CRAIG CARPENITO United States Attorney DAVID V. SIMUNOVICH

CRAIG CARPENITO

United States Attorney

DAVID V. SIMUNOVICH

MARK C. ORLOWSKI

Assistant United States Attorneys

970 Broad Street, Suite 700

Newark, NJ 07102

Tel. (973) 645-2736

david.simunovich@usdoj.gov

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

UNITED STATES OF AMERICA,

Plaintiff,

CHRISTOPHER NEARY, SHERMAN

BARTON, VE SOURCE, LLC, and

VERTICAL SOURCE, INC.,

Defendants.

Civil Action No. 20-14167

COMPLAINT AND DEMAND

FOR JURY TRIAL

Plaintiff United States of America (the “United States” or the “Government”),

by its undersigned attorneys, alleges as follows:

INTRODUCTION

1. This is an action for damages and civil penalties arising from false

claims presented or caused to be presented by Defendants Christopher Neary

(“Neary”), Sherman Barton (“Barton”), VE Source, LLC (“VE Source”), and Vertical

Source, Inc. (“Vertical Source”). The claims in this case arise from Defendants’ role

in causing the United States to pay VE Source more than $16 million in contracts

that were set-aside for service-disabled, veteran-owned small businesses

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(“SDVOSBs”). In order to show ownership and control by a service disabled

veteran, which were express and essential preconditions to obtaining these

contracts and payments under these contracts, Defendants falsely claimed VE

Source was owned and controlled by Barton, who is a service-disabled veteran. In

actuality, the company was controlled by Neary, who is not a service-disabled

veteran.

2. As described more fully below, Congress established a program to

promote the award of federal contracts to SDVOSBs through procurement actions

that are specifically limited to firms owned and controlled by service-disabled

veterans. Between 2012 and 2019, Defendants knowingly submitted, caused to be

submitted, or conspired to submit or cause to be submitted, false claims or false

statements material to claims in order to obtain or promote the award of these

federal SDVOSB set-aside contracts from the United States to VE Source. In

connection with the award of these contracts, Defendants certified or caused

certifications or statements to be made that VE Source met all requirements to be

an SDVOSB with actual knowledge or reckless disregard for the truth of the matter

that VE Source did not, in fact, meet such requirements and was not entitled to the

award of such contracts. By diverting contracts and benefits intended for service-

disabled veterans towards an ineligible company, Defendants undercut the express

congressional purpose in enacting laws intended to encourage the awards of federal

contracts to SDVOSBs. Defendants’ wrongful conduct deprived the United States of

the intended benefits of a legitimate SDVOSB receiving and performing federal

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contracts. Defendants’ fraudulent scheme further induced or resulted in the

Government’s award of these contracts and its payment of millions of dollars on

these federal contracts to an ineligible firm. Defendants, therefore, are liable to the

United States under the False Claims Act for treble damages and civil penalties as

permitted by law.

3. Additionally, Defendants intended to defraud the Government through

the submission of these material misrepresentations, and the Government

reasonably relied upon these misrepresentations. The Government suffered damage

as a result of such reliance in making payments to ineligible contractors and

through the diversion of contractual opportunities and the acquisition of profits that

were intended for legitimate SDVOSBs. As a result, Defendants are responsible for

common law fraud and are liable to the Government for damages.

4. Further, as a result of Defendants’ misrepresentations and fraudulent

conduct, the United States made payments on the contracts by mistake and

Defendants were unjustly enriched at the Government’s expense. Equity and good

conscience preclude Defendants from retaining this enrichment. Defendants,

therefore, are liable to the Government for all moneys unjustly earned and money

wrongfully paid.

JURISDICTION AND VENUE

5. This Court has subject matter jurisdiction over the claims brought

under the False Claims Act pursuant to 28 U.S.C. §§ 1331, 1345, over the remaining

claims pursuant to 28 U.S.C. § 1345, and over all claims pursuant to the Court’s

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general equitable jurisdiction.

6. This Court has personal jurisdiction over all Defendants pursuant to

31 U.S.C. § 3732(a) because at least one of the Defendants can be found in, resides

in, or transacts business in this District and because acts proscribed by 31 U.S.C.

§ 3729(a) occurred in this District.

7. Venue is proper in this District under 31 U.S.C. § 3732(a) and 28

U.S.C. §§ 1391(b, c) because one or more Defendants reside in or have transacted

business in this District and because a substantial part of the events or omissions

giving rise to the claims occurred in this District.

PARTIES

8. Plaintiff is the United States of America.

9. Defendant VE Source is a Delaware limited liability company. At all

relevant times, VE Source’s principal place of business was in Monmouth County,

New Jersey.

10. Defendant Vertical Source is a New Jersey corporation. At all relevant

times, Vertical Source’s principal place of business was in Monmouth County, New

Jersey.

11. Defendant Neary is a resident of Monmouth County, New Jersey and

is the 49% owner of VE Source.

12. Neary is also the 100% owner of Vertical Source, Vertical Brands LLC,

Vertical Protective Apparel LLC, Vertical Design Group LLC, Neve Apparel LLC,

Two River Textiles LLC, and Cloudveil Mountain Works LLC (together, the “Neary

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Companies”).

13. Neary is not a veteran with a service-connected disability.

14. Defendant Barton is a resident of Burlington County, New Jersey and

is the 51% owner of VE Source. Barton is a veteran with a service-connected

disability.

Statutory and Regulatory Framework

15. This action concerns VE Source’s fraudulent and wrongful inducement

of two government contracts and all payments made under those contracts, both of

which the Government awarded to VE Source based on the company’s false self-

certifications that it met the federal statutory, regulatory and contractual standards

to qualify as an SDVOSB.

16. The Small Business Act provides that the Government shall establish

an annual goal that not less than three percent of all prime and subcontracts

awarded by all federal agencies and departments should be awarded to SDVOSBs.

15 U.S.C. § 644(g)(1)(A)(ii). At the end of each fiscal year, the Small Business Act

requires all federal agencies to report to the U.S. Small Business Administration

(“SBA”) whether they have accomplished their annual goal for SDVOSB awards,

and the SBA will thereafter issue a report to the President and to Congress, which

is made publicly available on the SBA’s website, as to whether the government met

the goal to award contracts to firms owned and controlled by service-disabled

veterans. 15 U.S.C. § 644(h). To help accomplish these annual goals, the Small

Business Act further authorizes agencies to set aside the awards of certain federal

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contracts to eligible SDVOSBs either (1) on a sole-source basis for contracts of $5

million or less for manufacturing contracts, and $3 million or less for other

contracts, and (2) through competitions limited to SDVOSBs. 15 U.S.C. § 657f(a-b).

17. To implement the provisions of the Small Business Act, SBA

regulations and the Federal Acquisition Regulations (“FAR”) establish regulatory

criteria that companies are required to meet to obtain contracts that are expressly

reserved for SDVOSBs either on a sole-source basis or through competitions that

are limited to SDVOSBs.

Under the FAR and the SBA regulations, to be eligible to

obtain a federal contract that is set aside for an SDVOSB, a company must be

majority-owned (that is, at least 51% ownership) and controlled on a long-term and

day-to-day basis by a service-disabled veteran. 48 C.F.R. §§ 2.101 & 52.212-3

(defining the term “service-disabled veteran-owned small business concern”) &

52.219-27(a) (same); 13 C.F.R. § 125.13(a); see also 15 U.S.C. § 632(q)(1).

