WASHINGTON — Paragon Systems Inc., a major federal contractor based in Herndon, Virginia, has agreed to pay $52 million to resolve allegations of fraudulently obtaining government contracts intended for small businesses. The settlement comes after investigations into the company’s role in using small businesses it controlled to secure contracts meant for woman-owned, service-disabled veteran-owned, and other socially disadvantaged businesses.
“This settlement is the largest civil recovery in over a decade by the Department of Homeland Security Office of Inspector General (DHS-OIG),” said Inspector General Joseph V. Cuffari Ph.D of DHS. “The settlement sends a clear message that the Federal Government will continue to investigate and prosecute fraud, waste, and abuse to protect small businesses owned by service-disabled veterans and other socially and economically disadvantaged individuals. I am grateful for the continued partnership with the Department of Justice and for the whistleblower who initiated the complaint.”
The U.S. government accused Paragon, one of the largest providers of security and emergency response services to federal agencies, of orchestrating a scheme in which it used “front” companies to obtain U.S. Department of Homeland Security (DHS) set-aside contracts. These contracts, intended for qualifying small businesses, were awarded based on false claims that the companies were independently owned and operated, when, in fact, Paragon controlled them. The company then subcontracted most of the work back to itself.
The settlement also resolves allegations of violations of the Anti-Kickback Act, with Paragon executives allegedly receiving over $11 million in illegal “kickbacks” disguised as consulting payments from the small businesses. These funds were funneled through shell companies and hidden from regulators.
In addition to Paragon’s settlement, Athena Services International LLC (ASI), a company that was part of the fraud scheme, and its owner Alisa Silverman, have agreed to pay more than $1.6 million to resolve their role in the scam. ASI, along with its joint venture, Athena Joint Venture Services LLC (AJVS), were accused of falsely receiving Paycheck Protection Program (PPP) loans, which were later forgiven based on fraudulent claims.
U.S. Attorney for the District of Maryland, Erek L. Barron, stated that the settlement serves as a clear warning that fraudulent use of government contracts will not be tolerated. “The integrity of our contracting programs is essential, and we remain committed to rooting out fraud that compromises fair access and accountability,” he said.
“Small Business Administration (SBA) programs must be preserved for truly small businesses,” said SBA General Counsel Therese Meers. “Fraud on SBA’s procurement programs deprives legitimate small businesses of important procurement opportunities, and fraud on the Paycheck Protection Program unconscionably undermines critical pandemic relief. The results in this matter reflect SBA’s and the government’s ongoing commitment to identifying and pursuing those who perpetrate such fraud.”
The investigation was prompted by a whistleblower lawsuit filed under the False Claims Act, which allows private individuals to report fraud against the government. The whistleblower, Todd Pattison, will receive a significant portion of the settlement, amounting to more than $9 million. This settlement also marks the largest civil recovery in over a decade by the Department of Homeland Security’s Office of the Inspector General (DHS-OIG).
The settlement underscores the U.S. government’s continued commitment to cracking down on fraud and ensuring that government contracts benefit legitimate small businesses, especially those owned by service-disabled veterans and other disadvantaged groups.
“This settlement is an important step in safeguarding programs designed to support small businesses and combat fraud in federal contracting,” said Principal Deputy Assistant Attorney General Brian M. Boynton. “Those who fraudulently procure contracts will be held accountable.”
The case was investigated by the U.S. Attorney’s Office for the District of Maryland, the Department of Justice’s Civil Division, and the DHS Office of the Inspector General, with assistance from the Small Business Administration.
