March 31, 2014 Military Contractor Fraud
Securities and Exchange Commission Joins False Claims Act Investigation Against KBR
Over the past year, we have examined a False Claims Act case against one of the largest military contractors in the world: Kellogg, Brown & Root. Known as KBR, this firm has been awarded over $40 billion in government work throughout the Iraq and Afghanistan wars, primarily for logistical support. In an ongoing lawsuit filed by the United States Department of Justice, the firm is alleged to have engaged in unlawful delay tactics and overbilling for services.
Due to the fact that KBR is a publicly-traded company and therefore subject to strict integrity standards, the Securities and Exchange Commission has now opted to join with the DOJ amid allegations that KBR employees with information of fraud were forced to sign confidentiality agreements promising not to reveal the information to government investigators.
According to reports, the existence of the confidentiality agreements was uncovered late last month during a deposition of one of KBR’s attorneys, who asserted that the agreements were a routine and standard part of operating procedures, designed to ensure internal issues were handled by compliance managers before involving federal agencies like the DOJ.
The documents expressly state that any employee who speaks about the ongoing investigation into KBR’s False Claims Act case could be fired, as well as face litigation by KBR for damages incurred as a result of the disclosure. This kind of retaliatory misconduct is prohibited by the FCA, as well as the SEC’s version of the FCA, which is found within the 2010 Dodd Frank Act.
KBR filed an emergency motion earlier this month to seal the contents of the confidentiality agreements from public disclosure. As is common in discovery-related disputes, KBR asserted the documents were covered by the attorney-client privilege – a confidentiality rule prohibiting the public dissemination of any private communication between an attorney and his client. The hotly-contested issue was presented to the judge overseeing the case and KBR was forced to turn over the documents as required by attorneys for the whistleblowers in the case.
However, the judge overruled that argument after determining that the confidentiality agreements were distributed to employees as part of an internal, corporate-wide policy that affected thousands of individual personnel. In a statement by the court, the contents of the documents were “eye opening,” containing voluminous accounts of fraud by KBR and evidence of attempts to cover the problem by preventing employees from reporting the information.
The SEC has yet to comment on its involvement in the case; however, several involved in the case have commented on the SEC’s intent to investigate the public company’s attempt to use the attorney-client privilege to perpetuate fraud, thereby directly affecting KBR shareholders.
A KBR spokesman said in a statement, “KBR has received a request for documents from the Securities and Exchange Commission, which is a standard operating practice as part of normal business operations….We will comply with their request in a timely fashion. As all document requests are non-public and confidential, we can neither confirm nor deny the request’s focus.”
Contact a Whistleblower Attorney Today
If you have information about fraud, you are protected from retaliation by your employer and your employer is prohibited from terminating, demoting, or punishing you for disclosing the fraud to government agencies. For help with your whistleblower case, we encourage you to contact Berger Montague today.