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KSM Wins Ruling That Sarbanes-Oxley Whistleblower Case Must Proceed Against Global Consulting Company

June 14, 2012 – A federal judge in New York issued a decision on June 12, 2012, allowing Benjamin Ashmore, Sr., a former employee of a U.S. subsidiary of CGI Group, Inc., to proceed with a lawsuit asserting whistleblower claims against the company under the Sarbanes-Oxley Act. The lawsuit alleges that Mr. Ashmore was fired because he objected to a fraudulent scheme devised by senior CGI executives to evade procurement regulations issued by the U.S. Department of Housing and Urban Development for administration of its Section 8 housing programs. CGI Group, Inc. is a global consulting company, with 31,000 employees in more than 125 offices worldwide, which provides information technology and business process consulting services.

Since 1999, HUD has outsourced to public housing authorities responsibility for administering the project-based rental subsidy program established by Section 8 of the Housing Act of 1937. Under this system, PHAs contract with HUD to provide administrative services on a state-by-state basis and the PHAs then subcontract with private companies such as CGI to actually provide the administrative services required by HUD. CGI was the largest subcontractor of these services in the country, with responsibility for all Section 8 contract administration in New York, Ohio, Florida, Northern California and Washington, D.C.

In 2007, HUD announced that it would, for the first time since the program was established, rebid all of the Section 8 administrative services contracts. In response to HUD's announcement, CGI Federal, which regarded the rebid as a good opportunity to expand its share of the Section 8 subcontracting market, established a strategy team composed of senior managers to coordinate the company's approach to the rebidding process. The group was officially named the Rebid Assessment Team, but it was known informally as the "RAT Pack."

Mr. Ashmore was hired by CGI Federal as its Manager for Consulting and Government Services Delivery in May 2009 after working for five years as a senior program analyst for HUD. Upon his arrival at the company, he was asked to join the RAT Pack. As a member of the RAT Pack, he participated in regular phone calls with other members of the team to discuss strategy and make plans with respect to CGI's participation in the rebid process. He alleges that during these phone calls he came to learn of a fraudulent scheme, hatched by other members of the team, to evade the 300,000 unit cap that HUD announced that it was considering imposing on the number of Section 8 housing units that any individual PHA or private subcontractor could administer. Because, at the time, CGI Federal already contracted to provide administrative services to 267,000 Section 8 housing units, the cap posed a serious threat to the company's efforts to increase its share of the Section 8 subcontracting market as a result of the rebid process. In order to circumvent these limits, Mr. Ashmore alleges that a subgroup of the RAT Pack led by Marybeth Carragher, one of his managers at CGI, developed what he calls the Director Shell Company Scheme.

Under this scheme, CGI Federal would withdraw from the partnership agreements it had entered into with PHAs in many of the 26 states in which it intended to participate in the rebid process. Four directors would then resign from the company and set up their own formally independent companies. These companies would then enter into partnership agreements with the PHAs in lieu of CGI Federal and bid for additional Section 8 subcontracts. While formally independent, under the plan, they would have full access to CGI Federal's resources, experience and staff, giving them a competitive advantage during the rebid and presumably allowing them to acquire significant additional Section 8 housing contracts. After the rebid was over, the plan was that CGI Federal would then acquire these companies, and with them, their Section 8 subcontracts – thus effectively evading the 300,000 unit limit that HUD planned to impose.

Mr. Ashmore alleges that, in his discussions with other members of the RAT Pack, including Carragher, he consistently opposed the Director Shell Company Scheme on the grounds that it was an illegal and fraudulent attempt to evade HUD and federal acquisition regulations, and also bad for the company's business prospects. On June 9, 2010, HUD confirmed that it would impose the cap on the units that any contractor could administer. Five days later, Mr. Ashmore was kicked off the RAT Pack and then, two days after that, he was fired. Mr. Ashmore contends that he was fired because of his opposition to the fraudulent scheme.

Mr. Ashmore commenced his lawsuit in November 2011 alleging that his termination violated the Sarbanes-Oxley Act of 2002, which protects whistleblowers from retaliation for objecting to a number of categories of unlawful activity by their employer, including mail or wire fraud. CGI filed a motion asking the court to dismiss the case, arguing amongst other things that Mr. Ashmore's activity was not protected under the Sarbanes-Oxley Act.

In his June 12 decision allowing the case to proceed, United States District Judge Leonard Sand rejected all of CGI's arguments and ruled that it was reasonable for Mr. Ashmore to conclude that the Director Shell Company Scheme constituted mail or wire fraud under federal law:

  • [I]t is not unreasonable for someone with his background and experience to believe—perhaps correctly—that the use of the telephone lines and email to further a scheme that, as described in the complaint, was explicitly intended to defraud HUD, constituted mail and/or wire fraud under federal law.

Moreover, Judge Sand noted in his decision that:

  • Defendants do not dispute that, in his conversations with Carragher and other CGI Federal employees, Ashmore specifically identified the conduct that he believed to be illegal—namely, the Director Shell Company Scheme. Nor do they suggest that Carragher, and the other CGI Federal Employees to whom Ashmore complained did not understand to what Ashmore was referring when he told them that the Director Shell Company Scheme represented an illegal attempt to evade federal and HUD acquisition regulations.

Mr. Ashmore was represented by David N. Mair of Kaiser Saurborn & Mair, P.C. For more information about this matter, please contact:

David N. Mair
Kaiser Saurborn & Mair, P.C.
111 Broadway
New York, New York 10006
Tel: 212-338-9100
Fax: 212-338-9088
mair@ksmlaw.com