The United States Government Intervenes in False Claims Act Lawsuit Against Agave BioSystems

Taking another step toward ending the widespread problem of defense contractor fraud, the United States government has joined a False Claims Act lawsuit against a New York-based biotech company. Agave BioSystems, founded in 1998, is accused of fraudulently billing the United States Department of Defense (DOD) for an estimated $15 million dollars.

Agave BioSystems is a small biotechnology business and while its administrative headquarters are located in Texas, the laboratories in question are based out of Ithaca, New York. Agave’s business expertise lies in micro and nanofabrication techniques, with much of its work focusing on the miniaturization of laboratory diagnostic or analytical instruments. Agave utilizes specific biological methods in order to build uniquely engineered devices and delivery systems. Their funding is provided via research contracts that are obtained through various government agencies such as the DOD, the Environmental Protection Agency, the National Institutes of Health and NASA.

Micro- and nanofabrication techniques are responsible for many advancements in the biological and medical fields. The sophisticated fabrication techniques allow companies like Agave to supply their clients with a wide variety of complex delivery systems and biosensors. For example, the miniaturization of biological sensors allows Agave to manufacture portable, hand-held or injectable technology sensors. Due to their small size, the sensors need a smaller amount of sample for analysis, saving clients precious money and time.

Agave, who currently relies almost solely on DOD contracts for revenue, is engaged in multiple research projects using biological components for sensor systems. The advanced sensors are being customized to accompany existing technology already in use. A number of the miniature sensors developed by Agave are being commissioned by the DOD in order to combat the risks associated with biological warfare and bioterrorist agents. In addition, some of the sensors will eventually be utilized by the food, environmental and medical industries.

Allegations of Defense Contractor Fraud

According to the whistleblower complaint, Agave allegedly engaged in fraudulent billing practices while under contract with the DOD. They are specifically accused of submitting false reimbursement claims for “phantom labor and services which have never been provided, and for phantom expenses which have never actually been incurred in connection with any DOD contract.” Seeking reimbursement for fraudulent claims is a clear violation of the federal False Claims Act.

The official documentation alleges that Agave made a billing arrangement with the DOD, charging the government agency for skilled workers on an hourly basis. Agave then submitted billing statements to the DOD, showing the contract work was performed by specially qualified employees that consisted of one mechanical engineer, one electrical engineer and one technician.

In reality, the Agave “employees” who were appointed to work on the DOD contracts were not specially trained nor qualified. The workers assigned to Agave’s DOD contracts were, in fact, two family members and one friend of the company’s founder and former owner, the now deceased Noe Salazar. Gail Salazar, the widow of Noe Salazar and current owner of Agave, Calida Salazar, the couple’s daughter, and Calida Salazar’s live-in boyfriend were the employees listed on billing statements submitted to the DOD and represented as skilled laborers.

Gail Salazar is actually a homemaker, her daughter, Calida, is a full-time photographer and the live-in boyfriend is a musician. While each of the three were placed on Agave’s official payroll, according to the allegations, none of them performed any work on the DOD contracts.

The False Claims Act lawsuit further alleges that Agave billed the DOD for a number of expenses that were not incurred by the company in relation to any DOD contract. Those charges include one down payment on a BMW automobile, upgrades and improvements performed to the Salazar’s home, expensive restaurant tabs and cellular phone bills.

The Whistleblower

Authorities learned of Agave’s fraudulent activity through a private qui tam, or whistleblower, lawsuit that was filed under the federal False Claims Act. The whistleblower in this case is a former administrative office manager who worded in Agave’s Ithaca facility. The relator, after learning of Agave’s fraudulent billing scheme, consulted with a False Claims Act attorney and filed a complaint on behalf of the United States government.

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