The federal False Claims Act is an integral piece of legislation designed to avoid over-payment by the U.S. government to private contractors. Recently, the FCA has been highly successful in refunding monies taken by unscrupulous healthcare facilities having found ways to increase profits through unlawful Medicaid and Medicare billing practices. In today’s case, we explore a recent FCA settlement involving a defense contractor tasked with supplying fresh fruits and vegetables to those serving our country oversees. It goes to show that fraud can appear in virtually every arena and it takes the courage and careful observation of whistleblowers to avoid this costly, and often overlooked, pitfall.
The defendant in this case, FreshPoint, Inc., is a Texas-based, wholly-owned subsidiary of food distribution giant Sysco, Corp. FreshPoint was awarded 15 separate contracts originally awarded to East Coast Fruit Company, which was acquired by FreshPoint in 2007.
FreshPoint assumed 15 contracts from East Coast Fruit Company, which it used to allegedly defraud the government by over-pricing fresh fruits and vegetables.
The whistleblower in this case is a former employee of FreshPoint and reported the alleged misconduct in 2007. He is set to receive close to $800,000 under the FCA’s qui tam provisions.
According to a statement released by the Department of Justice, FreshPoint is alleged to have overbilled the U.S. government for the sale of fresh produce for a period spanning from December 17, 2007 through September 11, 2009. According to records, FreshPoint devised its own interpretation of market value for fresh produce, which was way above the prevailing market price of goods at the time.
According to the DOJ, this mark-up was a direct violation of the contractual agreement entered into between East Coast Fruit Company and the Department of Defense. The agreement required FreshPoint to provide product at cost, including a pre-determined mark-up for profit. Any deviation from this agreement is considered a violation of the contract and a potential for liability under the FCA.
FreshPoint has not admitted any wrongdoing and remains committed to maintaining its contracts. However, it has agreed to remit $4.2 million to American taxpayers. The DOJ issued a statement reiterating its commitment “to ensuring the integrity of federal contracts and will pursue contractors that knowingly overcharge the government for goods or services….Contractors that do business with the government must do so honestly and fairly or suffer the consequences of their misconduct.”
The U.S. Department of Defense found itself on the receiving end of unlawful fraud perpetrated by FreshPoint, which held several contracts for the sale of fresh produce to the military and other defense entities.
The U.S. Attorney for the Southern District of Georgia stated:
“This settlement demonstrates one of the many types of fraud inflicted upon the American taxpayers….The U.S. Attorney’s Office will honor our commitment to vigorously enforce the False Claims Act in order to protect the financial soundness of our nation and its military.” (citation)
If it Smells Rotten, it Probably Is
Today’s case represents an unlikely set of facts – few people expect a fruit distributor to be engaging in fraud against U.S. taxpayers and the military. However, as we have previously reported, the FCA got its start due to fraudulent sales of defective goods to soldiers during the Civil War. Thanks to a whistleblower willing to come forward, the government was able to recoup the overpayment and return the money back to the taxpayers.
The FCA contains a qui tam provision allowing private citizens to report suspicious or fraudulent activity perpetrated against the U.S. government.
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