"After a yearslong investigation, Booz Allen last month admitted no wrongdoing while paying a $377 million settlement, what DOJ officials said was the third largest contract fraud settlement in history."
We will continue to witness this scenario in the USA as long as deferred prosecution agreements remain in place. Observe how no individuals face jail time; instead, substantial fines are levied, and business continues as usual. The company benefits, often reflected in a rise in stock price, while prosecutors add another accomplishment to their résumés.
Contemplating an extreme measure, if such infractions were punishable by the death penalty, one wonders how many top-tier executives would risk such behavior.
Maybe I've seen too many movies, but I'd be worried about retaliation if I were her.
She's worked at BAH. I'm sure she's not worried about them sending a hit squad to take her out....but only because she knows that if they did, the mission would turn into a 200 person engagement that would end up overbudget and overdue..and the end result would be one mean comment on her facebook page.
I'm just trying to picture anyone at Booz Allen trying to get a hit squad together, lol. It'd be like a bunch of 20 year old kids out of a two-week American Ninja Warrior bootcamp.
lol... if they retaliate against her she gets to file another case and win even more money. I'm not sure what to make of the assassination intimation; I mean... so far as I know there's no history of corporate whistleblowers being killed or having their lives threatened physically.
Government whistleblowers, of course, is a different story.
There is a long history of intimidating people who dare speak out against corporations. Maybe not overt threats, but hard to know what is real when you are in the hot seat.
Are they just stalking you or are things going to get worse? If you are Jeffrey Wigand and some goons steal your computer, what do you do?
In any smaller theft the thieves usually have to make >100% restitution (balance of stolen + fines). I wish I could get away with stealing and only having to pay back a small percentage of my takings. We need to stop passing out sweatheart deals to corporations it only leads to more theft.
Agreed but then who would manage the state clerks IT department? Deloitte? It’s a case of “You’re in the wrong but we secretly need you because we are even more incompetent”
I mean BAH or whoever can continue doing that after they pay back the stolen funds if the state clerk will allow it.
I'm just griping with, time after time, a company stealing 100m dollars or whatever and then reaching a settlement that lets them get off scott free after paying back 50m.
I wouldn't get a $377 settlement for defrauding the government $500, but apparently you can obtain a $377M penalty for defrauding the government $500M. In fact, I would not be able to "settle" at all...
There's a lot of times where deals are made because the government looks at how much it's going to cost to get the full value vs the settlement price. If the cost to gain the full value is larger than the settlement, then getting the full value is actually a loss compared to the settlement. Also, the government makes deals willing to take a haircut to get some vs none. A settlement is both parties giving something, not just the accused.
Honestly, I make a low six figure income (starts with a 1), with a couple of kids, and a stay at home partner, and work from home in a moderate city for housing and costs on the west coast.
We make ends meet, can afford the things we want to do, but never seem to actually build any savings. (grocery costs are eating us alive this past year or two)
Median household (not individual) income in the US is barely $70k, not sure I'd consider 50% above the median at the low end "middle." But most people here, myself included, probably make $150-200k/yr before any stock or RSUs so I'm looking forward to the mental gymnastics calling that middle class.
Basing class structure on difference from the societal median is a bad idea. It means making the entire country except a few poorer grows the "middle" class.
There are three classes: Struggling, comfortable, and rich. If paying for necessities like transport, housing, and food requires significant efforts to manage cash flow or is even impossible, you are struggling. If you don't know when your employer pays you because you haven't had a cash flow problem in a decade, you are comfortable. If you don't have an employer because your wealth comes from things, you are rich.
I mean you can simplify it even more into "haves" and "have nots" but there's a reason nobody serious does that anymore, because it doesn't give you any useful information, nor does those three categories.
That doesn't change the fact that almost everybody wants to think of themselves as middle class, but especially here on HN most people are definitely not. If you make $200k cash plus RSUs on top of that you may not be rich but you're certainly on your way there and you're certainly not middle class in the way that carpenter making $75k with his stay at home wife in Houston is.
Property. Historically, this meant land. Today, it means assets. Savings of any kind. The poor live pay check to pay check; the middle class could survive a bad harvest.
The safety buffer it provides lets you take more risk, personally, civically and societally. That lets you access rewards someone fighting for sustenance can’t countenance. Consider the years we, as a society, spend educating our youth when they could be working a field to produce food.
It also means leverage. If a harvest failed, the poor in the army got fed. The others didn’t. The middle class, on the other hand, wasn’t forced into that choice simply to survive. (We use the term “survive” nowadays to mean maintain some arbitrary quality of life, but I’m speaking literally.)
