Paragon Systems fined $52M for alleged fraud

Herndon-based federal contractor Paragon Systems agreed Tuesday to pay $52 million to resolve allegations by the U.S. Department of Justice that Paragon used its own subsidiaries to fraudulently win small business set-aside contracts, violating the federal False Claims and Anti-Kickback acts.

The company is one of the federal government’s largest providers of security, fire and emergency response and mission support services, according to the U.S. Department of Justice’s news release, and former top officials at Paragon allegedly directed female relatives and friends to “serve as figurehead owners of purported small businesses” to win set-aside contracts from the Department of Homeland Security that were meant to go to woman-owned small businesses and service-disabled veteran-owned small businesses, as well as other types of small businesses.

In 2020, Securitas Critical Infrastructure Services (SCIS) rebranded under its subsidiary Paragon Systems’ name. Paragon is a subsidiary of the Swedish security giant Securitas, which announced in September it had set a provision of $53 million to pay the settlement costs.

“The investigation relates to alleged misconduct by certain former employees and to Paragon’s relationship with various small business entities which were a direct or indirect party to contracts with the U.S. government starting around 2012,” Securitas said in a statement then. “Paragon is cooperating fully with the investigation.” According to a news release Thursday, the settlement will be paid throughout 2025.

In the alleged scheme, Paragon executives controlled Maryland-based limited liability companies Athena Services International and Athena Joint Venture Services, and these purported small businesses “surreptitiously paid substantial sums of money” — more than 300 payments totaling more than $11 million — as “consulting payments” to the former Paragon executives.

According to the DOJ, Paragon’s president, vice president of business development, vice president of operations, compliance manager and contracts manager were allegedly involved.

“Those who fraudulently procure, or assist others to fraudulently procure, small business set-aside contracts will be held accountable,” Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, said in a statement. “When ineligible companies obtain contracts reserved for veteran owned or socially or economically disadvantaged businesses, they prevent the small business community from receiving the contracting opportunities that Congress intended.”

Athena Services International and Athena Joint Venture Services and their owner, Alisa Silverman, along with Paragon, agreed to pay more than $1.6 million to resolve their liability, as well as the allegations that ASI improperly received a Paycheck Protection Program loan that was forgiven in full. The DOJ filed a complaint against another purported small business, Patronus Systems, and its owner, Mabel O’Quinn, the news release said.

“This settlement is the largest civil recovery in over a decade by the Department of Homeland Security Office of Inspector General (DHS-OIG),” DHS Inspector General Joseph V. Cuffari said. “The settlement sends a clear message that the federal government will continue to investigate and prosecute fraud, waste and abuse to protect small businesses owned by service-disabled veterans and other socially and economically disadvantaged individuals. I am grateful for the continued partnership with the Department of Justice and for the whistleblower who initiated the complaint.”

Whistleblower Todd Pattison is set to receive more than $9 million as part of the settlement, the DOJ said.