18. “Control by one or more service-disabled veterans means that both the

long-term decision making and the day-to-day management and administration of

the business operations must be conducted by one or more service-disabled veterans

The FAR, codified in Parts 1 through 53 of Title 48 of the Code of Federal

Regulations, establishes “uniform policies and procedures for acquisition by all

executive agencies.” 48 C.F.R. § 1.101.

The Government acknowledges that at all relevant times Barton was a

service-disabled veteran and he owned 51% of VE Source. However, Barton lacked

sufficient control over VE Source to be eligible to bid on SDVOSB set-aside

contracts.

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. . . .” 13 C.F.R. § 125.13(a) (2016 – present); 13 C.F.R. § 125.10(a) (2004 – 2016).

In the case of a limited liability company, like VE Source, “one or more service-

disabled veterans . . . must serve as managing members, with control over all

decisions of the limited liability company.” 13 C.F.R. § 125.13(d) (2016 – present); 13

C.F.R. § 125.10(d) (2004 – 2016).

19. The Small Business Act establishes that firms that misrepresent their

status as an SDVOSB “shall be subject to” civil prosecution under the False Claims

Act. 15 U.S.C. §§ 657f(d), 637(m)(5)(C).

20. Firms like VE Source that bid on SDVOSB set-aside contracts must

“self-certify” that they meet the criteria as an SDVOSB to be eligible for contract

award. See 13 C.F.R. § 125.18; 48 C.F.R. § 19.1403(b) & § 52.219-1(c)(7). From 2009

to July 2012, firms were required to enter annual certifications as to their eligibility

for SDVOSB contracts (as well as other representations and certifications) in a

government database known as the Online Representations and Certifications

Application (“ORCA”); from July 2012 to the present, firms entered these

certifications in the online System for Award Management (“SAM”). 13 C.F.R. §

125.33(a); 48 C.F.R. §§ 4.1201, 4.1202.

These “representations and certifications . .

. are incorporated by reference into the contract,” 48 C.F.R. § 52.204-19; see also id.

at §§ 4.1201(d), 4.1202(b), and contracting officers verify an offeror’s representations

This language originally appeared in section 125.10 beginning in 2004, but

was recodified in section 125.13 in 2016. See 69 Fed. Reg. 25262-01 (May 5, 2004)

2004 WL 946665(F.R.); 81 FR 48558-01, 2016 WL 3958838(F.R.) (July 25, 2016).

The System for Award Management can be accessed through www.sam.gov, a

website operated by the General Services Administration (the “GSA”).

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and certifications at the time of contract award. 48 C.F.R. § 4.1201(b)(2).

21. If a contract is set aside for an SDVOSB, the FAR provides that

provisions must be included in the solicitation and the contract stating that “[o]ffers

received from concerns that are not [SDVOSBs] shall not be considered,” and that

“[a]ny award resulting from this solicitation shall be made to [an SDVOSB].” 48

C.F.R. §§ 19.1408, 52.219-27(c).

FACTUAL BACKGROUND

Neary, Pao and Norton decide to form an SDVOSB;

seek out a service-disabled veteran

22. In or about the summer of 2009, Robert Pao and Ron Norton were

acquaintances who knew each other through a New Jersey auto club. At the time,

Norton was a salesman for a company selling outdoor sports products to retailers.

Pao, who had a long career in the apparel industry, worked at the time for Neary at

Vertical Source. Neary, too, had extensive prior experience working in the apparel

industry, including owning several businesses in that industry.

23. In the wake of a government stimulus package encouraging the use of

SDVOSBs, Norton, Pao and Neary discussed options to create a business that could

take advantage of government contracting opportunities, in particular those set

aside for SDVOSBs. In order to form a SDVOSB, Neary, Norton or Pao needed to

identify a service-disabled veteran to join their venture because they were not

service-disabled veterans.

24. To fill the role of service-disabled veteran, Norton proposed Sherman

Barton. Norton knew Barton through another auto club.

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25. In or about the summer of 2009, Neary, Norton, and Pao went to

Barton’s home to discuss their interest in forming an SDVOSB. At the time of that

meeting, Barton was employed on a full-time basis at the U.S. Department of

Veterans Affairs (“the VA”). Although Neary and Pao came to the venture with long

careers in the apparel industry, Barton had none.

26. At the meeting, Barton stated that he was close to retirement, was

getting ready to settle down, and did not want to play an active role in the business.

Norton, Neary, and/or Pao told Barton that he (Barton) would not need to have an

active role in the business; rather, he would just need to be a 51% owner on paper.

Barton agreed to the arrangement.

27. Barton did not take any steps to form the business. Rather, Norton

prepared the paperwork to incorporate the business and registered VE Source as a

limited liability company in Delaware.

28. Norton successfully registered VE Source as an LLC in Delaware on

July 28, 2009. At the time, Barton was still a full-time employee at the VA.

29. When they formed the company, Barton, Neary, Norton and Pao knew

that the federal government had guidelines to qualify as an SDVOSB. Indeed,

before agreeing to join the VE Source venture, Barton researched the Federal

Acquisitions Regulation to understand the rules governing SDVOSB contracting.

30. When they formed VE Source, Neary was aware that a service-disabled

veteran had to own at least 51% of a company and had to be in control of the

business to meet the qualifications for the company to be an SDVOSB.

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31. When they formed VE Source, Barton was aware that a service-

disabled veteran had to own at least 51% of a company and had to be in control of

the business to meet the qualifications for the company to be an SDVOSB.

32. As originally formed, Barton had a 51% ownership position in VE

Source. The remaining 49% of the company was split equally between the other

three owners, Neary, Pao, and Norton, with each holding a 16.33% share.

33. Norton registered VE Source in various government databases in order

to begin pursuing SDVOSB set-aside contracts. For instance, on November 5,

2009—again, while Barton was still a full-time VA employee—Norton filed a

certification on the ORCA website operated by the GSA. In ORCA, Norton falsely

“attest[ed] to the accuracy of the representations and certifications contained

[therein],” including VE Source’s SDVOSB status. That online certification defined

an SDVOSB, including the requirement that the service-disabled veteran controlled

“[t]he management and daily business operations” of VE Source.

34. Almost immediately after Neary, Barton, Pao and Norton formed the

company, VE Source and Vertical Source began sharing an office and employees.

Norton expressed his concern to Neary, Barton, and Pao about these arrangements,

and sought more separation from the companies. The other owners opposed the

changes Norton was seeking.

35. In addition to sharing similar names, VE Source and Vertical Source

also shared similar corporate logos. Both companies showed their name starting

with a large “V” topped by an arrow pointing upwards. For instance, the following

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image is taken from a VE Source document dated January 31, 2012:

On January 7, 2012—just weeks before the logo above was used in a VE Source

letter—Vertical Source used the following logo:

36. Before and after VE Source was formed, Pao was a full time employee

of one of Neary’s other apparel companies, Vertical Source. Pao was responsible for

product sourcing, manufacturing and production for both Vertical Source and VE

Source. Initially, Pao was also the main point of contact between VE Source and the

government.

37. Pao was responsible for identifying government business opportunities,

determining if they were worth bidding, drafting proposals, and submitting them on

behalf of VE Source. Before proceeding with a bid, Pao conferred with Neary and

Barton and would proceed only if all owners were in agreement.

38. Neary was heavily involved in VE Source’s day-to-day business

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operations and controlled the company’s books and records. Neary handled all the

bills and finances until VE Source began paying a Vertical Source employee,

Charles Moran, to serve as VE Source’s bookkeeper.