From an economic standpoint, the Wikipedia definition is correct. From a sociopolitical angle, especially a cultural one, it’s quite different.
Broadly, what constitutes a middle class depends on the society we are observing. Every society has its elites. Some had slaves, some have destitutes. In between is gradation defined, variously, by income, assets, education and lineage. (See the history section; modern/British middle class was originally defined by education.)
In America, discretionary income is a good definition because most people have a reasonable expectation of lifelong economic stability. (We gripe when it isn’t improving.) In Europe (and most of the world), the asset test is far more sturdy. And even within America, you see this vary.
I fully disagree because if that was the case, it would be highlighted in the wikipedia article. Go ahead and add it, let it go through the rounds of thousands of people trying to be on the same page about it - then I will believe you. I'd rather trust that source that backhanded comments here.
> it would be highlighted in the wikipedia article
Did you read the history and evolution of the term section?
“Friedrich Engels saw the category as an intermediate social class between the nobility and the peasantry in late-feudalist society. While the nobility owned much of the countryside, and the peasantry worked it, a new bourgeoisie (literally "town-dwellers") arose around mercantile functions in the city.” In the French Revolution, “the new ruling class or bourgeoisie in the new capitalist-dominated societies.” Capital, it’s there in the term. The Stevenson definition, which follows in the next paragraph, cites the “chief defining characteristic of membership in the middle-class [as] control of significant human capital.” This British education-and-skill-derived definition is the basis of the top-of-the-article summary definition, since that human capital produces excess income.
Would note that the article appears poorly cited (as many notes on it claim), despite a cursory review of the bibliography shows they’ve covered the basics.
> there are plenty of middle class living pay check to pay check and do not own things
And there are plenty of the very rich who go bankrupt and die penniless.
Someone relying solely on income from labour to sustain their standard of living may live as the middle class do, just as a poor person accumulating debt may sustain a middle-class lifestyle, but that doesn’t change their fundamental economic situation.
Also: When middle class folk talk about living paycheck to paycheck, they’re usually ignoring retirement assets. But I don’t deny that plenty of people consume their economic security because they, and many times rightly, don’t believe they need it.
The 4.6% figure only makes sense if you think all their business involves wrongdoing and this is the only instance that got caught. If you take the penalty and divide by how much they allegedly made ($500M), you get a much worse figure of 75.4%.
But if the penalty for malfeasance is 75% of the profits gained thereby, malfeasance is still profitable. Even if the fine were 100% of the profits, it'd still remain a profitable strategy unless the odds of being caught were 100%.
In short, penalties aren't theoretically capped at 100%. That said, it's still theoretically possible to construct situations where the expected cost of lawsuits is less than what can be gained by the illegal act. However to make that claim you'd need to correctly calculate what the chances are of getting caught is, which is far more complex than pointing to a court case where someone settled.
Maybe not, but it still has to meet with the cold harsh reality that government budgets are limited, and society isn't willing to spend arbitrarily high amounts on the justice system. Also, is the implied suggestion of giving prosecutors unlimited budgets really the right course of action here? Prosecutors are in an unique position where they can wage legal battles and get the public to pay for it. Every other participant has to pay their legal expenses out of pocket. Having a limited budget is one of the few things that keeps them in check.
No amount is too much to shield the management class from their consequences. It didn't put one dent in the managers finances to pay that out. Plus they don't have to go to prison.
It reads like your typical story where a Kennedy family member kills some girl and gets away with it (one of them went to prison once until the supreme court overturned the conviction).
What reason did they have for continuing unprofitable work? I can see waiting out a contract, but after continuously having to offset costs you'd think someone would suggest simply sticking with governmental contracts.
It's unclear to me from the article, but if the unprofitable work was required in order to generate costs that could plausibly be attributed to a cost+ contract, then they could still be coming out ahead. Another reason might be just empire building. Better to be in charge of a big pie with good profit than small pie with great profit.
Almost certainly some people were getting kickbacks for the work. With stuff like this it's rare there's not abundant personal incentives for those involved to continue the fraud.
I’m reading a book on Soviet vs US relations that was mentioning this exact thing, meaning defense contractors/companies over-charging the US Government. The book was written at the end of the ‘80s and was presenting facts that had been happening just before that, meaning the early to mid-‘80s, so it looks like nothing much has changed since then.
Maybe the powers that be should really think about nationalizing this type of companies, if you’re getting the great majority of the your revenues from the Government that looks like a better way to keep things under more direct control.
