Government Enforcement

The April issue of National Defense Magazine brought a well-written article by Susan Cassidy and her colleagues at Covington & Burling LLP on a recent DOD IG report analyzing (and criticizing) spare aviation parts pricing, even though the report concluded that the contractor in question had complied with the Truthful Cost or Pricing Data Act. The article addresses the IG’s concept of a fair profit – which is abjectly divorced from reality – and it notes that the GAO has been conducting a study of spare parts purchasing with a promise of recommendations to improve transparency in this area. I commend the article to anyone who operates in the spares market and wants to know where the Government is heading in relation to spares pricing.

With the IG and the GAO injecting themselves – yet again – into the spare parts market and decrying the rapacious contractors who dare to sell at prices that the Government regards as outrageous (after all, why in the world would anyone think that a profit rate in excess of 15% on a firm fixed price contract was reasonable?) it seems like a good time to revisit the reasons why the Government’s periodic complaints about spare parts pricing are generally myopic and wrong. And so, because no criticism of Government contractors ever goes away forever, I offer for your consumption a refresher: the re-publication of a posting that I authored in November 2014, entitled “How Dare You Charge That for a Spare Part!” – The Untold Story of the X27 Interface Assembly” –
Continue Reading Resurrecting the Spare Parts Bogeyman – A Refresher on Why the Government Gets It Wrong

The Enforcement Division of the United States Securities and Exchange Commission (“SEC”) recently released its annual enforcement report (“Report”) for fiscal year 2018. The Report reflects an increased focus on retail investors, cryptocurrency, cybercrime, and individual accountability. Further, it showcases that SEC enforcement continues to be robust under the Trump administration, despite industry and media expectations to the contrary.

In fiscal year 2018, the SEC brought 821 enforcement actions, an approximately 8.8% increase from last year. The SEC collected approximately $3.9 billion in monetary penalties, a 4% increase from last year. Notably, however, a significant portion of this amount came from a single case, in which $1.8 billion in disgorgement and penalties were awarded for a large-scale corruption scheme. Moreover, while total monetary penalties rose, there was a decrease in the total amount of disgorgement imposed. This is likely due in part to the Supreme Court’s 2017 Kokesh decision, which held that SEC claims for disgorgement are subject to a five-year statute of limitations.  
Continue Reading SEC Enforcement’s Annual Report Prioritizes Retail Investors, Cryptocurrency, Cybercrime, and Individual Accountability

In the aftermath of the Securities and Exchange Commission’s (“SEC”) latest Report of Investigation (“Report”) regarding cyberattacks via “spoofed or manipulated electronic communications,” companies should prepare to adjust and update their internal controls or face possible enforcement actions for violation of federal securities law.  Released as a warning to public companies about recent cyberattacks, the Report’s emphasis that companies maintain proper internal controls to combat cybersecurity issues indicates SEC enforcement actions for lack of proper cybersecurity procedures and supervision are on the horizon.    
Continue Reading Fool Me Twice…SEC’s latest Cyber-Fraud ROI Indicates Future Enforcement Against Hacker Victims

Accepting money from the Government, whether through a contract, grant, or other transaction, does not come for free. In the commercial world, companies typically engage in a cost/benefit analysis when they make major decisions, such as whether to enter a new line of business, extend their product line, open new facilities, or expand globally. To make these decisions, the company tries to understand not simply the available business opportunities, but also the obligations that are imposed and the risks that are inherent. This is equally, if not more, true when a commercial company decides to sell anything to the U.S. Government – whether as a prime contractor or subcontractor. The Federal Government is an extremely large consumer of goods and services, and so it is a marketplace that is hard to ignore. But, seller beware – because with the opportunities arising from this marketplace come obligations with which your company may not be able to comply. Moreover, while compliance may cost you more than you anticipate, noncompliance could destroy your business. So make sure that you look before you leap into the federal marketplace.
Continue Reading Look Before You Leap – Pitfalls and Trip Wires Inherent in Government Contracting

In an issue of first impression, the Ninth Circuit Court of Appeals recently held that a rogue corporate officer’s fraudulent intent can be imputed to a corporation even where the defrauding officer acted against the corporation’s interest, known as the “adverse interest exception.” In re ChinaCast Educ. Corp. Sec. Litig., — F.3d  –, 2015 WL 6405680, at *5 (9th Cir. Oct. 23, 2015).  In so holding, the Ninth Circuit created “an exception to the exception” – when an innocent third party relies on a defrauding officer’s apparent authority, the officer’s fraud can be imputed to the corporation even if that fraud was adverse to the corporation’s interest.
Continue Reading Ninth Circuit Severely Limits “Rogue Employee” Exception for Corporations in Securities Fraud Cases

Contractors and government contracts attorneys are likely to see (if they haven’t already) a rise in the number of cases in which individuals, rather than corporate entities, are targeted by government officials for suspension and debarment.  This is significant because, under the FAR, the misconduct of an individual can be imputed to the contractor, causing the contractor to lose its ability to receive Federal contracts.
Continue Reading Suspension and Debarment: A New Government Approach

The upward trend of suspensions and debarments continued in FY 2014.  According to the Interagency Suspension and Debarment Committee (“ISDC”) Report to Congress, released March 31, 2015, while referrals to the suspending and debarring officials decreased 12% from FY 2013, suspensions, debarments, and proposed debarments increased, Government-wide, by almost 8%. Since the ISDC began collecting data in 2009, these actions have continued to increase markedly.
Continue Reading Suspensions and Debarments on the Rise – A Brief Review of the ISDC’s FY 2014 Stats

The pricing of spare parts has been a subject of Government criticism for decades.  Pick up any DCAA or IG audit report relating to spare parts or any intra-agency memorandum on the topic and you will sense the dudgeon with which the Government reacts to the prices of those parts.
Continue Reading “How Dare You Charge That for a Spare Part!” – The Untold Story of the X27 Interface Assembly

A CEO receives an anonymous call claiming that someone is stealing company trade secrets or that an employee is taking kickbacks from a vendor.  A GC gets a call from the HR director who has an employee accusing the company of submitting false bills to a government agency.  You are served by a government agency with a subpoena seeking records indicating a criminal investigation is underway for violations of environmental laws, insider trading, tax laws or fraud. Your company receives a credible threat of litigation.  These are all real scenarios that occur daily in companies of all sizes all over the world.  They trigger critical internal investigations that require substantial time and resources.  Regardless of the nature of the investigation, it is vital that it be conducted efficiently, with clear direction and attention to preservation of the attorney-client privilege.  This article sets out best practices for doing so.
Continue Reading Corporate Internal Investigations: Best Practices