A contractor from Darien will pay a portion of a $3 million settlement with the Federal government for his alleged part in a scheme to obtain construction contracts under the false pretense that an affiliate company was owned by a disabled veteran.
John Zoladz, owner of Zoladz Construction, along with David Lyons, of Grand Island, in conjunction with Zoladz Construction and Alliance Contracting, were accused in a lawsuit of setting up a company called Arsenal Contracting with a figurehead disabled veteran in order to obtain service-disabled veteran-owned (SDVO) status.
This was a civil suit filed under the False Claims Act.
“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.”
To qualify as a SDVO small business, a service-disabled veteran must own and control the company. Arsenal purported to be a legitimate SDVO small business but it was, in fact, managed and controlled by Zoladz and Lyons, neither of whom is a service-disabled veteran.
“Detecting and discontinuing fraud, waste, and abuse committed by those who do business with the government remains a core function performed by this Office,” said Acting U.S. Attorney Kennedy. “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 multimillion-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 U.S. Attorney's office said the alleged sham company had few employees of its own. Instead, it relied on Alliance and ZCCI employees to function.
After receiving numerous SDVO small business contracts, government attorneys say Arsenal subcontracted nearly all of the work under the contracts to Alliance, which was owned by Zoladz and Lyons, and ZCCI, which was owned by Zoladz. Neither Alliance nor ZCCI was eligible to participate in SDVO small business contracting programs.
Zoladz and Lyons were accused of carrying out their scheme by, among other things, making or causing false statements to be made to the U.S. Department of Veterans Affairs (VA) regarding Arsenal’s eligibility to participate in the SDVO small business contracting program and the company’s compliance with SDVO small business requirements.
“This settlement demonstrates the commitment of the Department of Veterans Affairs, Office of Inspector General, the Department of Justice, and other law enforcement agencies to aggressively pursue individuals and companies that misrepresent themselves as service-disabled-veteran-owned small businesses and deny legitimately disabled veterans the opportunity to obtain VA set-aside contracts,” said Inspector General, Michael J. Missal of U.S. Department of Veterans Affairs, Office of Inspector General (OIG).
“The VA OIG will continue to work diligently to protect the integrity of this important program, which is designed to aid disabled veterans. I also want to thank the U.S. Attorney’s Office and our law enforcement partners in this effort.”
The settlement resolves a lawsuit filed under the whistleblower provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The civil lawsuit was filed in the Western District of New York and is captioned 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.). As part of today’s resolution, the whistleblower will receive $450,000.
“Providing false statements to gain access to federal contracts set aside for service-disabled veterans denies the government opportunities to meet its abiding commitment to our nation’s veterans,” said Acting SBA Inspector General Hannibal “Mike” Ware. “The SBA’s Office of the Inspector General is committed to bringing those that lie to gain access to SBA’s preferential contracting programs to justice. I want to thank the Department of Justice for its leadership and dedication to serving justice.”
This matter was investigated by the Civil Division’s Commercial Litigation Branch, Assistant U.S. Attorney Kathleen A. Lynch of the U.S. Attorney’s Office for the Western District of New York, the FBI, the VA’s Office of Inspector General, the SBA’s Office of Inspector General, and Army CID.
Press Release from Zoladz Construction:
“The very complicated and frequently changing rules and regulations governing the Service Disabled Veteran Owned Small Business Program (SDVOSB) create inherent difficulties in maintaining constant compliance. These regulatory efforts lead to frequent challenges for participating SDVOSB businesses across the nation.
Even though we had legal advice that the formation of the SDVOSB involved was in compliance, the ever changing rules made it difficult to clearly stay within a difficult landscape of compliance. All contracts procured by the SDVSOB were performed to the satisfaction of the owners and all parties involved including subcontractors and material suppliers were fully compensated.
We are proud of our history and our service to the community. We are glad to have this matter fully resolved and look forward to continuing to serve the needs of our customers and community with award-winning construction work.”
In a note, the company added:
Please also note the official press release from The Department of Justice stated: “The claims resolved by the settlement are allegations only, and there has been no determination of liability."
NOTE: Wording was changed in the story after receiving this note to reflect that these are "allegations only."