As someone who worked in government contracting _everyone_ knows this game, and the people on the government side of the contract aren't stupid. This kind of fraud is on literally every cost-plus contract. There's a revolving door between government work and contract work, where government employees overseeing a contract will go to work for the contractor they were supposed to be overseeing for a large bonus and for doing very little work.
> Because she discovered the alleged fraud and filed a complaint under the Civil War-era False Claims Act, Feinberg and her lawyers received an eye-popping $69 million from the settlement. Her share — around $40 million before taxes, hit her family bank account last week, said Feinberg, 39.
Agreed. It's a phenomenal incentive to help pressure adherence to law. Now if we could just get this applied to issues of political insider trading and conflicts of interest!
> she believes the firm overcharged taxpayers by at least $500 million
> Booz Allen last month admitted no wrongdoing while paying a $377 million settlement
Sounds like a cool way to wash $123M of theft. I wish I could steal stuff, give back 2/3 of that, and walk away Scott free.
Also we're missing half of the story there, because there's no way they sent $Bs worth of invoice with overpriced rates without at least an accountant noticing, and being shutoff by some chain of command.
It is 'scot-free' apparently, and interestingly has nothing to do with the Scottish, it seems:
> Etymology
From Middle English scotfre, from Old English scotfrēo (“scot-free; exempt from royal tax or imposts”), equivalent to scot (“payment; contribution; fine”) + -free.[1]
>Sounds like a cool way to wash $123M of theft. I wish I could steal stuff, give back 2/3 of that, and walk away Scott free.
Settlements are often used when the case is complex and both parties aren't sure of the outcome. Rather than spend millions in legal fees fighting it out, they meet in the middle and settle for the expected value of the lawsuit. A toy example would be if the plaintiff thought the defendant owed them $100M worth of damages, but also thinks there's also a 50% chance of winning. Rather than spending millions on legal bills and possibly winning, they settle for $50M, which is better for everyone involved. Yes, it's not satisfying to think "bad guy got away with it and only paid 50%", but keep in mind that victory isn't assured, and it's very possible that the outcome if it went to trial was "bad guy got away with it and paid 0%".
The reason why this doesn't happen with thefts is that they're simple cases that don't require drawn out legal battles. A far better example that people would understand are car accidents. Someone rear-ends you and causes $10k worth of damage. The other driver therefore owes you $10k, right? But no, the other person alleges that you cut him off, and therefore you're partially at fault. Rather than battling it out in court racking up billable hours @ >$200/hr for both sides, you (or your insurance) meet in the middle and settle for $5k. Yet, nobody would characterize this as "Sounds like a cool way to wash $10k of damage. I wish I could wreck stuff, give back 1/2 of that, and walk away Scott free.".
This system is then inherently favouring breaking the law because you will never pay more than the damage you caused, and since there's a nonzero chance you will win there's always an edge for the rule-breaking side
> Feinberg and her lawyers received an eye-popping $69 million from the settlement. Her share — around $40 million before taxes, hit her family bank account last week, said Feinberg, 39. “I’ve got three kids, and I tell them, ‘Doing the right thing is the right thing, no matter what the outcome is,’” said Feinberg
As JP Morgan said, a man always has two reasons to do something, a good reason, and the real reason.
I like that quote but JP Morgan may well have been projecting his own motivations onto others. You don't get to be JP Morgan without engaging in some amount of duplicity.
There is big money in whistleblowing, if your claim makes it through the gauntlet-- otherwise it's just a career-ending humiliation.
It's a lot of risk for a mother of three to assume; I'm sure she expected something (the DoD posters in the breakroom suggest as much) but I doubt she knew what the eventual payout would be from the start.
True story: I worked at a company that moved into office space that Booz Allen had rented prior to us. Someone at Booz Allen left behind a desk nameplate that said "Ethics Advisor". I still have it somewhere.
Remember, Snowdon raised concerns internally ten times prior to going rogue. I like to think there's a story in there about Snowdon raising his concerns to the ethics advisor who advised him to go rogue, after which the advisor was fired and they dropped the title. Why else would someone leave behind their nameplate title? Anyway it's fun to hypothesize.
> Justice Department officials disagree, saying they got the best settlement they could. They noted in a statement to NBC News that Feinberg signed off on it, agreeing in writing that it was “fair, adequate and reasonable.”
Well sure, when there’s 40M (her share of the 300M fine paid) on the line, there’s a lot of incentive to sign and be done with things.
