Financial Fraud: Andrew Otero Convicted In $11 Million Veteran Set-Aside Fraud Scheme

Government Contractors Found Guilty in $11 Million Veteran Set-Aside Fraud Scheme

Company and owner fraudulently misused “service-disabled veteran-owned small business” status to defraud the Department of Veterans Affairs and Army Corps of Engineers

SAN DIEGO, CA – A federal jury today convicted Andrew Otero and his company, A&D General Contracting, Inc. (“A&D”), on charges that they fraudulently obtained $11 million in federal contracts specifically set aside for service-disabled veteran-owned businesses.

The evidence demonstrated that Otero had no military experience. Yet Otero (on behalf of A&D) and veteran Roger Ramsey (on behalf of Action) participated in a conspiracy to defraud the government by forming a joint venture (“the JV”) – and falsely representing that Action and the JV qualified as service-disabled veteran-owned small businesses (“SDVOSB”). Based on the false claim to SDVOSB eligibility, the conspirators fraudulently obtained approximately $11 million in federal government construction contracts or task orders with the Department of Veterans Affairs (“VA”) and the Army Corps of Engineers (“ACE”).

As proven at trial, the fraudulent conspiracy involved set-aside contracts that could only be bid upon by legitimate service-disabled veteran-owned small businesses – a designation that did not apply to Otero or A&D. To appear qualified, Otero and Ramsey initially executed an agreement to create the JV (“the JV Agreement”), which stated that Ramsey’s company (Action) would be the managing venturer, employ a project manager for each of the set-aside contracts, and receive the majority of the JV’s profits.

However, as proved at trial, six months later, Otero and Ramsey signed a secret side agreement that made clear the JV was ineligible under the SDVOSB program. For example, the side agreement said the parties created the JV so that A&D could simply “use the Disabled Veteran Status of Action Telecom” to bid on contracts. The side agreement also stated that A&D – not Action – would run the construction jobs. They also agreed that “A&D will keep 98% of every payment; Action Telecom will receive 2% of every payment.”

In addition to the secret side agreement, the evidence demonstrated several ways in which the JV did not operate as a legitimate SDVOSB, but was essentially controlled by Otero and A&D. For example, although Ramsey (a service-disabled veteran) nominally served as president of Action and the JV, he actually worked full-time for another telecommunications company. Otero and A&D, not Ramsey, controlled the day-to-day management, daily operation and long-term decision making of the JV. Among other things, Otero and A&D appointed an A&D employee as the project manager for every contract and task order.

“Our nation strives to repay the debt of gratitude we owe to our veterans by setting aside some government contracts for veterans with service-related disabilities,” said United States Attorney Adam Braverman. “These unscrupulous contractors abused this program through a cynical and illegal ‘rent-a-vet’ scheme. They are now being held fully accountable for robbing truly deserving vets of important economic opportunities.”

All four defendants are also facing civil charges in United States v. Otero, et al., Case No. 15CV0441-JAH, a case alleging violations of the false claims act based on the similar misconduct.

The defendants were ordered to appear before U.S. District Judge John Houston for sentencing on February 19, 2019 at 10:30 a.m.

This case is being prosecuted by Assistant United States Attorneys Rebecca Kanter and Aaron Arnzen.

CORPORATE DEFENDANTS

A&D General Contracting, Inc., Santee, California

INDIVIDUAL DEFENDANTS

Andrew Otero El Cajon, CA

Criminal Case No. 17CR0879-BEN

SUMMARY OF CHARGES

Count 1: Conspiracy to defraud and commit offenses (18 U.S.C. § 371)

Maximum penalties: 5 years’ imprisonment; 3 years’ supervised release; a fine of $250,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest; and a mandatory special assessment of $10

Count 2-4: Major fraud against the United States (18 U.S.C. § 1031)

Maximum penalties: 10years’ imprisonment; supervised release; a fine of $1,000,000 per count ($5,000,000 total); and a mandatory special assessment of $100

Counts 5-7: Wire fraud (18 U.S.C. § 1343)

Maximum penalties: 20 years’ imprisonment; a fine of $250,000 or twice the gross gain or gross loss resulting from the offense, whichever is greatest; and a mandatory special assessment of $100

10, 14: False statements (18 U.S.C. § 1001)

Maximum penalties: 5 years’ imprisonment; a fine; and a mandatory special assessment of $100

AGENCIES

Department of Veterans Affairs, Office of Inspector General