’s definition of socially and economically disadvantaged. The firm must also be a small business (as defined by the SBA) and show a reasonable potential for success. Participants in the 8(a) program are subject to regulatory and contractual limits. Also, under the program, the disadvantaged business is required to perform a certain percentage of the work. For the types of contracts under investigation here, the SBA 8(a)-certified companies were required to perform 15 percent or more of the work with its own employees.
Court documents also state Cho conspired with MCC and others for MCC to exercise impermissible control over Far East, to obstruct a U.S. Government Agency proceeding, and to reach an agreement whereby MCC would provide all labor, equipment, materials, safety, and supervision and, in return, receive 97 percent of the contract task order amount. This agreement by its terms meant that Cho’s company would violate SBA rules and regulations and would collect a 3 percent fee for allowing its small business status to be used.
Earlier this year, MCC pleaded guilty to conspiring to commit fraud on the United States by illegally obtaining government contracts that were intended for small, disadvantaged businesses and agreed to pay $1,769,924 in criminal penalties and forfeiture. In June, Thomas Harper, another former officer and owner of MCC, pleaded guilty to conspiring to obstruct proceedings before a department or agency. In August, Walter Crummy, another former officer and owner of MCC, pleaded guilty to conspiring to commit wire fraud.
The investigation is being conducted by the FBI’s Washington Field Office, the Inspector General for the Small Business Administration (SBA), the Inspector General of the U.S. General Services Administration (GSA), the Central Field Office of the Defense Criminal Investigative Service (DCIS) and the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).
The prosecution was handled by Assistant U.S. Attorney John Marston and former Assistant U.S. Attorney Matt Graves of the U.S. Attorney’s Office for the District of Columbia and Trial Attorneys Kevin B. Hart, Justin P. Murphy and former Assistant Chief Craig Y. Lee of the Antitrust Division.
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