by Ben Vernia | December 23rd, 2021
On December 22, the Department of Justice announced that Balfour Beatty Communities, LLC, a Pennsylvania-based contractor of military housing, pleaded guilty to major fraud – paying over $65 million in fines and restitution, and agreed to settle civil False Claims Act allegations for over $35 million. According to DOJ’s press release:
Today, the Department of Justice announced a global resolution of its criminal and civil investigations into Balfour Beatty Communities LLC (BBC), one of the largest providers of privatized military housing to the U.S. Armed Forces, for defrauding the U.S. Air Force, U.S. Army, and U.S. Navy, in connection with a scheme to defraud the U.S. military.
BBC pleaded guilty to one count of major fraud against the United States in connection with a criminal information filed today in the District of Columbia. U.S. District Judge Emmet G. Sullivan accepted the plea and sentenced BBC to pay over $33.6 million in criminal fines and over $31.8 million in restitution to the U.S. military, serve three years of probation, and engage an independent compliance monitor for a period of three years.
Separately, BBC also entered into a False Claims Act settlement with the United States to resolve its civil liability for $35.2 million. The amounts paid under the civil settlement will be credited against the amounts owed under BBC’s criminal plea.
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According to court documents, BBC was a diversified real estate services company, headquartered in Malvern, Pennsylvania, that operated privatized military housing communities at 21 U.S. Air Force, 18 U.S. Navy, and 16 U.S. Army bases across the United States, in which tens of thousands of service members and their families lived. BBC earned fees for the various phases of development and management of each housing community, from design and construction to ongoing community management and maintenance, and service members paid their living allowance, known as Basic Allowance for Housing, to BBC to live in these communities.
BBC’s fees for the ongoing property management and maintenance of its military housing communities generally consisted of a base fee, paid to BBC monthly, and performance incentive fees, paid to BBC quarterly or semi-annually. Performance incentive fees were only payable upon the approval of the relevant service branch. To obtain the incentive fees, BBC was required to submit to the service branches proof that it had satisfied performance objectives related to, among other things, maintenance of the housing communities and resident satisfaction. The service branches relied on BBC’s submissions in deciding whether to approve the payment of relevant performance incentive fees.
According to court documents, from around 2013 to around 2019, BBC employees, including former community manager Stacy Cabrera (who pleaded guilty to related charges on April 21) and former regional manager Rick Cunefare (who pleaded guilty to related charges on June 9), and others, falsified information so that BBC’s incentive fee requests falsely reflected that BBC had met performance objectives. In reality, BBC did not meet those objectives in many of the quarters during that time. These objectives primarily related to maintenance and resident satisfaction at various military housing projects. Specifically, BBC employees altered or manipulated data in property management software and destroyed and falsified resident comment cards to falsely inflate these metrics and, ultimately, to fraudulently induce the service branches to pay performance incentive fees which BBC had not earned.
As a result, according to court documents, there were lengthy and unnecessary delays in the resolution of maintenance issues to the detriment of servicemembers and their families. In addition, the military service branches were provided an inaccurate assessment of the state of BBC’s military housing communities and were unable to assess, and potentially correct, BBC’s performance.
A number of relevant considerations contributed to the department’s criminal resolution with BBC, including the nature and seriousness of the offense, the pervasiveness of the misconduct among BBC’s employees and at multiple military installations, and the state of BBC’s compliance program and the progress of its remediation, including the fact that BBC’s compliance program and internal controls have not been fully implemented or tested to demonstrate that they would prevent and detect similar misconduct in the future.
As part of BBC’s plea agreement, BBC agreed to cooperate fully with the United States in all matters relating to the conduct covered by the plea agreement and other conduct under investigation by the United States, to self-report violations of U.S. federal criminal law, and to continue to implement a compliance and ethics program designed to effectively detect and deter violations of U.S. anti-fraud laws throughout its operations.
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This resolution follows the prior entry of guilty pleas by two BBC managers. In April 2021, Stacy Cabrera, a former community manager of BBC, pleaded guilty to conspiracy to commit wire fraud. In June, Rick Cunefare, a former regional manager of BBC, pleaded guilty to major fraud against the United States.
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The case appears to have arisen from a government investigation, rather than in a whistleblower’s qui tam lawsuit.
