Houghton Defense Contractor Hit with Federal Sanctions and $1,000,000 Fine

A Houghton-based defense contractor has agreed to pay a one-million dollar fine for defrauding the federal government.

GS Engineering was accused of manipulating equipment leases by depreciating the equipment, charging the depreciation to the federal government, then leasing the same equipment back from other companies controlled by GS principals. The U.S. Attorney in Grand Rapids also cited GS for illegally overpaying for those leases.

Along with the fine, GS Engineering’s president, its former bookkeeper, and four companies controlled by those individuals will be barred from accepting government contracts for three years. GS Engineering will also be required to establish an ethics and compliance program, with a Corporate Ethics Monitor who will report to the government.

See the full press release from the U.S. Attorney’s office below.

GRAND RAPIDS, MICHIGAN —U.S. Attorney Andrew Birge announced today that GS Engineering, Inc. (“GSE”), a defense contractor in Houghton, Michigan, along with GSE’s president and GSE’s former bookkeeper, will pay a total of $1,000,000.00 to resolve allegations that GSE submitted false claims for lease costs under its federal defense contracts.

In connection with the settlement, GSE’s president, GSE’s former bookkeeper, and four companies that those individuals owned and controlled—Arcadian Holdings, LLC, Echo Leasing, LLC, GS Engineering Services, Inc. (d/b/a GS Infrastructure), and LJ Leasing, LLC—agreed to be voluntarily excluded from federal contracts and awards for a period of three years.

The settlement resolves allegations that between August 2009 and ecember 2015, GSE double-billed defense agencies by fully depreciating certain data acquisition equipment—and charging that depreciation to government contracts—before purporting to transfer and lease that same equipment back from Echo Leasing, a related company. The government also alleged that between January 2009 and November 2016, companies under GSE’s common control (Arcadian Holdings, Echo Leasing, GS Infrastructure, and LJ Leasing) leased real property and equipment to GSE at rates that exceeded allowable amounts under the Federal Acquisition Regulation.

In addition to its settlement with the U.S. Attorney’s Office, GSE entered into a three-year administrative agreement with the United States Army. The administrative agreement requires GSE to, among other things, maintain an ethics and compliance program and retain a Corporate Ethics Monitor to review and report on GSE’s compliance with government contracting requirements.

“Defense contractors cannot use their control over related companies to unnecessarily increase costs to the government,” U.S. Attorney Birge said. “My office will protect the integrity of the procurement process and ensure that contractors comply with all applicable laws.”

This case was a cooperative effort among the Defense Contract Audit Agency, the Defense Criminal Investigative Service, the United States Army Criminal Investigation Command, and the U.S. Attorney’s Office for the Western District of Michigan. Assistant U.S. Attorney Adam B. Townshend represented the United States.