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False Claims Act – Contractors and Two Owners in Western New York Agree to Pay More than $3 Million to Settle Allegations

The federal government has demonstrated again that it is especially vigilant when it comes to protecting people who have served in the country’s armed forces and have been injured as a result of having done so. This was demonstrated earlier this month when the Justice Department announced that New York-based contractors, Zoladz Construction Company Inc. (ZCCI), Arsenal Contracting LLC (Arsenal), and Alliance Contracting LLC (Alliance), along with two owners, have agreed to pay more than $3 million to settle allegation that they violated the False Claims Act. The government accuses the companies and their owners of improperly obtaining contracts that were designed as set asides for service-disabled veteran-owned businesses. “Contracts are set aside for service-disabled veteran-owned small businesses so to afford veterans with service-connected disabilities the opportunity to participate in federal contracting and gain valuable experience to help them compete for future economic opportunities,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Every time an ineligible contractor knowingly pursues and obtains such set-aside contracts, they are cheating American taxpayers at the expense of service-disabled veterans.”


In order to qualify as a SDVO small business, a service-disabled veteran must own and control the company. The United States alleges that Zoladz recruited a service-disabled veteran to control a sham company that Arsenal created. Moreover, the government alleges that neither Alliance nor ZCCI were eligible to participate in the SDVO small business contracting programs. Finally, Zoladz and Lyons are alleged to have carried out their scheme by making false statement to the U.S. Department of Veterans’ Affairs (VA) regarding Arsenal’s eligibility to participate in the SDVO small business contracting program.


“Detecting and discontinuing fraud, waste, and abuse committed by those who do business with the government remains a core function performed in this Office,” said Acting U.S. Attorney James P. Kennedy, Jr. for the Western District of New York. “That function, however, takes on additional significance when the target of the fraud is a program designed for the benefit of the heroes among us—our disabled veterans. Although this investigation did not uncover sufficient evidence to establish criminal liability by these entities and individuals, the multi-million dollar civil judgment ensures that those involved pay a heavy price for their decision to divert to themselves resources intended for the benefit of those who have made supreme sacrifices on behalf of all.”


The settlement reached in this case was filed under the whistleblower provisions of the False Claims Act. These provisions permit private individuals to sue on behalf of the federal government for false claims and to share in any recovery. The whistleblower involved in this case is scheduled to receive $450,000. The case is captioned under United States ex rel. Western New York Foundation for Fair Contracting, Inc. v. Arsenal Contracting, LLC, et al., Case No. 11-CV-0821(S) (W.D.N.Y.).