Small Business Innovation Research (SBIR) Small Business Technology Transfer (STTR)
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Reporting Fraud

Report fraud, waste and abuseThe HHS OIG promotes the effective, efficient, and economical operation of HHS’ programs and operations through audits, inspections, investigations, and other reviews. The HHS OIG investigates any fraudulent acts involving HHS, its contractors or subcontractors, or any crime affecting the programs, operations, Government funds, or employees of those entities.

Please use the following if you want additional information or want to report wrongdoing:
HHS OIG Website
HHS OIG Hotline Operations

Combating Fraud

What types of fraud are found in the SBIR/STTR Programs?

  • During Application Process:
    • Submitting a plagiarized proposal
    • Providing false information regarding the company, the Principal Investigator or work to be performed
    • Seeking funding for the work that has already been completed
  • During Award:
    • Using award funds for personal use or for any use other than the proposed activities
    • Submitting plagiarized reports or reports falsely claiming work has been completed
    • Claiming results for an award that were funded by a different source
Knowing the Rules

Which SBIR rules should you be particularly familiar with?

  • Duplicate or overlapping proposals may not be submitted to multiple agencies without full disclosure to all agencies.
  • The company must meet SBA’s requirements for a small business, including being majority American owned and have 500 employees or fewer.
  • For SBIR: The Principal Investigator’s primary employment must be with the company during the grant period and he or she may not be employed full time elsewhere.
  • For SBIR: For Phase I, a minimum of two thirds of the research effort must be performed by the grantee company; for Phase II, a minimum of one-half of the research effort must be performed by the grantee company. Work performed by a university research lab is NOT work completed by the grantee company.
  • University employees participating on an SBIR award should disclose their involvement to the university as well as their use of university facilities.
  • R&D must be performed in the United States.
Consequences

What happens if you break the rules?

  • If you commit fraud or other wrongdoing in applying for or carrying out an SBIR/STTR award, HHS will investigate.
  • HHS refers violations of civil or criminal law to the Department of Justice (DOJ). If DOJ prosecutes you for fraud or false statements, you may be sentenced to prison and required to pay full restitution.
  • If DOJ pursues a civil action under the False Claims Act, you may have to pay treble (triple) damages and $11,000 for each false claim.
  • HHS may terminate your awards and debar you from receiving grants or contracts from any federal agency.
SBIR Fraud Cases

Lexington Couple Pleads Guilty to Grant Fraudexit disclaimer icon
Department of Justice, U.S. Attorney’s Office, Eastern District of Kentucky Press Release
February 10, 2016

LEXINGTON — A Lexington couple has admitted in federal court that they submitted false claims related to federal grants from the National Institutes of Health (“NIH”) and defrauded the government out of hundreds of thousands of dollars.

Today, Jerome Hahn, 69, pleaded guilty, to conspiracy to defraud the United States with respect to claims, before U.S. District Judge Danny C. Reeves.  On December 16, 2015, Vesta Brue, 70, pleaded guilty to making a false claim against the United States.

According to court documents, Vesta Brue certified on behalf of Telehealth Holdings, LLC, a company owned by Jerome Hahn, that the company had incurred expenses totaling $222,037, relating to two federal grants Telehealth received from NIH, for the development of medical devices.  Brue falsely certified that the funds had been spent in accordance with grant rules and regulations.

Brue and Hahn waived their right to be indicted by a grand jury, were formally charged in court, and admitted to the charges.

Kerry B. Harvey, United States Attorney for the Eastern District of Kentucky; Howard S. Marshall, Special Agent in Charge, Federal Bureau of Investigation; Derrick Jackson, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General, Atlanta Region; and Christopher A. Henry, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division, jointly announced the guilty pleas.          

The investigation was conducted by the Federal Bureau of Investigation, the U.S. Department of Health and Human Services, Office of Inspector General, and the Internal Revenue Service, Criminal Investigation Division.  Assistant U.S. Attorney Kate K. Smith represents the federal government in this case.

Vesta Brue is scheduled to be sentenced on March 30, 2016.  She faces a maximum prison sentence of 5 years and a maximum fine of $250,000.  Jerome Hahn is scheduled to be sentenced on May 18, 2016.  He faces a maximum prison sentence of 10 years and a maximum fine of $250,000.  Any sentence will be imposed by the Court after consideration of the U.S. Sentencing Guidelines and the federal statutes.