39. Moran began working for Vertical Source in June 2010 as Controller

and Director of Operations.

40. Moran worked for Vertical Source and/or other Neary Companies from

June 2010 through June of 2019.

41. In addition to working for the Neary Companies, Moran also served as

VE Source’s Controller between 2012 and June 2019.

The VA repeatedly finds that Barton does not control VE Source

42. Beginning in 2010, VE Source attempted to obtain SDVOSB set-aside

contacts from the VA.

43. On June 2, 2010, VE Source self-certified as an SDVOSB with the VA.

That status was valid for one year.

44. Beginning in late 2010, the VA changed its process and no longer

allowed businesses to self-certify as to SDVOSB status. The VA began requiring

(and still requires to this day) entities to submit documentation to show their

eligibility for SDVOSB status as part of an application to the VA’s Center for

Verification and Evaluation (“VA CVE”). 38 C.F.R. § 74.2(a) (2010 – 2018).

The letter notifying VE Source of its SDVOSB status was sent to Norton’s

residence.

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45. The VA CVE reviews a company’s submissions to determine whether it

meets the VA’s requirements for SDVOSB status. Id. VA regulations in effect

between 2011 and 2018 established similar criteria for a company to be eligible as

an SDVOSB as the criteria in the FAR and in SBA regulations in that a firm must

be 51% owned and the management and daily business operations of the firm must

be controlled by one or more service-disabled veterans. 38 C.F.R. § 74.1 (2011 –

2018) (adopting the SBA regulations for purposes of defining what constitutes an

SDVOSB).

46. On or about March 2, 2012, VE Source applied to the VA CVE to be

verified as an SDVOSB. Neary and Barton were primarily involved in submitting

documents and information in connection with the application for SDVOSB

verification with the VA CVE.

47. By letter dated May 18, 2012, the VA CVE denied VE Source’s

application for verification as an SDVOSB. In that denial, the VA CVE concluded

that Barton was a service-disabled veteran, but that he did not control the business.

48. In its May 18, 2012 denial letter, the VA CVE explained that to control

the business, Barton must exert overall control of the company and manage the

daily operations. In support of its conclusion that VE Source failed to demonstrate

Barton’s that control, the VA CVE pointed to five separate findings.

• First, the VA CVE observed that VE Source’s Operating

Agreement imposed restrictions on Barton’s ability to freely transfer his

ownership interest because Article IV, Section 2 of that agreement required

unanimous consent of all other owners of the business in order to effectuate

that transfer.

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• Second, VE Source’s 2010 K-1 documents (which sets forth

distributions paid by a limited liability company) showed that Barton did not

receive 51% of the profits and that, in fact, the four owners received equal

distributions.

• Third, the VA CVE noted that both Pao and Neary each had

extensive experience in the management of clothing businesses, whereas

Barton lacked any such experience.

• Fourth, the VA CVE noted that VE Source’s Operating

Agreement required attendance of all owners of the business, meaning that

Barton was unable to hold a meeting and take a vote without the consent of

the non-veteran minority owners.

• Fifth, the VA CVE observed that VE Source was co-located with

Vertical Source, and that Neary was both an owner of VE Source and a

founder and president of Vertical Source.

49. Based on these findings, the VA CVE concluded that Barton failed to

demonstrate that he controlled VE Source and that VE Source was too dependent

upon Neary and Neary’s other companies.

50. Shortly after receiving that denial, Neary called the VA CVE to discuss

the matter. Neary discussed with the VA CVE representative that VE Source had

previously held SDVOSB status with the VA. The CVE representative explained

that VE Source’s prior verification was completed when the VA allowed for a self-

certification process. The representative further explained that the process had

since changed and that the VA CVE reviewed businesses’ ownership, control,

management, and size to ensure compliance with regulatory requirements.

51. On June 12, 2012, VE Source submitted a request to the VA CVE for

reconsideration of its May 12, 2012 denial of verification. In its request for

reconsideration, VE Source responded to each of the VA CVE’s five findings,

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arguing that: (i) restrictions on Barton in the Operating Agreement placing

limitations on Barton’s control of the company were standard provisions to protect

minority shareholders; (ii) there were errors in the K-1 forms that had been

corrected; (iii) although he lacked experience in the apparel industry, Barton did

have some additional managerial experience that was not previously disclosed; (iv)

the requirement of full attendance at a VE Source shareholder meeting could be

overturned by Barton if the other owners skipped two or more meetings; and (v) the

VA CVE placed too much weight on the fact that VE Source and Vertical Source

shared office space.

52. On June 14, 2012, Pao called the VA CVE to inquire about VE Source’s

request for reconsideration. The VA CVE representative provided Pao with contact

information to request status updates in the future.

53. On December 4, 2012, the VA CVE issued its denial of VE Source’s

request for reconsideration. The VA CVE based its denial on “a review and

evaluation of the original file, the Request for Reconsideration and accompanying

documents submitted to CVE.” The VA CVE found that VE Source’s amended

operating agreement removed the restrictions that were previously placed on

Barton’s ability to sell the company and new information about Barton’s managerial

experience showed that he was capable of managing VE Source. However, the VA

CVE also concluded that VE Source failed to show that Barton was VE Source’s

“managing member,” that he “holds the highest position” in the company, or what

his role and responsibility was within the company. In addition, the VA CVE noted

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additional provisions in the amended operating agreement that constrained

Barton’s control over the business (specifically, in paragraphs 12.05(a) and (b)).

54. On January 2, 2013, VE Source filed a second request for

reconsideration. VE Source explained that it further amended its operating

agreement to address the issues identified in the December 4th denial.

55. On April 3, 2013, the VA CVE denied VE Source’s second request for

reconsideration, reiterating its conclusion that VE Source was not an SDVOSB.

The CVE based its denial on the control that Neary appeared to exert over VE

Source, pointing to the fact that VE Source and Vertical Source shared office space;

that the two companies were engaged in the same line of business; that both

companies used similar logos; and that the two non-service-disabled veteran

members of the VE Source (Neary and Pao) were also Vertical Source employees

and that those two members possessed far more experience in the textile industry

as compared to Barton. Furthermore, the VA CVE observed that Pao and Neary

performed the same functions for Vertical Source as they did for VE Source, and

that Pao even listed his positions with Vertical Source and VE Source in a single

entry on his resume.

Shortly after the VA CVE denies VE Source’s application for SDVOSB

status, VE Source falsely self-certifies as an SDVOSB with SAM.gov

56. In order to bid on set-aside contracts offered by federal agencies other

than the VA, VE Source accessed online certification programs and certified that VE

Source was an eligible SDVOSB.

57. From November 2009 through January 23, 2012, VE Source made

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these certifications into ORCA.

58. Norton made those certifications on November 5, 2009 and March 6,

2010; Pao made those certifications on April 25, 2011 and January 23, 2012.

59. In addition to self-certifying VE Source’s SDVOSB status in ORCA on

January 23, 2012, Pao also self-certified VE Source as an SDVOSB into SAM, which

is accessed through a GSA-operated website, www.sam.gov. Pao self-certified VE

Source in both ORCA and SAM.gov because GSA migrated its online certification

program from ORCA to SAM in July of that year.

