American Management Services LLC, based in Seattle, agreed to pay more than $1.6 million pursuant to a deferred prosecution agreement to resolve criminal charges that the company defrauded the U.S. Army and Virginia-based Clark Realty Capital LLC (Clark) while performing property management services for military housing at Fort Belvoir, Virginia; Fort Benning, Georgia; Fort Irwin, California; and the Presidio at Monterey, California.
Assistant Attorney General Leslie R. Caldwell of the Justice Department's Criminal Division; U.S. Attorney Dana J. Boente of the Eastern District of Virginia; Director Frank Robey of U.S. Army Criminal Investigation Command (CID) Major Procurement Fraud Unit; Special Agent in Charge Robert E. Craig of the Defense Criminal Investigative Service's (DCIS) Mid-Atlantic Field Office; Assistant Director in Charge Paul M. Abbate of the FBI's Washington Field Office; and Director Anita Bales of the Defense Contract Audit Agency (DCAA) made the announcement after U.S. District Judge Claude M. Hilton of the Eastern District of Virginia entered an order approving the agreement.
In connection with today's resolution, American Management Services (also known as AMS or Pinnacle) admitted that from 2004 to 2011, it fraudulently obtained approximately $1 million by skimming and concealing undisclosed fees from insurance premiums paid by entities that oversaw privatized housing at the four bases.
According to factual stipulations agreed to by AMS, beginning in or about 2003, the U.S. Army entered into a series of agreements with AMS and Clark to implement the Military Housing Privatization Initiative, which was established to improve housing conditions for members of the armed forces. At each base, a Clark-affiliated entity was given responsibility for developing new housing and general oversight, and an AMS-affiliated entity was given responsible for routine property management services, including obtaining property and general liability insurance.
Also according to the factual stipulation, AMS was paid a fee pursuant to the agreement at each base for its services, which was the sole compensation AMS was permitted to receive. Any excess funds not spent under the agreements were obligated to be used, at least in part, to renovate and construct new military housing. Among the services it provided, AMS arranged for property and general liability insurance for each military base through an insurance broker that would invoice the premiums to Clark and the Army. Unbeknownst to the Army or Clark, however, that broker kicked back to AMS a “risk management fee” taken from the premiums paid by Clark, the Army and various joint AMS-Clark entities, which AMS concealed in invoices to the Army and Clark.
Under the terms of the agreement entered into between AMS and the United States, the United States agreed to defer prosecution of AMS for a period of three years on a pending criminal information, which charges AMS with major government fraud. In exchange, AMS admitted its criminal conduct, agreed to pay a fine of $1,625,124.80 and agreed to be subject to other terms and conditions for the period of the agreement. The United States may seek to prosecute AMS for the scheme if the company violates the terms of the agreement or commits other criminal conduct as outlined in the agreement.
Two individuals previously pleaded guilty and were sentenced as part of the government's investigation: Eddie T. Hudspeth III, a former AMS maintenance director at Fort Belvoir, was sentenced in May 2015 to two years in prison and fined $15,000 for soliciting and accepting more than $27,000 in kickbacks from a heating, ventilation and air-conditioning company based in Lorton, Virginia, from December 2008 through February 2011; and Philip Robrahn, a partial owner of that company, was sentenced to probation and ordered to pay a $10,000 fine for his role in the kickback scheme.
Army CID, DCIS, FBI and DCAA investigated the case. Trial Attorney Jennifer Ballantyne of the Criminal Division's Fraud Section and Assistant U.S. Attorney Ryan Faulconer of the Eastern District of Virginia are prosecuting the case.
Topic: Financial Fraud Updated December 2, 2016
Eastern District of Virginia DOJ / 16-1413 / December 2, 2016