Booz Allen pays $377 million to the US government for false accusations

“This settlement, which is one of the largest procurement fraud settlements in history, shows that the United States will go after even the largest and most complex companies where taxpayer money was allegedly stolen,” Matthew M. Graves, US Attorney for the District of Columbia, said in a statement.

A federal criminal investigation related to the company was closed in 2021 without charges being filed, while a separate SEC investigation into the matter remains open.

The CEO said the criminal investigation of Booz Allen Hamilton could drag on for years

Details of the case remained under the court’s seal until Friday. But Booz Allen Hamilton officials publicly disclosed the federal investigation in 2017, saying the investigators were examining “high-tech elements of the company’s cost accounting and indirect cost collection practices with the US government.”

The publicly traded company indicated to shareholders in May that it was anticipating a costly settlement, booking $226 million in reductions linked to the case and warning that the final amount could be much higher.

On Friday, the company did not immediately respond to requests for comment.

Jacob T. Elberg, a former federal prosecutor, said the settlement was among the largest monetary awards in cases outside the health care industry. But he said the companies are not necessarily obligated to admit misconduct, and noted that Bose’s share price could rise if investors believe the legal ambiguity around the case has been resolved.

“There is a real debate about whether the consequences here are significant enough to be a deterrent,” Elberg said.

The Justice Department opened the investigation in 2016 after receiving complaints from a whistleblower, Sarah Feinberg, who resigned from the company that year. It alleged that the company was exaggeratingly suing the federal government to mitigate its millions of dollars in annual losses related to its work with the private sector and foreign governments.

“It was, and continues to be, desperate to grow this part of its business to re-diversify, in part to appease public investors,” plaintiffs wrote in the lawsuit filed in July 2017.

Feinberg is a former US Marine whose first assignment with Bose focused on helping the Army draw down forces in Afghanistan. The lawsuit stated that she returned to the company in 2015 to work for the chief financial officer and was assigned to a three-person team responsible for improving the company’s accounting.

Feinberg discovered two things, according to the complaint.

First, Booz appeared to undercut the financial cost of its work with foreign companies and governments, in some cases by tens of millions of dollars, the complaint alleges. Second, it was combining the costs it incurred in carrying out government contracts with its labor costs for corporate clients and foreign governments. Booz then fraudulently billed the US government for the excess fees that helped cover the financial losses of the unrelated business.

The complaint reads: “When Booz’s costs at the end of a fiscal year in a particular cost center/range exceed its revenue… Booz sometimes returns to its customer from the US government demanding additional amounts to support its unexpectedly large and impermissible costs.”

Feinberg resigned in August 2016 after supervisors ignored or minimized her warnings of compliance risks and did not support her push for changes, according to the complaint. She later filed a “qui tam” lawsuit, a type of whistleblower case in which plaintiffs could be financially rewarded for exposing wrongdoing.

In a resignation letter dated August 8, 2016, Feinberg wrote that the company is “currently exposed to more financial and compliance risks than I feel comfortable defending as a member of the corporate finance team.”

It is set to be personally awarded to her approximately $70 million of the total settlement, although much of that amount will go toward attorneys’ fees and taxes.

“It’s encouraging to see that there is a certain level of accountability for Booz Allen’s actions,” Feinberg said in a statement to The Washington Post. I hope this situation will inspire more people to stand up for justice and expose the truth. It is my hope that this settlement will encourage more whistleblowers to come forward when their companies refuse to do the right thing.”