A Boston federal court jury found the owner of a phony service disabled, veteran owned business guilty of a $100 million fraud. David Gorski was convicted of conspiracy to defraud the U.S. government and four counts of wire fraud. Gorki used his sham company to siphon off work reserved for disabled veterans.
Government’s SDVOSB Program
The government sets aside a percentage of its contracting dollars for small businesses. Congress hopes the set aside will allow these small businesses to compete for work and grow. Since the birth of our nation, small businesses have formed the backbone of our economy. Setting aside a small percentage of contracts insures that not all government work will go to huge corporations.
Congress is especially interested in supporting businesses owned by veterans, disabled veterans, minorities and women. Collectively, these businesses are called “disadvantaged small business entities” (DSBE).
All the DBSE programs, including the Service Disabled Veteran Owned Small Business Entity (SDVOSB) program, require the business to be below a certain size and to be majority owned by a disadvantaged person. Obviously in the case of the SDVOSB program, the majority owner must be a person or persons with a service related disability.
3% of most government contracts have a set aside for SDVOSB businesses.
Gorski’s Fraud Indictment
On paper, David Gorski was a minority owner and vice president of Legion Construction, Inc. David Gorski never serviced in the military, however, and certainly wasn’t disabled. That is okay under the rules as long as he was not the majority owner. The jury found otherwise, however.
According to prosecutors, Gorski found two different people who qualified as service disabled veterans. On paper, he made these folks the nominal owners of Legion Construction. The Justice Department claims that Gorski was the real owner, however.
The indictment claims that Gorski set up Legion in 2005 with the intention of making the business appear to be veteran owned. He met with a “veterans agent” and asked for help in finding a disabled veteran so that he could “[start] a business targeting VA contracts.”
The agent put him in contact with one of the two veterans who later listed as “owning” the business. Gorski told the vets that they would not have to make any financial investment or guarantee any loans. The vets would also not have to do any work except to occasionally go to job sites and “look at things.”
When the first veteran agreed, Gorski made him the president. Almost immediately thereafter, Legion began receiving government contracts.
In an apparent move to make the scheme appear legitimate, Gorski put the veteran on the payroll and paid him a salary. For being the alleged president of the company, however, the veteran was earning just $325.00 per week. Prosecutors say that the veteran didn’t do any actual work.
By 2008, Legion was now the successful bidder on large government contracts. One contract was for $15,000,000. By this point, Gorski added a second disabled veteran but he was still earning far more than the other two veterans. Prosecutors argued to the jury that this was an obvious sign that the real power and control of Legion remained with Gorski.
The beginning of the end came in January 2010. As Legion Construction grew and was awarded more and larger contracts, others in the construction industry began asking questions. On March 8th, another contractor filed a bid protest and challenged Legion’s SDVOSB status.
In an effort to defeat the protest, Gorski reorganized his operations and reshuffled shares in the company. Prosecutors claim he backdated the paperwork to make it appear that the changes took place before the protest was filed.
The VA bought Legion’s argument and ruled in the company’s favor. Legion and Gorski were safe for now but that wouldn’t last long.
Gorski confided to Legion’s accountant that he was upset with the VA regulation that said the majority owner of an SDVOSB business had to be the highest paid. That regulation exists, of course, to prevent folks like Gorski from simply finding a vet, paying them a few hundred dollars a week and making them the majority owner on paper. Gorski asked the accountant for ways to circumvent the law.
Lawyers’ Involvement in the Fraud? (Crime Fraud Exception to Attorney Client Privilege)
Gorski was indicted in 2012. At the time of his indictment, the feds knew that Gorski had sought the help of his accountant. What they learned next was shocking.
As prosecutors geared up for trial, it became apparent that Gorski’s lawyers may have assisted him in backdating documents in an attempt to defraud the government into believing that Legion was a qualified SDVOSB eligible to bid on government contracts.
Prosecutors took the extremely rare step of issuing a subpoena to Gorski’s lawyers seeking their communications with Gorski. The lawyers objected citing the attorney – client privilege. Although extremely broad and protected by the Constitution, the attorney – client privilege is not absolute.
