This past Tuesday, Margaret Cho, an Officer of Far East Construction Company, pleaded guilty to conspiring to commit wire fraud. Ms. Cho also agreed to pay a forfeiture in the amount of $169,166 and a criminal fine in the amount of $35,000.

Ms. Cho had allowed a large business to use her company as a front to obtain federal government contracts that were set aside for small disadvantaged businesses. Ms. Cho’s business would obtain the small business set aside contract and then allow the large business to provide all labor, equipment, materials, safety and supervision in return for 97% of the contract amount. Ms. Cho’s company received the other 3% in exchange for allowing the use of its small business status to obtain the set-aside contract.

Previously, the large business participant had pleaded guilty to commit fraud and paid $1,769,924 in criminal penalties and forfeiture. Two of the large business’s officers had pleaded guilty to criminal charges, respectively obstruction of justice and conspiring to commit wire fraud.

This criminal case underscores the need for small business participants to ensure that they meet the requirements for control and participation percentage in seeking and performing set-aside contracts. Similarly, the prior cases arising out of the above facts underscore the need for large businesses to ensure they “turn square corners” in participating in a set-aside contract with a small business. In addition to the criminal penalties associated with the failure to properly adhere to the SBA rules and regulations, the Government also has available to it civil penalties as well as suspension and debarment.

If you have questions about whether your business is in compliance with SBA requirements, or if you believe your business may be the subject of a federal investigation, please don’t hesitate to contact us for advice.