 

Dr. Dong, GenPhar Inc., and Vaxima, Inc., Convicted of Fraud in Retrial Before U.S. District Court Judge David Norton
USAO, District of South Carolina, Press Release
August 4, 2015

Columbia, South Carolina ---- United States Attorney William N. Nettles stated today that Dr. Jian Yun Dong, aka John Dong, and the companies which he founded, GenPhar Inc. and Vaxima Inc., were convicted of multiple fraud-based charges following a five day trial in Federal Court that took place June 22 through 25, 2015. The case was submitted for decision to Judge David C. Norton, who issued the verdicts and a written decision today. The case was retried before Judge Norton after a jury hearing the case last November could not reach unanimous verdicts on all counts, although it did find the two corporate defendants guilty of most of the charges. After the two trials, all three defendants have been found guilty of one count of Conspiracy to Commit Grant Fraud, Wire Fraud, Theft of Government Property and Providing False Statements; one count of Theft of Government Funds; and 22 counts of Wire Fraud.

The trial began on November 5, 2014, and concluded on November 14, 2014. Testimony at trial established that federal grant money was obtained by GenPhar and Vaxima for purposes of biodefense research and vaccine development, but was used for other purposes, specifically to construct a commercial office building and pay lobbyists and others who were seeking to secure federal funding for the defendants. Testimony further established that a total of approximately six million dollars were spent on the construction, which included approximately at least three million dollars of improperly diverted grant money.

Mr. Nettles stated, “The real tragedy in this case is that millions of dollars intended for desperately needed vaccine research was diverted into a commercial real estate project. Most of the dedicated and accomplished scientists receiving these grants can be trusted to spend the funds on research, but those that seek to divert the funds to their own benefit need to know that we will pursue charges against them like any other fraudsters.”

The convictions are the result of an investigation conducted by the Department of Health and Human Services Office of Inspector General, the Defense Criminal Investigative Service, the Federal Bureau of Investigation, the U.S. Army Criminal Investigation Command, and the Naval Criminal Investigative Service. Assistant United States Attorneys Eric Klumb and Nathan Williams of the Charleston office prosecuted the case.

 

CT's Nano Group OKs $430K Contract Settlement
December 11, 2012

A Manchester technology firm must repay $430,050 over the next five years to settle government claims of misbilling and obfuscation on more than $4 million in federal research grants and contracts, authorities say.

The Nano Group and its affiliates – U.S. Nanocorp Inc., Inframat Corp. and Inframat Advanced Materials – agreed to the civil settlement, the Connecticut U.S. Attorney's Office said Tuesday.

Meanwhile, $10,739 of the settlement sum is earmarked to cover 401(k) contributions never remitted to employees' retiremement accounts, officials said.

Nano, which deals in specialty metals and coatings, among other technology, didn't respond to a phone call for comment.

According to investigators, the misbilling covered a series of U.S. research contracts issued to the companies between 2000 and 2009.

One was a $1.5 million Air Force contract in 2004 in which Inframat billed taxpayers for unrelated work on a separate job and billed for subcontractor costs never paid to a subcontractor, authorities said.

From 2000 to 2006, Inframat also won four National Institutes of Health (NIH) research grants totaling some $2 million. In addition, from 2002 through 2005, U.S. Nanocorp got a NIH research grant of approximately $650,000.

In handling proceeds of the five grants, the companies improperly co-mingled funds in a corporate bank account that was used to pay the companies' expenses, whether those expenses were related to the contracts or not, federal investigators said.

In February 2009, Inframat applied for a grant in an unspecified sum with the National Science Foundation. However, this was not long after the U.S. Army had flagged Nano Group that it and its affiliates were no longer welcome as bidders.

But Inframat failed to share that with NSF, which four months later ultimately awarded it the grant, authorities said. Inframat went on collect money under the contract until authorities finally caught up with its omission about being on the federal "excluded parties list.''

NSF has since terminated the grant award and the settlement will resolve all issues between the companies and NSF as to the disbursed funds, authorities said.

Regarding the 401(k) settlement, authorities said the companies agreed to replace the individual who was the trustee of the plan during the time period in question, and a new trustee was named in March 2011.

The companies didn't admit or deny doing anything wrong with the retirement-plan contributions, authorities said.

Despite the contract dustup, authorities said Nano Group and affiliates have taken significant steps to shore up management of federal grants and contracts, and are thus re-eligible to pursue Army contracts.