$13 Million Settlement To Whistleblower In HUGE Logistics Outsourcing Fraud Case

reward governement fraud whistleblowerIn August 2007, after a year of soliciting bids from companies nationwide like Federal Express and UPS, the Pentagon awarded a $1.635 billion contract to Menlo Worldwide Government Services of San Mateo and related firms to handle all Defense Department shipping in the United States.

At the time, the contract was labeled by the trade newspaper Transport Topics as “the largest logistics outsourcing in history.”

The deal also was the opportunity for a massive fraud, according to a complaint unsealed in federal court in Sacramento on Tuesday.

The complaint is based on claims from two whistleblowers who contend that Menlo and another firm, Estes Forwarding Worldwide LLC of Richmond, Va., defrauded the government for years by billing it for air shipments that actually were sent to their destination by ground.

Other court documents also unsealed Tuesday show the firms have entered into a $13 million settlement with the government, and that the two whistleblowers will receive $2.86 million from that amount.

“This case demonstrates the significance of having insiders willing to do the right thing,” said their attorney, Michael Hirst of Davis. “If it weren’t for these whistleblowers, the billings likely would have continued without the government realizing that it was overpaying for these shipments.”

The agreement notes that, even while agreeing to the settlement, the firms targeted by the allegations “expressly deny” any wrongdoing. Company representatives did not respond to requests for comment.

Court documents state that the government dropped Menlo in April 2015 as its transportation coordinator and that since the beginning of the contract Menlo was paid more than $131 million.

The fraud allegations came from two insiders who worked for different companies and came forward after seeing what they believed was an effort to bilk the government’s U.S. Transportation Command.

Richard Ricks, 58, was the president and chief executive officer of EXP Logistics Solutions of Patterson, which was a subcontractor for Menlo until December 2009, when that firm was replaced by Estes, court documents state.

The other insider was Marcelo Cuellar, 30, who worked at the Defense Distribution Depot in Tracy until he was fired in 2015, two years after the fraud allegations were leveled in court and after his employers purportedly discovered he was cooperating with federal investigators.

The 34-page complaint based on their claims indicates the government was defrauded on thousands of shipments by false claims that equipment went by air when it was shipped by ground, or by the inflation of ground transportation costs, and by incorrect surcharges added to bills.

An October 2015 shipment, for instance, went from Tracy to Corpus Christi, Texas, the complaint states, and Menlo billed the government and paid Estes $541.22 for air shipping. The complaint says Estes shipped the freight by ground for $163.53.

Another shipment that same month was to go to Fort Stewart, Ga., and the government was billed $2,038.93 for an air shipment that actually went by ground and cost $864.14, the complaint states.

The two men brought their complaint against the companies under the federal False Claims Act, which allows whistleblowers to secretly report allegations and seek a cut of money recovered by the government from dishonest outside contractors.

Although the firms named in the complaint settled the case without admitting any wrongdoing, Hirst said in a statement that he planned to pursue additional damages for Cuellar over his firing.

“Mr. Cuellar did exactly what the law asks him to do: to come forward and share his information with the government in the public’s interest,” Hirst said. “And the law protects him from the kind of retaliation he experienced for doing so. … Mr. Cuellar’s termination violates fundamental principles of public policy.”

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