If there's no admission of guilt, there's always plausible deniability. That's why that part of these agreements are so important to those allegedly doing something. People settle out of court all of the time when they realize that the settlement paid out will be much cheaper than paying attorneys to fight and possibly win a court case. It also gets it out of the news cycle much faster as a one time story vs possible weeks to months of trials. "Look, we're not saying we did anything wrong here, but after crunching the numbers, it'll be cheaper for us to settle than to fight to prove we did nothing wrong" sounds like good business. Only an evangelist would sacrifice money to prove a point.
Not defending Booz Brothers at all, but alleging is all that happened
I wonder how a settlement affects internal accountability.
If this went to trial and it were proven that the company did XYZ, or even individuals in the company did X, Y, Z, presumably the company would in turn fire/discipline the employees (nominally) responsible for doing X, Y and Z.
Now, someone at the company probably knows if someone did X, Y, Z, even if there was no admission of wrongdoing. Do these employees still get disciplined, or does this mean the company doesn't acknowledge it happened internally (if it did), or do the employees get bonuses if doing XYZ netted more money than the settlement cost?
>“I discovered that our commercial and international practices were very unprofitable,” she said. “And in order to keep the company profitable, they were passing those costs onto the U.S. government contracts.”
>At that moment, Feinberg told NBC News, “I realized that this was a very intentional setup. And it wasn’t just that there was the potential to overcharge the government; the rates were built to overcharge the government. If we should have been charging $100 to the government for an hour of work, we were charging $120 for that hour of work, so that that $20 could go to subsidize the international business.”
How is this fraud? In that line of work, it’s common to not charge customers the same price. Each contract is individually negotiated. And work for the US government is not necessarily even comparable to work for another entity. US government contracts are notoriously complex and fraught with red tape and legal risks.
Without knowing more, I’m kind of sympathetic to Booz Allen here. Settlement doesn’t mean admission of guilt. It just means they thought there was a risk of losing + risk of reputational loss + cost of litigation that it was worth paying $377 million to avoid.
>Under government contracting rules, there must be a nexus between the costs charged to a government contract and the objective of the contract. Thus, a contractor may charge to a government contract costs directly related to that contract, as well as indirect costs that benefit multiple contracts including the government contract. A contractor may not charge costs to a government contract, however, that have no relationship to that contract. This prohibition prevents government contractors from using taxpayer funds to subsidize non-government related work.
If I charge more from client A than client B, I’m not necessarily subsidizing B with A. My price for doing the same work for the government is higher than the same work for a private party. It literally costs more and has higher risk. This honestly feels like this lady went digging around looking for things that would be arguable under vague accounting standards.
The way that these contracts work is that they get paid for their costs, plus a percentage. They were just fraudulently reporting costs incurred from other contracts on this contract to inflate their profits.
Cost-plus accounting is a horrible way to do business, it's basically designed to facilitate this kind of fraud.
If I'm understanding what she reported, Booz was losing $XX on commercial contracts and billing $XX excess on government contracts. There was a direct link between the two, which is prohibited.
And her case was strong enough that the government decided to pursue it. That doesn't always happen - whistleblowers sometimes have to pursue these cases on their own (crazy as that sounds to me).
The government is just not "a client". There are special rules if you want to sell anything to them, because you're playing with taxpayers' money. This is one such rule.
I’m not an expert, but in the world of government contracting margins are often fixed. It’s common to contract on a “cost plus” basis where the contractor discloses its costs and is paid an agreed margin on top. For a diversified business like BAH (well not that diversified but I digress), they’d need to allocate sg&a in some way to those cost plus contracts. My guess is they were doing it in a way that was, shall we say, “advantageous.”
Charging $20 extra, to US tax payers, to support products that do not benefit US tax payers.
Additionally, these aren’t abstract users at the receiving of the practice - it’s US service members who just want their booze products to “work,” under a very tight budget environment.
US contractors have had the US military over a barrel for so long because of variations on these themes, and it actively hinders Soldiers in harms way, even if way down the supply chain. This is the reason Palantir, Anduril, etc are cleaning up now, to hugely summarize those companies.
We will continue to witness this scenario in the USA as long as deferred prosecution agreements remain in place. Observe how no individuals face jail time; instead, substantial fines are levied, and business continues as usual. The company benefits, often reflected in a rise in stock price, while prosecutors add another accomplishment to their résumés.
Contemplating an extreme measure, if such infractions were punishable by the death penalty, one wonders how many top-tier executives would risk such behavior.