Two St. Louis-area contractors settled a disadvantaged business enterprise fraud case with federal authorities after a competitor exposed the alleged fraud using a law that dates to the Civil War.
United Ironworkers, Steeleville, Ill., and D&K Welding Services. St. Louis, along with company presidents Kim Rasnick and Dorrie Wise-Harris, agreed to pay $440,000 to resolve the claims against them, the U.S. Attorney’s Office for southern Illinois announced in January. The case formally closed this month.
The investigation into the alleged fraud was kick-started by a False Claims Act lawsuit filed by Karl and Dianna Jefferson, who own a steel construction firm in Illinois. Under the act, a private citizen can file a civil lawsuit on behalf of the government against an alleged fraudster, and the government can intervene in the case to seek a settlement or, more rarely, pursue criminal charges.
The whistleblower receives between 15% to 30% of what the government recovers as the result of a case—in this case, $79,200 from the settlement. If authorities decline to intervene in the case, the whistleblower can still pursue the claims independently, says Michael Brady, a lawyer who represented the Jeffersons in the case.
“The real attempt as a lawyer practicing in this area is to put the pieces together and give a case to the government that gets its attention, and it is pursued,” Brady says. The goverment has "a lot more horsepower to investigate and also, for example, it can debar bad actors from participating in programs.”
The original complaint in this case, filed under seal in January 2018, states that the Jeffersons discovered the alleged disadvantaged business enterprise (DBE) fraud in part through their own knowledge of bidding for steel and rebar work on road and bridge projects in the St. Louis area after they had begun their own investigation into United Ironworkers and two subcontractors, including D&K.
DBE programs exist to facilitate the growth of small businesses owned by someone from a socially and economically disadvantaged background. The U.S. Transportation Dept. has included DBE requirements for state agencies receiving project funding since the 1980s.
In the complaint, the Jeffersons allege that the subcontracting firms, which were ostensibly owned by people who are African-American, including Wise-Harris, were actually controlled by Rasnick, who is a white male, and that United was too large to qualify as a small business.
The complaint highlights five state projects that D&K subcontracted on as a DBE but instead had work performed by United employees, including the construction of a bridge near Washington, Mo., and rehabilitation of a bridge between St. Louis and East St. Louis, Ill. It also outlines additional cases involving the second subcontractor.
U.S. Attorney Steven Weinhoeft opted to intervene on the claims involving United, Rasnick, D&K and Wise-Harris but declined to intervene on the allegations regarding the second subcontractor.
“The DBE program is designed to provide business opportunities to minority- and women-owned Businesses,” Weinhoeft said in a statement. “Funds designated for that purpose should not be misallocated to businesses masquerading as legitimate DBEs.”
Rasnick declined to comment. Wise-Harris didn’t immediately return calls about the case.
The False Claims Act was enacted to combat defense contractor fraud during the Civil War. Today, cases filed under the law are most common in the healthcare sector—the US Justice Dept. says more than $5 billion of the $5.6 billion recovered through cases in 2021 involved health care—but officials say it is used in a variety of fields, from ensuring compliance with customs laws to protecting disaster-relief funds.
Earlier this month, for instance, the department announced a $10-million settlement related to a False Claims Act case involving the contractor overseeing a project for the US Dept. of Energy.
For anyone thinking of pursuing a case under the law against contractors suspected of committing DBE fraud, the main question is whether the disadvantaged business is truly independent, or if the distinction between the two entities is only on paper, Brady says. But these cases can be tough to prove, he says.
Those filing a claim will need to show a systematic effort to defraud the government and there can be risks of blowback for whistleblowers in any field, Brady adds.
“As a taxpayer, I think [DBE fraud] is abhorrent,” he says. “And I think a lot of it goes on and never gets reported. But the reality is that any whistleblower, in any industry, takes some risk of being blackballed if it becomes common knowledge.”