“This settlement, which is one of the largest procurement fraud settlements in history, demonstrates that the United States will pursue even the largest companies and the most complex matters where taxpayer funds are alleged to have been pilfered,” Matthew M. Graves, the U.S. Attorney for the District of Columbia, said in a statement.
A related federal criminal investigation into the company was closed in 2021 without charges, while a separate probe from the Securities and Exchange Commission in the matter remains open.
Details in the case had remained under court seal until Friday. But Booz Allen Hamilton officials had publicly disclosed the federal probe in 2017, stating that investigators were examining “highly technical elements of the company’s cost accounting and indirect cost charging practices with the U.S. government.”
The publicly traded company signaled to stockholders in May that it was anticipating a costly settlement, booking a $226 million write-down pegged to the case and warning that the final amount could be much higher.
A Booz Allen Hamilton spokeswoman said the company has always believed it acted lawfully and responsibly, but decided to settle for “pragmatic business reasons” to avoid the delay, uncertainty, and expense of protracted litigation.
“The company did not want to engage in what likely would have been a years-long court fight with its largest client, the U.S. government, on an immensely complex matter,” said Jessica Klenk, a Booz Allen Hamilton spokeswoman.
She added that the company “fully cooperated with the government and is pleased to move forward.”
Jacob T. Elberg, a former federal prosecutor, said the settlement was among the largest financial awards in cases outside of the health care industry. But he said companies are not necessarily required to admit misconduct and suggested Booz’s stock price could rise if investors believe the legal uncertainty around the case has been resolved.
“There’s a very real debate about whether the consequences here are significant enough for deterrence,” Elberg said.
The Justice Department opened the investigation in 2016 after receiving complaints from a whistleblower, Sarah Feinberg, who had resigned from the company that year. She claimed the company was overcharging the federal government to mitigate millions of dollars in annual losses related to its work with the private sector and foreign governments.
Booz “has been, and remains, desperate to grow that part of its business to re-diversify, in part to appease public investors,” according to the complaint, which was filed in July 2017. They alleged that Booz had knowingly collected more than $250 million in fraudulent fees from the United States and was projecting twice that amount in 2019.
Feinberg is a former U.S. Marine Corps officer whose first stint with Booz focused on helping the military draw down forces in Afghanistan. The lawsuit stated that she returned to the company in 2015 to work for the chief financial officer and was assigned to a three-person team responsible for improving the company’s accounting.
Feinberg discovered two things, according to the complaint.
First, Booz appeared to be lowballing the financial cost of its work with corporations and foreign governments, in some cases on the order of tens of millions of dollars, the complaint alleges. Second, it was lumping together the costs it incurred in performing government contracts with costs from its work for corporate clients and foreign governments. Then Booz fraudulently billed the U.S. government for excess fees that helped cover the financial losses for the unrelated work.
“When at the close of a fiscal year Booz’s costs in a particular Cost Center/Band exceed its revenue … Booz occasionally goes back to its U.S. government client demanding additional reimbursements to further subsidize its unexpectedly large, and unallowable, costs,” the complaint reads.
Feinberg resigned in August 2016 after supervisors disregarded or played down her warnings of compliance risks and did not support her push for changes, according to the complaint. She later filed a “qui tam” lawsuit, which is a type of whistleblower case in which plaintiffs can be rewarded financially for exposing wrongdoing.
In a resignation letter dated Aug. 8, 2016, Feinberg wrote that the company was “currently incurring more financial and compliance risk than I feel comfortable defending as a member of the Corporate Finance team.”
Feinberg, who later worked as a finance manager for The Washington Post, stands to be personally awarded nearly $70 million of the overall settlement, although much of that amount will go to lawyer fees and taxes.
“It is encouraging to see that there is some level of accountability for Booz Allen’s actions,” Feinberg said in a statement to The Post. “I hope this situation inspires more people to stand up for justice and expose truth. And I hope this settlement encourages more whistleblowers to come forward when their companies refuse to do the right thing.”
