Whistleblower Attorney Washington D.C.

I. Background A. Statutory Framework 1. The Section 8(a) Program The SBA’s Section 8(a) program is a business development program for small businesses owned by individuals who are socially and economically disadvantaged. See 15 U.S.C. § 637(a); 13 C.F.R. § 124.1. Qualifying small businesses that are 1 Because a number of the arguments made in both motions to dismiss overlap, the Court will address the motions together. Further, because only the LB&B Defendants have responded to the complaint, this opinion refers to them throughout as “Defendants.” 2 owned or controlled by socially or economically disadvantaged individuals may apply to the SBA, and if accepted into the program, they are eligible to receive preferential treatment in the form of “set aside” contracts. They are also eligible to receive technological, financial, and practical assistance. Relators’ Compl. ¶ 15; Gov’t Compl. ¶¶ 19-21.
In order for a small business to participate in the program, it must apply to and be certified by the SBA. It must first meet certain size requirements, see 13 C.F.R. Part 21, and it must also be “disadvantaged,” which requires that at least fifty one percent of the business is owned and controlled by one or more individuals who are socially and economically disadvantaged. See 15 U.S.C. § 637(a)(4)(A)-(B); 13 C.F.R. § 124.105. The program defines socially “disadvantaged individuals” as those who have been “subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities.” 13 C.F.R. § 124.103(a); see also 15 U.S.C. § 637(a)(5). “Economically disadvantaged” individuals are those socially disadvantaged individuals “whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.” 13 C.F.R. § 124.104(a); see 3
also 15 U.S.C. § 637(a)(6)(A). A company selected for the program must annually certify its continued eligibility for the Section 8(a) program and must provide financial and other information to the SBA. See 13 C.F.R. §§ 124.112(b), 124.509(c), 124.601, 124.602. A company may remain in the program for a maximum of nine years if it continues to meet the eligibility requirements throughout the period, and it may participate in the program only once. See 13 C.F.R. §§ 124.2, 124.108(b).
Individuals who are members of certain racial and ethnic groups are considered to be presumptively socially disadvantaged. See 13 C.F.R. § 124.103(b)(1); see also 15 U.S.C. § 631(f)(1)(B)-(C) (explaining that socially disadvantaged individuals include “members of certain groups that have suffered the effects of discriminatory practices or similar invidious circumstances over which they have no control,” including, but not limited to “Black Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities”). This presumption is rebuttable, and may be overcome by credible evidence to the contrary. See 13 C.F.R. § 124.103(b)(3). An individual who is not a member of one of these groups may nonetheless gain admission into the Section 8(a) program by establishing by a preponderance of the evidence 4
that he or she is socially disadvantaged under criteria set forth in 13 C.F.R. § 124.103(c). In the context of the Section 8(a) program, “control” requires that “both that disadvantaged persons have the power to control the company and that such persons actually exercise their authority to control the company.” Gov’t Compl. ¶ 26; see also 13 C.F.R. § 124.106. Although a non-disadvantaged individual may be involved in the management of a company that participates in the Section 8(a) program, that individual may not, inter alia, exercise actual control of the company or receive compensation that exceeds that of the socially or economically disadvantaged person who controls the company. See 13 C.F.R. § 124.106(e). Further, non-disadvantaged individuals who “transfer majority stock ownership or control of the firm to an immediate family member within two years prior to the application and remain involved in the firm as a stockholder, officer, director, or key employee of the firm” are subject to a rebuttable presumption that they actually control the firm. Id. § 124.106(f).

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