60. SAM login records show that, on April 9, 2013, Pao logged in to

www.sam.gov to certify VE Source’s SDVOSB status. Confirmation of that self-

certification went to Pao’s email address which ended in “@verticalapparel.com,”

and was the same email address he used for Vertical Source business. Although Pao

logged in to SAM.gov and certified the business as an SDVOSB, he included

Barton’s name on the certification. Thus, the certification appears as if Barton

certified the company’s SDVOSB status when, fact, it was Pao who did so. Pao was

the only person who, on behalf of VE Source, logged into SAM.gov between 2011

and February 2015 to certify VE Source as an SDVOSB.

61. Barton was aware of the self-certifications as to VE Source’s SDVOSB

status in ORCA and SAM prior to 2015.

62. Neary was aware of the self-certifications as to VE Source’s SDVOSB

status in ORCA and SAM prior to 2015.

63. SAM.gov records show that the first time Barton logged on to SAM.gov

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to self-certify VE Source as an SDVOSB was July 5, 2016. After that, login records

show that Barton personally logged into SAM.gov and self-certified VE Source as an

SDVOSB.

64. Pao and Barton falsely certified on SAM.gov that VE Source qualified

as a “service-disabled veteran-owned small business concern.” The SAM

certification form expressly defined the term “service-disabled veteran-owned small

business concern” as “a small business concern – (i) [n]ot less than 51% of which is

owned by one or more service-disabled veterans . . . and (ii) [t]he management and

daily business operations of which are controlled by one or more service-disabled

veterans.” Barton further certified as to the accuracy of this representation. With

the exception of a lapse between December 12, 2019 and January 29, 2020, VE

Source continuously maintained its SDVOSB self-certification on SAM.gov.

VE Source successfully bids on a USDA set-aside contract

65. On June 15, 2012, the U.S. Department of Agriculture (“USDA”), Food

Safety and Inspection Service, Procurement Management Branch, in Beltsville,

Maryland issued solicitation AG-3A94-S-12-0053 seeking bids for provision of

aprons and apron strings. The solicitation expressly provided that the procurement

was set aside for award only to SDVOSBs.

66. Pao was primarily responsible for finding the USDA’s. Prior to

submitting the response to that solicitation, Pao informed Barton and Neary and

received their approval to submit the proposal on behalf of VE Source. On

information and belief, Neary prepared the cost analysis—that is, the analysis of

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how much it would cost VE Source to deliver the products—for this and other

contracts that VE Source bid on. Pao prepared the rest of the response to the

solicitation.

67. Barton and Neary knew that the USDA contract was set aside for

SDVOSB entities and that Pao had represented VE Source to be an SDVOSB in

order to obtain the USDA contract.

68. Notably, VE Source submitted its bid on the USDA Contract as a self-

certified SDVOSB in ORCA just weeks after Defendants learned of the VA CVE’s

May 18, 2012 decision denying SDVOSB status to VE Source based on inadequate

evidence of Barton’s control.

69. Barton was aware that the VA CVE had denied VE Source’s request to

be recognized as an SDVOSB prior to the submission of VE Source’s bid for the

USDA contract.

70. Neary was aware that the VA CVE had denied VE Source’s request to

be recognized as an SDVOSB prior to the submission of VE Source’s bid for the

USDA contract.

71. On behalf of VE Source, Pao submitted a bid for the USDA Contract,

and after the contracting officer determined that the firm had self-certified its

eligibility as an SDVOSB, the USDA awarded the contract as an SDVOSB set-aside

to VE Source as USDA Contract No. AG-3A94-C-12-0013 (hereinafter, the “USDA

Contract”).

72. The USDA Contract was awarded on or around August 20, 2012. It

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was a one-year contract, with 4 one-year renewal options. USDA exercised its

option to extend the contract each year from 2013 to 2016.

73. With respect to the USDA Contract, Charles Moran, on behalf of VE

Source, submitted 14 invoices to the USDA for payment. In 2012 and 2013, VE

Source submitted its invoices for the USDA Contract through USDA’s Financial

Management Modernization Initiative (“FMMI”). As a result of the invoices

submitted through FMMI, the USDA made 8 payments to VE Source between

September 28, 2012 and April 10, 2013. Between 2014 and 2017, VE source

submitted its invoices for the USDA Contract through the U.S. Department of

Treasury’s Invoice Processing Platform (“IPP”). As a result of the invoices

submitted through IPP, the USDA made 6 payments to VE Source between

February 25, 2014 through October 31, 2017. In total, as a result of invoices

submitted by VE Source, the USDA paid VE Source $227,470 in connection with the

USDA Contract.

74. Barton and Neary were aware that VE Source had submitted these

invoices for payment.

75. The USDA would not have awarded the USDA contract to VE Source,

nor would it have made payments to VE Source, had it known that VE Source was

not, in fact, a legitimate SDVOSB. Indeed, the USDA contracting officer could not

have awarded the contract to VE Source because the FAR provides that “[o]ffers

received from concerns that are not [SDVOSBs] shall not be considered.” 48 C.F.R.

§§ 19.1408, 52.219-27(c).

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 20 of 49 PageID: 20

76. Because VE Source was not a legitimate SDVOSB, the material

misrepresentations made by the company and/or its agents caused the United

States to improperly award and make payments to VE Source under the USDA

Contract.

77. Neary, Barton and Pao intended that the USDA rely upon the accuracy

of the false representations regarding VE Source’s eligibility as an SDVOSB and the

USDA, in fact, relied upon the accuracy of the false representations referenced

above when it awarded the contract to VE Source and issued payments under that

contract to VE Source.

VE Source successfully bids on a DLA set-aside contract

78. On April 10, 2014, the Defense Logistics Agency Troop Support office

(“DLA”) issued solicitation number SPE1C1-14-R-0007 seeking bids for provision of

flame-retardant coveralls for the U.S. Navy. The solicitation expressly provided

that the procurement was set aside for award only to SDVOSBs.

79. After obtaining Barton’s and Neary’s consent to bid on the solicitation,

Pao prepared the submission in response to the DLA’s solicitation. Neary, Pao, and

Sherman communicated with a third party clothing manufacturer to prepare a cost

analysis for the coveralls for this solicitation.

80. Pao submitted VE Source’s response to the solicitation on May 14,

2014. Barton and Neary knew that the DLA solicitation was set aside for SDVOSB

entities and that Pao represented VE Source to be an SDVOSB in order to be

awarded the contract.

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81. After the contracting officer determined that VE Source self-certified

its eligibility as an SDVOSB in SAM, DLA awarded the contract to VE Source as an

SDVOSB set-aside as Contract No. SPE1C1-14-D-1081 (hereinafter, the “DLA

Contract”).

82. VE Source bid on this DLA solicitation on May 14, 2014 despite the

fact that the VA CVE had denied VE Source’s SDVOSB application to be recognized

as an SDVOSB for VA contracts on three separate occasions between May 2012 and

April 2013.

83. Barton was aware that the VA CVE had denied VE Source’s requests

to be recognized as an SDVOSB on three separate occasions prior to the submission

of VE Source’s bid for the DLA Contract.

84. Neary was aware that the VA CVE had denied VE Source’s requests to

be recognized as an SDVOSB on three separate occasions prior to the submission of

VE Source’s bid for the DLA Contract.

85. There were no material changes to VE Source’s managerial structure

that would have addressed the reasons that the VA CVE denied VE Source’s

request to be recognized as an SDVOSB between the VA CVE denials (the most

recent of which was issued on April 3, 2013) and VE Source’s May 14, 2014 bid in

response to the DLA solicitation.

