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Former Native corporation exec alleges 'sham companies' get government contracts

  • Author:
  • Updated: April 25
  • Published April 25

The Afognak Village Corporation, with 1,000 shareholders, operates about two dozen companies with nearly 5,000 employees across the United States and overseas.

Its national and worldwide reach with hundreds of millions in contracts grew from subsidiaries that qualify for Small Business Administration contracting preferences with the Department of Defense, the Federal Emergency Management Agency, the Air Force, the Navy, the Army, the Marines, the Coast Guard and other agencies.

The company describes its shareholders as descended from the village of Afognak, which was on an island just north of Kodiak hit hard by the tsunami that followed the 1964 earthquake.

Its website features 382 job listings from Japan to Alabama and from Guantanamo Bay to Iraq. Afognak ranked 130th of the top 200 federal contractors in fiscal year 2015, according to a Bloomberg analysis, with $406 million in obligations.

The process by which it emerged as a federal contracting heavyweight is at the heart of a whistleblower lawsuit with legal bills in the millions that is slowly progressing in federal court in Alaska.

According to the lawsuit filed by a former company official, Afognak and its wholly owned subsidiary, Alutiiq, LLC, created "sham" companies to become eligible for more federal contracts than allowed.

Ben Ferris, who worked at the company from 2008 to 2014,  charges that about 14 companies "exist only as names on bids and invoices" and were created to expand eligibility for lucrative government contracts. The company website lists 23 subsidiaries.

The real contracting work is performed by eight divisions of Alutiiq, LLC, not by the individual firms named on the federal contracts, he claims.

Ferris, a retired Navy officer who lives in Virginia, would be entitled to compensation and damages under the False Claims Act if his lawsuit is successful.

Afognak is one of the major Alaska beneficiaries of the federal provision long championed by the Alaska congressional delegation under which Native corporations are eligible for no-bid contracts through a Small Business Administration incentive program called 8(a).

In 2014, federal obligations under the 8(a) program totaled about $4 billion for 344 firms owned by Alaska Native corporations, the General Accountability Office said in 2016. That report concluded that oversight weaknesses in the SBA limited its ability to monitor compliance with program requirements.

The lawsuit charges that the general managers named on the Alutiiq contracts don't manage the projects because the named subsidiaries are not real. Ferris said that one application for a new 8(a) entity listed a man as general manager who had already been fired. Annual updates "frequently certify that the general manager will devote 100 hours a week to the management of the business concern."

The fictional entities exist to spread the contracting bounty, allowing Alutiiq to take on more work while keeping each entity below the federal dollar contract cap, the lawsuit alleges.

According to the complaint, within the village corporation and Alutiiq, "there is no pretense concerning the fictional nature of the 8(a) entities."

"When the entities are mentioned at all, they are the topic of worried jokes circulating about the companies' resultant exposure," lawyers for Ferris wrote.

His complaint alleges that in a recorded conversation in his office, a company vice president claimed that "we grew but we did it by cheating and by breaking the rules."

Ferris started as corporate security manager for Alutiiq in 2008 in Chesapeake, Virginia. He was promoted to chief of compliance three years later in the legal department and said he began to believe the regulations were being violated after attending a 2012 conference in Seattle.

He filed his complaint under a court seal in May 2013, as is standard under False Claims Act cases, allowing the government time to decide whether to intervene. The federal government decided to stay out of the case. Ferris resigned from his job in March 2014 and the case became public the next month.

Afognak has said the lawsuit is baseless and should be dismissed. It alleges that Ferris improperly copied 2,000 documents, destroyed evidence, misused confidential documents, misled the court and has engaged for four years in "abusive litigation tactics that have tainted this case beyond repair."

One of the corporation's major arguments is that the Small Business Administration has known of the allegations from Ferris for four years and taken no action against Alutiiq or its companies.

The lawyers said the False Claims Act does not allow self-serving complainants "to second-guess the considered decisions and rule-making of government agencies."

Lawyers for Ferris replied to that by saying there is no evidence the government "has actual knowledge of Afognak's violations."

In a corporate statement after the lawsuit became public, Afognak said its companies had an "exemplary performance record, as evidenced by our 14 years of dedicated service to the U.S. government in over 35 countries and territories around the world, our long-standing commitment to regulatory compliance and ethical conduct, and the millions of dollars in benefits we have returned to our Native shareholders. We intend to defend this case vigorously."

Ferris asserts he was covertly copying information while working for the company to let his employer know what it was doing wrong.

"What he fails to say is that  he acquired most of his stash of documents — and all of the privileged documents — after he contacted counsel, when he searched through his email folders looking for documents to use against defendants in litigation, not for any internal reporting," attorneys for the Native corporation said in court filings last week.

Afognak said the suit "seeks billions of dollars in damages for the alleged violations and requires significant resources to defend."

In a related case, it is fighting its insurance company, which claims it doesn't have to pay because Ferris worked for the company and was an executive. He was not an executive under terms of the policy, Afognak claims.

The corporation said that as of January, the insurance firm had refused to pay more than $650,000 in additional defense costs and was seeking reimbursement of $1.86 million paid to Afognak.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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