One of the exceptions to the privilege is the crime-fraud privilege. Courts have said that the attorney – client privilege “excludes communications from a client to attorney made (1) when the client was engaged in or planning criminal or fraudulent activity and (2) with the intent to facilitate or conceal the criminal or fraudulent activity.” In simple terms, if you engage your lawyer’s help to commit a fraud or crime, your conversations with the lawyers are not confidential and not protected. In other words, prosecutors can force the lawyers to testify against their client.
Gorski and his lawyers fought the subpoena. (Lawyers are obligated to do so even if they were not aware they were being used to help their client commit a crime.) The judge ordered the records be produced but only for review by the court. After reviewing thousands of pages of emails and three saved voice mails, the judge ruled that the crime – fraud exception applied to many of the documents meaning that prosecutors could see the emails and phone messages and use them at trial.
Gorski appealed the decision as did prosecutors. (The prosecutors appealed claiming they should have access to even more of the emails.) Gorski’s trial was put on hold while ruling was on appeal.
Ultimately the appeals court ruled against Gorski and agreed with prosecutors that they were entitled to even more of the emails. The court found that there was a good showing that Gorski used the services of his lawyer in furtherance of the scheme to defraud the government.
Only after the appeal and evidence issues were final decided could the case head to trial. Finally, after many years of legal wrangling over the lawyer emails, the matter went to trial. After a two-week trial jurors found Gorski guilty of five charges.
During the trial, prosecutors said the veterans who allegedly owned the company did nothing but mostly sleep and watch television. Gorski, however, claimed he did nothing wrong and was the victim of the overly complex SDVOSB regs and his prior lawyers! As noted above, jurors didn’t buy Gorski’s version of events.
The case can best be served up in the words of Assistant U.S. Attorney William Bloomer who said in closing arguments, “You can put a saddle on a duck, but that doesn’t make it a horse.”
Neither the lawyers nor the two veterans who Gorski claimed owned the business were accused or charged with criminal wrongdoing.
Whistleblower Awards for SDVOSB and DSBE Fraud
The case against David Gorski was criminal. Later this summer he will be sentenced and faces considerable prison time. If prosecutors are correct, his company was wrongfully awarded $100 million in government contracts. The real victims in this case are taxpayers and the true veteran owned businesses.
Most cases for SDVOSB and other DSBE fraud are brought as whistleblower actions under the federal False Claims Act. This law allows a whistleblower with inside information about fraud involving government funds or programs to earn a whistleblower award. Awards are based on a percentage of what the government ultimately collects from the wrongdoers.
Think the program is to good to be true or that no one gets an award? The program is real. Each year the Justice Department pays out hundreds of millions in award monies. Our own whistleblower clients have received in excess of $100,000,000.00 in award monies.
The False Claims Act was enacted during the U.S. Civil War. Although over 150 years old, the law is still viable today. What makes the law so successful is its ability to award ordinary people. Billing clerks, nurses, construction foremen, accountants… anyone with inside information about fraud can earn an award.
Interested in becoming a whistleblower? The rules for becoming a whistleblower are straightforward. Have inside information about the fraud and be the first to file. The hard work is done by the lawyers that file the cases.
Worried about being able to afford a lawyer? We handle these cases on a contingent fee basis meaning that we don’t get paid unless you get paid.
Worried about retaliation? We have experienced employment lawyers on staff ready to help. Congress made sure the False Claims Act not only has the ability to pay awards, it also has robust whistleblower protection and anti-retaliation provisions.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). The consultation is without obligation, without charge and completely confidential. All communications are protected by the attorney – client privilege. (You can also download our 11 step guide to whistleblowing.)
There are thousands of service disabled and combat wounded men and women struggling to get their piece of the American dream. They put their lives on the line for us. Don’t let them come home and find no opportunities because people like David Gorski create phony service disabled, veteran owned small business. Stopping SDVOSB fraud helps our vets and taxpayers too.