86. The DLA contract was awarded on or around September 19, 2014. It

was a one-year contract, with 4 one-year extensions. DLA exercised its option to

extend the contract each year between 2015 and 2019.

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87. With respect to the DLA Contract, Pao and a VE Source contractor

working in Puerto Rico requested payment on behalf of VE Source by presenting

166 invoices through the Department of Defense’s “Wide Area Workflow,” or

WAWF, website. As a result of those invoices, the Department of Defense made

more than 3,000 separate payments to VE Source between February 3, 2015 and

October 28, 2019 totaling approximately $16,367,503.15 for work performed in

connection with the DLA Contract.

88. Barton and Neary were aware that VE Source had submitted these

invoices for payment.

89. The DLA would not have awarded the DLA Contract to VE Source, nor

would it have made payments to VE Source, had it known that VE Source was not,

in fact, a legitimate SDVOSB. Indeed, the DLA contracting officer could not have

awarded the contract to VE Source because the FAR provides that “[o]ffers received

from concerns that are not [SDVOSBs] shall not be considered.” 48 C.F.R.

§§ 19.1408, 52.219-27(c).

90. Because VE Source was not a legitimate SDVOSB, the material

misrepresentations made by the company and/or its agents caused the United

States to incorrectly award and make payments under the DLA Contract to VE

Source.

91. Neary, Barton, and Pao intended that the DLA rely upon the accuracy

of the false representations regarding VE Source’s eligibility as an SDVOSB and the

DLA, in fact, relied upon the accuracy of the false representations referenced above

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 23 of 49 PageID: 23

when it awarded the contract to VE Source and issued payments under that

contract to VE Source.

Neary increases his ownership interest in VE Source

from 16.33% to 49% without any compensation to Barton

92. In or about 2011, Norton exited VE Source and relinquished his

ownership interest in the company. After his departure, Pao and Neary equally

split Norton’s share, with each increasing their ownership shares from 16.33% to

24.5%. Norton was not paid anything for his shares in the company when he

departed from the business, and Barton did not receive any part of Norton’s

ownership interest in the company.

93. Similarly, in 2015, Pao exited the business, leaving Neary and Barton

as the two remaining owners. Pao received $85,000 in compensation from VE

Source upon his departure from the company, consisting of $40,000 in debt

forgiveness, and $45,000 in affirmative payments.

94. Upon Pao’s departure, Neary’s ownership interest increased from

24.5% to 49%. Barton did not receive any of Pao’s ownership interest in VE Source.

Despite receiving all of Pao’s ownership interest in VE Source, Neary did not pay

anything to Barton for those shares upon Pao’s departure.

95. Between 2011 and 2015, Neary’s ownership interest in VE Source

increased from 16.33% to 49% and Barton’s remained fixed at 51%. Neary thus

tripled his ownership interest in VE Source without additional investment or

payment to Barton. At no point did Neary compensate Barton for his increase in

ownership percentage of VE Source from 16.33% to 49%.

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 24 of 49 PageID: 24

Neary “controls” VE Source

96. In addition to the facts discussed above regarding Barton’s limited

control over VE Source, as set forth in greater detail in subsequent paragraphs,

Neary’s excessive control over VE Source is demonstrated in the following ways:

a. Neary earned far more in compensation than Barton and

took unreasonable “loans” from VE Source. Between 2015 and 2019,

Neary took substantially more in total compensation from VE Source than

Barton. Furthermore, Neary and Vertical Source took excessive “loans” from

VE Source, with the balance of those loans at times approaching $1 million.

Neary and Vertical Source took these “loans” from VE Source without any

written agreement, security, interest obligations, or defined repayment

terms.

b. VE Source co-located with the Neary Companies and

then operated out of Neary’s home: Between 2010 and 2017, VE Source

was co-located with the Neary Companies. And between 2017 and 2019, VE

Source moved into space at Neary’s personal residence.

c. VE Source paid Vertical Source to manage the DLA

Contract, shared office equipment, employees and vendors with the

Neary Companies, and Neary created a holding company to manage

VE Source: Beginning in 2015, VE Source paid Vertical Source to manage

the day-to-day aspects of its work under the DLA Contract. Employees of the

Neary Companies also occasionally performed work for VE Source without

being compensated by VE Source. VE Source and Vertical Source used the

same professional services providers and consultants and also shared office

equipment. In or about 2016, Neary created a holding company owned by

him, Moran and a third party that was intended to control VE Source as well

as the Neary Companies.

d. Neary signed virtually all important corporate

documents for VE Source, made other important business decisions,

and led substantive communications with manufacturers with little

or no input or oversight from Barton: Neary was responsible for signing

virtually all significant, legally binding documents on behalf of VE Source.

On at least two occasions, Neary signed written agreements that pledged all

or a substantial amount of VE Source’s assets without Barton’s pre-approval.

Representatives from VE Source’s most important business partners (i.e., the

companies who manufactured the apparel that VE Source sold to the

Government) uniformly describe Neary as their primary point of contact and

the person they understood to be in control of VE Source.

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 25 of 49 PageID: 25

e. Neary Placed Limits on Barton’s Corporate Spending

Power: Concerned with Barton’s potential to spend too much of VE Source’s

capital, Neary asked Barton to sign an agreement limiting Barton’s ability to

spend VE Source funds. This limited Barton’s “authority to make unilateral

decisions” on behalf of VE Source to issues involving less than $1,000.

Neary takes far more in compensation than Barton, and takes excessive,

interest-free, unsecured loans from VE Source

97. Neary took far more in compensation from VE Source than did Barton

from 2015 to 2019.

98. Much of Neary’s compensation was concealed in the form of unreported

income. For example, VE Source paid Neary’s car payments, even though his car

was not used exclusively for business purposes. VE Source also paid for Neary’s cell

phone and utility bills, home improvements, and personal credit card bills.

99. At the direction of Neary and Barton, Moran concealed these payments

on VE Source’s books and records as company expenses, rather than as reported

income.

100. Upon information and belief, factoring in all reported and unreported

compensation between 2015 and August of 2019, Neary took at least $600,000 from

VE Source.

During that same period, Barton took less than $300,000 from the

company.

101. Neary also exerted control over VE Source by taking excessive loans

These calculations do not factor in the value of substantial interest-free,

unsecured, and undocumented loans that Neary and his wholly-owned company,

Vertical Source, took from VE Source. Furthermore, those calculations do not take

into account compensation that Neary earned as a result of payments made by VE

Source to Vertical Source for Vertical Source’s management of the DLA Contract.

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 26 of 49 PageID: 26

from the company on unreasonable terms. At times between 2016 and 2018, Neary

and Vertical Source owed VE Source between $270,000 and almost $900,000.

102. For instance, at the end of 2016, Neary and Vertical Source together

owed VE Source $270,650. That year, VE Source’s profit and loss statement shows

that the company ran a net deficit of $38,686.

103. At the end of 2017, Neary and Vertical Source together owed VE

Source $294,729. That year, VE Source’s profit and loss statement shows that the

company ran a net deficit of $24,301.

104. At the end of 2018, Neary and Vertical Source together owed VE

Source $863,756. That year, VE Source’s profit and loss statement shows that the

company earned a profit of $549,927.

105. Neary and Vertical Source took these loans from VE Source without a

written agreement, without collateral or security, without interest, and without the

expectation of regular repayments.

