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Defense contractor Booz Allen Hamilton has agreed to pay $377 million to settle a long-standing lawsuit by the Justice Department alleging that the Northern Virginia-based company overcharged the US government to help cover losses in other areas of its business, federal officials said Friday.
The decision, made six years after prosecutors filed the charges, represents one of the largest financial settlements for a defense contractor under the federal false claims law, officials said.
“This settlement, which is one of the largest procurement fraud settlements in history, shows that the United States will prosecute even the largest corporations and most complex matters alleging the theft of taxpayer dollars,” said Matthew M. Graves, the U.S. Attorney for the District of Columbia, in a statement.
A related federal criminal investigation into the company was dropped without charge in 2021, while a separate Securities and Exchange Commission investigation into the matter remains pending.
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The details of the case remained under court secrecy until Friday. But Booz Allen Hamilton officials publicly disclosed the federal investigation in 2017, saying investigators were examining “highly technical elements of the company’s cost accounting and indirect cost accounting practices at the US government.”
The publicly traded company signaled to shareholders in May that it expects a costly settlement, posting a $226 million write-down on the case and warning that the final amount could be much higher.
The company did not immediately respond to requests for comment on Friday.
Jacob T. Elberg, a former federal prosecutor, said the settlement is among the largest monetary settlements in non-healthcare cases. However, he said companies are not necessarily required to admit wrongdoing, noting that Booz’s share price could rise if investors believe the legal uncertainty surrounding the case has been resolved.
“There’s a very real debate about whether the consequences here are significant enough for deterrence,” Elberg said.
The Justice Department opened the investigation in 2016 after receiving complaints from a whistleblower, Sarah Feinberg, who left the company that year. She claimed the company was asking too much of the federal government to mitigate millions of dollars in annual losses related to its collaborations with the private sector and foreign governments.
Booz “has been, and continues to be, keen to grow this part of its business for diversification, in part to placate public investors,” prosecutors wrote in the lawsuit filed in July 2017. They alleged that Booz knowingly collected more than $250 million in fraudulent charges from the United States and expected to double that amount in 2019.
Feinberg is a former US Marine Corps officer whose first assignment with Booz was focused on helping the military withdrawal forces in Afghanistan. The lawsuit said she returned to the company in 2015 to work for the chief financial officer and was assigned to a three-person team responsible for improving the company’s accounting.
According to the complaint, Feinberg discovered two things.
First, Booz appeared to downplay the financial cost of working with companies and foreign governments, in some cases in the tens of millions of dollars, the complaint said. Second, the company has aggregated the costs it has incurred performing government contracts with the costs of its work for corporate clients and foreign governments. Then Booz fraudulently overcharged the US government, which helped cover the financial losses for the unrelated work.
“If, at the end of a fiscal year, Booz’s expenses in a particular cost center/group exceed its revenue… Booz occasionally reaches out to its U.S. government customer and seeks additional reimbursements to further subsidize its unexpectedly high and improper expenses,” the complaint reads.
According to the complaint, Feinberg resigned in August 2016 after managers disregarded or downplayed her warnings about compliance risks and failed to support her efforts to make changes. She later filed a “qui-tam” lawsuit, a type of whistleblower case where plaintiffs can be financially rewarded for exposing wrongdoing.
In a letter of resignation dated August 8, 2016, Feinberg wrote that the company “currently takes on more financial and compliance risks than I would care to defend as a member of the corporate finance team.”
Her personal price is said to be just under $70 million of the entire settlement, although much of that amount will be used for attorneys’ fees and taxes.
“It is encouraging to see that there is a degree of accountability for Booz Allen’s actions,” Feinberg said in a statement to The Washington Post. “I hope this situation inspires more people to stand up for justice and bring the truth to light. And I hope this settlement encourages more whistleblowers to come forward when their companies refuse to do the right thing.”
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