If you have ever questioned why there are so many regulations pertaining to certification as a minority, woman and/or veteran owned small business or why the applications are so extensive and complicated, here is your answer.  Per a June 3rd press release from the U.S. Attorney’s Office for the Western District of Missouri, Topeka, Kansas based contractor, Matthew C. McPherson, has pled guilty to defrauding the federal government by bidding on and accepting payment for construction contracts set aside for small businesses and service-disabled veterans and minorities.

McPherson and his co-conspirators were accused of setting up what is referred to as a Rent-A-Vet, Rent-A-Minority or Small Business fraud scheme in order to abuse federal programs promulgated under the Veteran Entrepreneurship and Small Business Development Act of 1999 (the “SDVOSB” program) and Section 8(a) of the Small Business Act (the “8(a)” program) intended to provide opportunities to service-disabled veterans and certified minorities in federal government contracting.

Per the complaint, between September 2009 to March 2018, McPherson and his co-conspirators set up two separate construction companies, which they fraudulently represented to the federal government were owned and controlled by individuals who met the qualifications of the SDVOSB and/or 8(a) programs. These strawman owners, however, did not control the day-to-day operations or the long-term decision making of the companies. Rather, McPherson and his co-conspirators actually controlled and operated the companies and received most of the profits earned by the respective business entities.

Through this scheme, McPherson and his co-conspirators received a total of $346 million of contract proceeds through more than 200 federal set-aside construction contracts that were earmarked for service-disabled veterans and certified minorities. McPherson, who is neither a service-disabled veteran nor certified minority, was not entitled to compete for any of those contracts.

Under the governing federal sentencing statue, McPherson is subject to a sentence of up to five years in federal prison without parole and will have to forfeit more than $5.5 million in fraud proceeds. Thus, this contractor will be spending the next several years in prison because he let greed get the better of him.

What you should take away from this sad situation is that government entities are monitoring and policing these type of state and federal programs. Do not think that you are going to be able to wrongfully take advantage of these programs without consequences. Further, the statutory frameworks for minority, woman and/or service-veteran owned small business certification on the state or federal level are complex. Thus, it is in your best interest to consult an attorney familiar with these requirements while completing your applications to avoid violations.