106. In October or November of 2019—after Barton and Neary learned of

the Government’s investigation—Neary and Vertical Source began paying interest

on the loans. Even after agreeing to apply an interest rate, Barton lacked

knowledge about what rate was, how the rate was derived, whether there was a

written agreement memorializing how the interest rate would be applied, whether

interest would be retroactive, how future payments would be applied, or even when

the rate was agreed upon.

107. By contrast, Neary knew that the rate was 2.85%, that his accountants

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 27 of 49 PageID: 27

told him to use that rate, and that it was based on what is known as the “Applicable

Federal Rate.”

108. Considering the size of the loans extended to Neary and his Vertical

Source business, Barton’s of knowledge on these issues further demonstrates his

lack of control over VE Source.

109. VE Source made the loans to Neary and Vertical Source because

Barton believed that the continued viability of Vertical Source and Neary as

business partners was essential to VE Source.

110. In short, Neary and Vertical Source were extracting interest free

“loans” for hundreds of thousands of dollars from VE Source at a time when the

company was losing money. Even when VE Source finally reported a profit in 2018,

the amount of the outstanding loans to Neary and Vertical Source still far exceeded

the VE Source’s net profit.

VE Source co-locates with the Neary Companies;

then moves into Neary’s home

111. VE Source originally operated out of the same office suite as the Neary

Companies at 812 Broad Street in Shrewsbury, New Jersey.

112. Then, in or about 2013, VE Source and the Neary Companies together

moved from 812 Broad Street to an office suite at 830 Broad Street in Shrewsbury,

New Jersey.

The use of the “applicable federal rate” is a minimum interest rate used for

calculating income taxes or loans between family members and related companies.

The use of that rate is further evidence of the close connection between Vertical

Source and Neary, on the one hand, and VE Source, on the other.

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 28 of 49 PageID: 28

113. Both 812 Broad Street and the 830 Broad Street address are more

than 60 miles from Barton’s home, but just 6 miles from Neary’s.

114. On or about June 13, 2017, Neary signed a 24-month lease for a

personal residence in Rumson (the “Rumson Estate”) where he and his family would

reside. The property spanned more than 8 acres and included a main residence and

a carriage house. The lease called for payments of $238,800 over the life of the

lease—approximately $10,000 per month. Neary also took $18,000 from VE Source

for renovations to the main residence at the Rumson Estate.

115. Neary signed the lease for the Rumson Estate under VE Source’s

corporate name, placing a significant obligation on the company.

116. Barton never signed the lease for the Rumson Estate. In fact, despite

imposing a substantial financial burden on VE Source, Barton had not reviewed the

lease for the Rumson Estate either before or after Neary signed it, and had not seen

the property before Neary signed the lease.

117. VE Source began paying the rent for the Rumson Estate in July 2017.

118. Before VE Source learned of the Government’s investigation, Moran, at

the direction of Neary and Barton, recorded the payments for the Rumson Estate in

VE Source’s books and records as “office rent.” Similarly, Moran, at the direction of

Neary and Barton, booked the $18,000 from VE Source spent on renovating Neary’s

residence as a corporate expense. Within weeks of learning of the Government’s

investigation, either Moran or Neary made changes to the way VE Source’s

payments for the Rumson Estate were recorded in the company’s QuickBooks files.

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119. At some point after Neary signed the lease for the Rumson Estate, VE

Source purportedly moved its operations from 830 Broad Street to the carriage

house at the Rumson Estate. Yet even after VE Source purportedly changed

locations to operate out of Neary’s carriage house, Barton still showed up at the 830

Broad Street office several times each week.

120. VE Source purportedly operated from Neary’s carriage house at the

Rumson Estate despite a provision in the residential lease agreement prohibiting

business operations at the premises. In addition, the Rumson Estate is located in

an area of Rumson not zoned for commercial activity.

121. In or about April 2019, VE Source purportedly moved its operations

from Neary’s carriage house at the Rumson Estate to Barton’s personal residence.

Even after VE Source’s office location was nominally located at Barton’s residence,

Barton continued to show up at several days per week at the 830 Broad Street office

space.

Neary and Barton treat VE Source and the Neary Companies as

interchangeable parts of a single corporate family

122. Neary and Barton treated VE Source and the Neary Companies as

interchangeable parts of a single corporate family. For instance, VE Source and the

Neary Companies share employees, vendors, and office equipment.

123. VE Source paid Vertical Source to manage the DLA Contract. After

Pao left VE Source in or about 2015, his functions were assumed by Neary and an

employee of Vertical Source. Under this arrangement—which was never reduced to

writing—VE Source paid Vertical Source so that a Vertical Source employee could

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 30 of 49 PageID: 30

manage the day-to-day aspects of VE Source’s obligations under the DLA. Vertical

Source billed VE Source on a per-unit basis, charging VE Source between $1.50 and

$2.25 for every coverall accepted by DLA under the DLA Contract. VE Source paid

Vertical Source more than $350,000 under this arrangement.

124. Several employees of the Neary Companies worked for VE Source

without being paid by VE Source. When Pao was an owner of VE Source, he was

initially paid for his work through Vertical Source. Between January 2017 through

at least 2019, Scott Matchett was a full-time Vertical Source employee involved in

sales. During that time, however, he also worked for VE Source without

compensation from VE Source.

125. In 2016, Brad McCann worked for one of the Neary Companies

(Vertical Design Group LLC), but he took an international business development

trip for VE Source, and was never paid by VE Source for that work.

126. In 2017, another Vertical Source employee, Jean Dubé , took a trip to

Texas to visit VE Source’s manufacturer after that manufacturer fell behind in its

work for VE Source. Dubé was not paid by VE Source for that trip.

127. VE Source and the Neary Companies also used the same accountants

(three different accounting firms in five years) and lawyers.

128. Neary also hired business consultants for the Neary Companies who,

in turn, performed work for or on behalf of VE Source without being compensated

by VE Source. For example, Neary hired a company called CFO Consultants to

provide financial consulting services to VE Source and the Neary Companies.

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129. VE Source and the Neary Companies also shared office equipment,

sharing the cost and use of a Ricoh multifunction copier.

130. Neary used Vertical Source credit cards to pay for VE Source expenses,

and then had Vertical Source invoice VE Source for those expenses.

131. Neary has also offered to use assets of the Neary Companies to pay VE

Source’s debts. For instance, in 2019, VE Source owed in excess of $300,000 to

American Apparel, the company who was at the time manufacturing the coveralls

for the DLA Contract. VE Source was unable to pay American Apparel’s invoices,

and as a result, American Apparel refused to ship any additional coveralls which, in

turn, cut off VE Source from its revenue stream (because the DLA paid for coveralls

only after they were delivered, inspected, and approved). In May 2019, Neary

proposed to an American Apparel employee via text message that American Apparel

should “change the receivable from VE Source to Vertical Source and the payments

from Vertical Source will be backed and guaranteed by . . . [a separate Vertical

Source contract].”

132. Neary formed a holding company called Vertical Holdings LLC to

control not just the Neary Companies, but also VE Source. With the help of an

outside consultant, Neary developed slide decks to potential investors, seeking

money for Vertical Holdings which would, in turn, finance operations for VE Source

and the Neary Companies. Based on slide decks that were presented to investors,

Neary created Vertical Holdings to “hold a majority ownership in and manage five

separate operating entities,” one of which was VE Source.

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133. Furthermore, VE Source’s only on-the-books employee, hired in or

about April 2016, was required to sign an employment contract providing that the

CEO of Vertical Holdings—that is, Neary—had the sole discretion to award

incentive compensation to that VE Source employee.

