Two men who operated DAV Construction in North Little Rock for several years are due in court Tuesday on allegations they falsely claimed the company was owned by a service-disabled veteran to collect more than $15.5 million in federal contracts.
The Arkansas Democrat-Gazette reported in August 2015 that agents from the U.S. Department of Veterans Affairs Office of the Inspector General raided the heating-and-air business at 5440 Northshore Drive and carted away a van-load of boxes.
At the time, Ross Alan Hope, president of Powers of Arkansas -- which he said subcontracted with the construction company and shared office space with it -- called the raid a "total surprise."
Also on that day, Aug. 19, federal agents executed a search warrant at Kullander Construction at 7820 Cantrell Road in Little Rock -- a nondescript building close to a veterinary clinic and a tire store near the Foxcroft neighborhood.
This month, a federal grand jury indicted Hope, 56, and Mikel Kullander, also 56, the vice president of both the Little Rock company and DAV Construction, on a charge of of conspiracy to defraud and commit major fraud against the United States.
Both Little Rock men were also charged with five counts of major fraud against the United States and 24 counts of wire fraud. Kullander was also charged with making a false statement.
The charge of major fraud applies when contracts of more than $1 million are involved.
The 28-page indictment alleges that the men defrauded the government through a 2006 law that gives small businesses owned by service-disabled veterans the highest priority for VA contracts awarded to small businesses.
The indictment says that from 2007 through the day of the raid, Hope and Kullander falsely claimed that the construction company was a qualifying business so they could apply for and receive numerous government contracts, each worth more than $1 million.
Under the Veterans Benefits, Health Care and Information Technology Act of 2006, a veteran is eligible to be part of the contracting network only if the departments of Veterans Affairs or Defense have determined that the veteran has a service-related disability. The veteran also must "unconditionally" own at least 51 percent of the business; receive 51 percent of the profits; and control day-to-day management, daily operations and long-term decision-making, among other things.
According to the indictment, neither Hope nor Kullander are veterans, let alone service-disabled veterans.
It alleges that "J.W.," a man who is classified as a 100 percent service-disabled veteran, was working for Powers of Arkansas in 2007 when Hope approached him about forming a service-disabled-veteran run business.
J.W. isn't identified beyond his initials in the indictment, but the Arkansas secretary of state's office lists James M. Wells as president of DAV, with Hope as secretary and treasurer, and Kullander as vice president.
Attorney Tim Dudley of Little Rock said Thursday that his client, Hope, "absolutely" maintains he is innocent of the charges.
"The government didn't lose a penny. Every one of those contracts was performed satisfactorily," Dudley said. "The government got exactly what it paid for."
Dudley said the indictment demonstrates a misunderstanding of the situation. He said the business focuses on heating-and-air work for which the government requires the use of a particular kind of thermostat. He said Hope's company, Powers of Arkansas, is the only subcontractor in the area that is qualified to work on that specific thermostat, and that is why the construction company received most of the federal contracts for that type of work in the central part of the state.
Hope worked for DAV in the 1980s as a mechanical engineer, then returned to the business years later and bought it in 2002, Dudley said.
Jane Duke, a Little Rock attorney who represents Kullander, couldn't be reached for comment Thursday or Friday.
The indictment cites a Sept. 5, 2007, email from Hope to an unnamed recipient in which he says, "Mikel Kullander and I would like to start a new company for the purpose of obtaining service-disabled veteran contracts, mostly construction and controls related, from the federal government."
It goes on to say that J.W., "who currently works for me, said he will join us as the service-disabled veteran," and that J.W. "would have to be the 51 percent owner with Mikel and I splitting the remaining 24.5 each."
The indictment notes that on Sept. 19, 2007, DAV Construction Co. was incorporated with the state of Arkansas, with the current lineup of officers, and that shares of the company were divided accordingly in a pre-incorporation agreement.
Less than a year after the incorporation, on June 10, 2008, the company's board of directors issued a memo replacing J.W. with Kullander as president and making J.W. vice president, the indictment states. At the same time, it says, the board also removed J.W.'s authority to sign checks and enter contracts on behalf of the company.
But within about a month, on July 30, 2008, a $1.57 million VA contract was awarded to the company based on its status as a service-disabled-veteran run business, the indictment says. It noted that Hope had falsely represented in a federal contractor database in 2007, and again in early 2009, that the business was run by a service-disabled veteran.
According to the indictment, a $3 million VA contract was awarded to DAV on March 31, 2009, based on its status as a business run by a service-disabled veteran. A $5 million contract followed on July 30, 2009.
The indictment indicates that some smaller contracts were awarded to the business in 2009 and 2010 under its service-disabled operator's status, and a new $2 million contract was awarded, based on that status, on Sept. 22, 2010.
But 10 months later, on July 8, 2011, the VA's Center for Verification and Evaluation, a department responsible for protecting the program from fraud, informed Kullander that the construction company's service-disabled veteran status was denied. The center said a government verification program showed that J.W. no longer held the highest position at DAV, and "did not work full time or show sustained and significant time invested" in the company.
The center indicated its representatives had spoken with J.W., who told them that "because of his permanent disability, he quit working for POA after 20 years," and that "he does not have an office and only goes to the meetings on an 'as-needed basis.'"
The indictment alleges that less than a month after receiving that notification, Hope "caused" a letter signed by J.W. to be sent to the center requesting reconsideration, and claiming he was taking back the title of president and reassigning Kullander as vice president. The letter noted that although J.W. couldn't always work 40 hours a week because of his disabilities, "he is the one who tells the team what to do and where they are headed."
Although the center refused to reconsider in a letter dated Nov. 16, 2011, Hope managed to get the company relisted in March 2012 in the contractors database for businesses run by service-disabled veterans, the indictment states. It says he later submitted documents stating that the DAV Construction office was "formally moving" to Sherwood. The documents included a lease agreement for the new office space, as well as payroll ledgers indicating J.W. made the highest salary, according to the indictment.
It noted, however, that the address given for the office space turned out to be J.W.'s home.
It says that on Sept. 13, 2012, the construction company was awarded a $1.29 million federal contract, again based on its status as a business run by a service-disabled veteran. Later that same year, the center again denied the company's inclusion on its list of qualified businesses, and Hope again requested reconsideration. This time, the indictment said, he said that J.W. was now the majority shareholder and the company's sole board member.
The avowed changes led the center to reconsider its denial on March 26, 2013, and again begin awarding federal contracts to the company, including a new $1.26 million contract awarded on Sept. 11, 2014, that eventually expanded to a $1.5 million contract.
Altogether, the indictment indicates, the company received more than $15.5 million based on its status as a service-disabled-veteran run company. It says that while the bulk of the money paid through the contracts came from Veterans Affairs, some of it came from the U.S. Food and Drug Administration.
The indictment alleges that the construction company "was a pass-through and/or front company for Powers of Arkansas and Kullander Construction," defining a pass-through scheme as one in which a business run by a service-disabled veteran is established by a business that isn't operated by a service-disabled veteran in an effort to qualify for set-aside or sole-source contracts designated for veteran-run companies.
The veteran-run and nonveteran-run businesses "typically have the same executives and employees, and may also share office space," it says.
It details the passing of "fraud proceeds" through Hope's and Kullander's accounts, alleging that they used the funds for their personal benefit. It says that at least $1.25 million was passed through the construction company to Hope, while at least $268,695 was passed through to Kullander.
Meanwhile, it says, J.W. received less than $100,000 from the construction company.
Metro on 12/18/2016