Joseph Richards, 8(a) Program Fraud, Virginia 2013

Two executives at a Virginia-based security contracting firm were sentenced in the Eastern District of Virginia for their roles in using a front company to obtain more than $31 million intended for disadvantaged small businesses as part of the Small Business Administration’s (SBA) Section 8(a) program.

Joseph Richards, 52, of Arlington, Va., and David Lux, 66, of Springfield, Va., were sentenced today to 27 and 15 months in prison, respectively, after pleading guilty in March 2013 to conspiracy to commit major government fraud. Both men were ordered to complete community service as part of their supervised release following their prison terms.

Richards was ordered to pay $120,378 in restitution, and Lux was ordered to forfeit $115,556.

According to court documents, Richards and Lux were executives at an Arlington-based security contracting firm referred to as Company A in court records. In approximately 2001, Keith Hedman formed Company A, which was approved to participate in the 8(a) program based on the 8(a) eligibility of its listed president and CEO, an African-American female.

When the listed president and CEO left Company A in 2003, Hedman became its sole owner, and the company was no longer 8(a)-eligible. In 2003, Hedman created Company B, another Arlington-based security contractor, to ensure that he could continue to gain access to 8(a) contracting preferences for which Company A was no longer qualified.

Hedman selected an employee, Dawn Hamilton, to serve as a figurehead owner based on her Portuguese heritage and history of social disadvantage. In reality, the new company was managed by Hedman and Company A senior leadership in violation of 8(a) rules and regulations.

Richards and Lux joined the scheme in 2005 and 2008, respectively. Hedman offered Richards and Lux ownership stakes in Company B in exchange for their assistance in misleading the SBA and other U.S. government agencies, and both men accepted.

In 2008, for example, both Richards and Lux helped Company B overcome a protest by another company that accused Company A and Company B of improperly obtaining a $48 million Coast Guard contract.

From 2008 to 2010, Richards moved to Company B’s payroll to help Hedman illegally operate Company B. In 2010, Lux helped Hedman withdraw more than $1 million in cash from Company B’s accounts, which Hedman then disbursed to various conspirators, including $100,000 in cash to both Richards and Lux.

Richards and Lux were ordered to repay millions and serve prison time for their roles in the $31 million 8(a) program scam. The scheme was uncovered after a multi-agency investigation involving the SBA Inspector General, NASA Inspector General, and other agencies.

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