Louis Berger Group has agreed to pay $69 million to settle civil charges by the Dept. of Justice that the company systematically inflated its overhead charges in cost-plus work for the federal government from 1999 to 2007.
The settlement was announced Nov. 5th in Newark, N.J., by U.S. Attorney Paul Fishman.
“Money that could have been used for more good work instead went to LBG’s bottom line,” he said. “It allowed a corrupt few to send a message about the ethics of American business,” Fishman said.
Separately, Berger Group’s former chief financial officer, Salvatore Pepe, 58, and its former controller, Precy Pellettieri, 54, pleaded guilt in federal court in Newark, N.J. to conspiring to defraud the U.S. government.
Left unmentioned in the announcements was whether Berger Group Holding’s former chairman, Derish M. Wolff, was also likely to reach a settlement with the U.S. attorney. Federal prosecutors have indicated that Wolff, 75, is the target of civil and criminal investigations related to the scheme.
Wolff owned 27% of Morristown, N.J.-based Berger Group’s stock when he left the company in the summer.
In its descriptions of the fraud, the U.S. attorney claimed that Berger Group charged overhead for home office employees as if they only worked on federal contracts when those employees actually only spent part of their time working on federal contracts. The inflated charges involved work for the U.S. Agency for International Development and the Dept. of Defense. Louis Berger Group is one of the biggest contractors working for the U.S. In Afghanistan and Iraq.
According to the U.S. attorney, “the scheme to defraud the government was carried out by Pepe and Pellettieri, at the direction of a former executive.”
The executive involved was not named but Wolff is the only employee who has been associated with the inflated overhead scheme and the government investigation.
The investigation began when a former Berger employee who worked in the company’s accounting department filed a whistleblower lawsuit in federal court in Maryland. The employee is entitled to a portion of the settlement.
In a statement, Berger Group President Larry D. Walker said the settlement had helped the company improve its “systems, policies and structures over the past four years.”
According to Berger Group, the company began investigating its accounting procedures in 2006, prior to learning of the Dept. of Justice investigation. Based on its own investigation, Berger Group said, it began refunds to the government and, on learning of the federal investigation in 2008, accelerated reforms to internal controls, compliance and oversight.
It isn’t clear when Pepe and Pellettieri left the company, but they were terminated and replaced at about that time.