Neary signs important corporate agreements,

leads communications with business partners, and is the primary

decision-maker on both strategic and routine issues for VE Source

134. Neary’s control over VE Source is demonstrated through actions he

took to bind VE Source in contracts with third parties. For instance, without a

counter-signature from Barton, Neary signed the following documents on behalf of

VE Source:

a. An engagement letter with CFO Consultants, a company

retained to provide strategic advice for “Vertical Source, Inc. and its affiliated

companies.” The engagement letter with CFO Consultants does not define

which companies are included in the term “affiliated companies,” but email

correspondence shows that CFO Consultants performed work on behalf VE

Source.

b. An engagement letter with the accounting firm EisnerAmper.

Neary retained EisnerAmper in May 2018 to provide accounting services for

VE Source and the Neary Companies.

c. The lease for the Rumson Estate, which obligated VE Source to

pay $238,000 over the course of the 24-month rental.

d. All of the lease agreements for the office space at 830 Broad

Street.

e. A September 26, 2017 “Addendum to Purchase Order VE1049,”

which acknowledged that VE Source owed $171,556 to Excel Manufacturing,

the company that VE Source hired to manufacture the coveralls for the DLA

Contract between 2016 and 2017.

f. An Escrow Agreement and related Instrument of Assignment

between VE Source and Excel Manufacturing. Neary executed these

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documents in an effort to resolve an ongoing dispute with Excel

Manufacturing over VE Source’s unpaid bills.

g. A Promissory Note with Confessed Judgment Provisions, signed

January 25, 2019, between VE Source and American Apparel. In signing this

agreement, Neary obligated VE Source to pay $307,000 that VE Source owed

to American. In subsequent litigation with American Apparel, Neary

submitted a sworn declaration stating that he signed that promissory note

without Barton’s pre-approval.

h. An “Agreement for the Purchase and Sale of Future Receipts”

signed in or around January 2019, with a third party finance company. In

exchange for eventual payments totaling $278,000, that finance company

made an upfront payment of $200,000 to Vertical Source. The $278,000 debt

was secured by Vertical Source’s future receivables as well as by VE Source.

Neary signed this agreement without obtaining Barton’s pre-approval.

135. In addition to signing key corporate documents on behalf of VE Source,

Neary also exerted control over VE Source by leading communications with VE

Source’s most important business partners.

136. Between 2014 and 2019, VE Source worked with three different

manufacturers to produce coveralls for the DLA Contract. Because VE Source only

received payment when the Government received and approved of the coveralls, the

manufacturers were VE Source’s most important business partners.

137. Employees from each of these manufacturers uniformly state their

understanding that Neary, not Barton, controlled VE Source.

138. Between April 2014 and November 2016, VE Source used Propper

International to manufacture the coveralls for the DLA Contract. All substantive

communications with Propper employees went through Neary, not Barton. One

Propper employee described Barton as a “front” to allow VE Source to obtain its

SDVOSB status.

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139. Between February 2016 and December 2017, VE Source used Excel

Manufacturing to manufacture the coveralls for the DLA Contract. Nearly all

substantive communications between Excel and VE Source were again with Neary,

not Barton. When VE Source had difficulty paying Excel’s bills, Excel went directly

to Neary to resolve the issue, and Neary proceeded to resolve the dispute without

any input from Barton.

140. The payment dispute—which involved approximately $171,000 owed

by VE Source to Excel—was eventually resolved when VE Source signed an

“Instrument of Assignment,” assigning VE Source’s right to payment from DLA

directly to Excel. Neary alone signed that document on behalf of VE Source.

141. Between February 2018 and October 2019, VE Source used American

Apparel to manufacture the coveralls for the DLA Contract. Nearly all high-level

substantive communications between VE Source and American Apparel were with

Neary and an American Apparel executive.

142. Furthermore, although the contract between VE Source and American

Apparel was never signed, Neary and American Apparel employees exchanged

drafts of the contract, and there is no indication that Barton negotiated any terms

of that arrangement, received a copy of the draft contract, or asked that it be signed.

143. As disputes between American Apparel and VE Source developed over

the course of the business relationship, Neary took the lead in resolving them. For

instance, when VE Source found itself unable to make timely payments to American

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Apparel, Neary took the lead in resolving the issue by leading those discussions and

proposing resolutions to the dispute.

144. Eventually, Neary alone executed a promissory note on behalf of VE

Source for more than $300,000 at a 10% interest rate, without getting Barton’s pre-

approval.

145. Neary was making decisions regarding when and which vendors

should be paid by VE Source, including with respect to the manufacturers

producing the coveralls. Upon information and belief, Barton took no part in

deciding which vendors should be paid by VE Source.

146. Neary made other key personnel decisions without Barton’s input,

including payroll issues, and handling Norton’s contentious exit from VE Source.

147. Neary signed far more VE Source checks than did Barton. Between

January 2017 and May 2019, Neary signed three times as many checks as Barton

(159 to 51, respectively).

148. Neary would sign the checks whenever Barton was out of the office,

suggesting that Neary was in the office far more frequently than Barton.

149. In communicating with VE Source business partners, Neary used an

email address ending in “@verticalsource.com.” Neary did not have an email address

unique to his work on behalf of VE Source.

Neary places limits on Barton’s corporate spending power

150. Neary also exerted control over VE Source spending by placing

constraints on Barton’s power to spend VE Source funds.

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151. Although Barton purportedly controlled the company, Neary requested

that Barton sign an agreement that would limit Barton’s ability to spend corporate

funds.

152. In or about October 30, 2016, Barton and Neary signed the “Shared

Management Agreement of VE Source, LLC,” which limited Barton’s ability to

make “unilateral decision[s]” for VE Source to matters involving less than $1,000.

All other decisions required Neary’s consent. For any obligations over $10,000,

Neary’s written consent was required.

153. Neary asked Barton to sign the Shared Management Agreement to

control Barton’s corporate spending.

Misrepresentations to the VA

154. In or about 2017, VE Source again applied to the VA CVE to become

certified as an SDVOSB with the VA. On or about July 27, 2017, the VA CVE again

denied VE Source’s application for certification as an SDVOSB entity because there

was an appearance of undue reliance by VE Source on Neary and/or Vertical Source.

155. VE Source requested reconsideration and submitted additional

documentation to the VA CVE. VE Source’s submission to the VA CVE gave the

misleading appearance of separation between VE Source and the Neary Companies.

For instance, Neary wrote a letter to the VE CVE stating that “[t]here is no

relationship between VE Source and [the Neary Companies].” Similarly, Barton

submitted a written statement explaining that “VE Source is capable and does

operate completely on its own,” and that “VE Source has never work[ed] with, for, or

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 37 of 49 PageID: 37

received any type of assistance from [the Neary Companies]. They are completely

separate from VE Source . . . and do not support VE Source in any way.” At that

time, contrary to the affirmations by Neary and Barton, VE Source had hired

Vertical Source to manage all aspects of the DLA Contract, employees of the Neary

Companies provided services to VE Source free of charge, and Neary had created

the Vertical Holdings parent company to sit atop and control VE Source and the

other Neary Companies.

156. As a result of, and in reliance upon the misleading statements of Neary

and Barton, the VA CVE certified VE Source as an SDVOSB for purposes of bidding

on VA set-aside contracts on or about September 21, 2017.

