In a criminal fraud and False Claims Act settlement Monday with total penalties amounting to $389 million, a whistleblower collected $16 million from the $101 million paid to settle the FCA portion of the case.
The whistleblower, Michael Epp, is a former executive of Supreme Foodservice. He’s a German citizen who worked for Supreme in Dubai, where its prime vendor operation was based.
Supreme Foodservice GmbH (Switzerland) and Supreme Foodservice FZE (UAE), both privately held, had a contract to supply food and water to U.S. troops in Afghanistan. They overcharged the United States under the contract from 2005 to 2009, mainly through price mark ups by a middleman company they secretly controlled.
Supreme (Switzerland) and affiliated companies agreed to plead guilty in the criminal case to charges of major fraud, conspiracy to commit major fraud, and wire fraud. They will pay $288 million in criminal penalties.
In a separate lawsuit under the False Claims Act, Supreme companies agreed to pay $101 million to resolve the whistleblower allegations. Of that amount, the DOJ will pay Epp $16 million. Supreme will also pay Epp’s lawyers $1.1 million for his legal fees.
Epp filed a qui tam suit in federal court in Pennsylvania in 2010. He alleged Supreme violated the False Claims Act by knowingly overcharging for food and water under the military supply contract.
The qui tam (or whistleblower) provisions of the False Claims Act allow individuals to file lawsuits alleging false claims on behalf of the government. If the government prevails in the action, the whistleblower, known as a relator, receives up to 30 percent of the recovery. The DOJ can join the suit or not. Either way, if the government prevails, the relator is entitled to an award.
The DOJ said Supreme overcharged the U.S. by using a UAE company it secretly controlled, “called Jamal Ahli Foods Co., LLC (JAFCO), as a middleman to mark up prices for fresh fruits and vegetables and other locally-produced products sold to the U.S. government, and to obscure the inflated price Supreme was charging for bottled water.”
In September 2007, Supreme negotiated a payoff to a fired company executive who threatened to expose the fraud, the DOJ said. Supreme promised the former executive nearly $500,000 under a “separation agreement” if he or she didn’t cause the supply contract to be terminated or repriced downward.
Supreme’s overcharging was finally exposed in early March 2009 when Epp notified U.S. authorities that Supreme owned and controlled JAFCO, and that JAFCO was adding a mark up to the delivered price of goods.
Emma Sharma, general counsel of Supreme Group USA, said in a statement posted Monday on the corporate website: “We accept full responsibility for and deeply regret our past actions. We have implemented new compliance mechanisms and strengthened our internal processes. We now have some of the most rigorous controls in the industry. We recognize that to re-earn trust, we must always act with integrity. That’s where our focus is and that’s where our focus will continue to be.”
The qui tam case was United States ex rel. Epp v. Supreme Foodservice A.G., No. 10-CV-1134, in the United States District Court for the Eastern District of Pennsylvania.
The DOJ’s December 8, 2014 release with links to the criminal information and the FCA settlement agreement is here.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
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