I have previously posted and spoken about the increasing prevalence of DBE fraud investigations and prosecutions. Usually those investigation are started by the Department of Transportation’s Inspector General’s Office and may lead to the unsealing of an indictment by the Department of Justice. I have also warned of the growing threat of whistleblower lawsuits related to alleged fraud in the DBE program which sometime lead to a federally directed civil lawsuit against a firm. However, until recently, I have never heard of a whistleblower DBE fraud lawsuit leading to an FBI raid.
Earlier this week, it was reported that the FBI recently raided the offices of a large Tennessee based heavy highway firm after one of its former employees filed a whistleblower lawsuit regarding alleged DBE fraud. This should be concerning to prime contractors operating under the DOT’s DBE regulations for several reasons.
First, as I predicted, DBE fraud prosecutions, which first became en vogue in the Southern District of New York, are a growing trend nationally. The story out of Tennessee comes on the heals of recent DBE fraud investigations in North Carolina and Utah, among other jurisdictions. Prosecutors nationwide are focusing on ferreting out DBE fraud.
Second, the raid shows that the risks of a whistleblower lawsuit are both civil and criminal. I have talked about how whistleblower lawsuits have caused contractors to incur significant damages under the federal False Claims Act for violating the DOT’s DBE rules. However, in those cases, the damage was almost exclusively monetary. Now, the risks of a whistleblower lawsuit could include a criminal investigation.
Third, typically a firm being investigated for DBE fraud has some form of advance warning of the investigation. The warning could be in the form of a letter from the Inspector General’s Office advising the contractor of the investigation, the service of a whistleblower lawsuit on the company, or target letter from the Department of Justice. However, when the FBI serves a warrant, you do not receive any warning (indeed it would defeat the purpose of the search). Therefore, failure to follow the DOT’s DBE rules could result in the FBI showing up at your office unannounced and carting off boxes of documents and computers.
With the recent changes in the DOT’s DBE rules and the increased scrutiny of the program by federal authorities, now more than ever construction firms need to be paying attention to DBE compliance.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