Knowledge of the falsity of the SDVOSB certifications, contractual bids and

requests for payment under the DLA and USDA Contracts

157. At all relevant times, Barton, Neary, Pao, Norton, Moran, and other

employees and agents of VE Source knew or exhibited reckless disregard as to the

truth of the matter as to whether the certifications that were made in the ORCA

and on SAM.gov as to VE Source’s SDVOSB eligibility were false. Barton, Neary,

Pao, Norton, Moran, and other employees and agents of VE Source further knew or

exhibited reckless disregard as to the truth of the matter that in bidding on, and

seeking payment under, the DLA and USDA Contracts, which were expressly set

aside for SDVOSBs, they submitted or caused to be submitted false claims or

created, or caused to be created, false records material to claims because VE Source

was not an eligible SDVOSB.

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158. At all relevant times, Barton, Neary, Pao, Norton, Moran, and other

employees and agents of VE Source knew or exhibited reckless disregard as to the

truth of the matter that Barton did not control the long-term or day-to-day

management of VE Source and that Neary controlled these functions of the

company.

159. At all relevant times, Barton, Neary, Pao, Norton, Moran, and other

employees and agents of VE Source knew or exhibited reckless disregard as to the

truth of the matter as to whether VE Source was an eligible SDVOSB because they

knew the federal government required that a service-disabled veteran not just own

a majority of the SDVOSB entity, but also control the firm on a long-term and day-

to-day basis.

160. At all relevant times, Barton, Neary, Pao, Norton, Moran, and other

employees and agents of VE Source knew or exhibited reckless disregard as to the

truth of the matter that the VA CVE had denied VE Source’s application to be

recognized as an SDVOSB on three occasions between 2012 and 2013 based on

CVE’s determination that Barton did not exercise sufficient control over the

company, his lack of management skills, and the firm’s excessive reliance on

Vertical Source.

161. At all relevant times, Barton, Neary, Pao, Norton, Moran, and other

employees and agents of VE Source knew or exhibited reckless disregard as to the

truth of the matter that the government, including employees of the USDA and

DLA, attached importance to the eligibility of companies as meeting all SDVOSB

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requirements in order to obtain contracts set-aside for SDVOSBs and obtain

payments under those contracts. Among other things, this knowledge or reckless

disregard is shown by the following: the ORCA and SAM certifications specifically

identified the requirements that a service-disabled veteran had to own and control a

company to be eligible as an SDVOSB; the FAR and SBA regulations specifically

required that a service-disabled veteran had to own and control a company to be

eligible as an SDVOSB; the solicitations for the USDA and DLA Contracts stated

that the contracts were only available to SDVOSBs; the VA denied VE Source’s

request to be recognized as an SDVOSB on four occasions because Barton did not

exercise sufficient control over VE Source and because VE Source was overly-

dependent on Neary and Vertical Source; and the Small Business Act provides that

firms that misrepresent their status as an SDVOSB “shall be subject to” civil

prosecution under the False Claims Act. 15 U.S.C. §§ 657f(d), 637(m)(5)(C).

162. At all relevant times, Barton and Neary, Pao, Norton, Moran, and

other employees and agents of VE Source that contributed to the above-described

submission of false claims and creation of false records material to claims, acted

within the scope of their employment and with apparent authority such that VE

Source is vicariously liable for their actions and such that their knowledge or

reckless disregard is imputed to VE Source.

163. At all relevant times, Barton, Neary, Pao and Moran and other

employees and employees of Vertical Source that contributed to the above-described

submission of false claims and creation of false records material to claims, acted

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within the scope of their employment and with apparent authority such that

Vertical Source is vicariously liable for their actions and such that their knowledge

or reckless disregard is imputed to Vertical Source.

164. Despite this knowledge, Barton, Neary, VE Source and Vertical Source

submitted or caused to be submitted false certifications as to VE Source’s SDVOSB

eligibility in order to obtain the DLA and USDA Contracts, and submitted or caused

to be submitted false claims and statements in causing VE Source to bid on, and

obtain payment under, contracts expressly reserved for eligible SDVOSBs.

165. As further evidence of the materiality of the false certifications, bids,

invoices and statements that VE Source met the requirements to be an SDVOSB,

the Government has regularly prosecuted, both criminally and civilly, parties that

fraudulently obtain SDVOSB set-aside contracts (including, in particular, contracts

awarded by the Department of Defense and the USDA) as reported in federal Office

of Inspector General (OIG) reports to Congress:

• USDA OIG Semiannual Report to Congress, Second Half (Apr.

1, 2013-Sept. 30, 2013), at 27, available at

https://www.usda.gov/sites/default/files/sarc2018_2nd_half_508.pdf

(indictments and administrative penalties against several individuals and

companies for, among other things, falsely certifying as an SDVOSB to obtain

set-aside contracts from the USDA, Department of Defense, and other federal

agencies)

• GSA OIG Semiannual Report to Congress (Oct. 1, 2016-March

31, 2017) at 35, available at

https://www.gsaig.gov/sites/default/files/semiannual-reports/GSA-OIG-SAR-

05-2017.pdf (contractor sentenced to 30 months’ imprisonment and forfeiture

of over $6.7 million for fraudulently representing himself and his company as

an SDVOSB contractor to obtain contracts from the GSA, the VA, and the

Department of Defense);

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 41 of 49 PageID: 41

• SBA OIG Semiannual Report to Congress Fall 2017 (Apr. 1,

2017- Sept. 30, 2017) at 14, available at

https://www.sba.gov/sites/default/files/oig/SBA_OIG_Fall_2017_SAR.pdf (over

$3 million settlement resolution where SDVOSB served as a pass-through for

an ineligible company);

• SBA OIG Semiannual Report to Congress Fall 2016 (Apr. 1,

2016-Sept. 30, 2016) at 12, available at

https://www.sba.gov/sites/default/files/oig/SAR_Fall_2016_Publication_Draft_

-_508.2.pdf (69 months’ imprisonment and forfeiture of nearly $1.3 million

against Texas man who used father’s identity to qualify for SDVOSB

designation);

• VA OIG Semiannual Report to Congress Issue 75 (Oct. 1, 2015-

March 31, 2016) at 43, available at https://www.va.gov/oig/pubs/sars/vaoig-

sar-2016-1.pdf ($5 million settlement against corporation that misused

warehouse manager’s status as a disabled veteran to obtain SDVOSB

contracts);

• Department of Defense OIG Semiannual Report to the Congress

(Oct. 1, 2015 to Mar. 31, 201), at 20, available at

https://www.dodig.mil/Portals/48/Documents/SAR/SAR-1-oct-2015-31-mar-

2016.pdf?ver=2017-02-02-160851-070 (sentencing, restitution and forfeiture

for owners of an SDVOSB, and their co-conspirator employees, for fraudulent

claims of SDVOSB status to obtain set-aside contracts);

• VA OIG Semiannual Report Issue 72 (Apr. 1-Sept. 30, 2014) at

56, available at https://www.va.gov/oig/pubs/sars/VAOIG-SAR-2014-2.pdf

(discussing multiple SDVOSB cases including one in which $3.9 million was

seized and another where a construction company owner received 57 months’

sentence and forfeiture order of $1.1 million);

• SBA OIG Semiannual Report to Congress Fall 2014 (April 1,

2014 – Sept. 30, 2014) at 11, available at https://www.sba.gov/oig/semi-

annual-report-congress-fall-2014 (guilty plea to fraud for making false

statements regarding SDVOSB eligibility to obtain $7.4 million in SDVOSB

set-aside contracts from the Department of Defense and the VA);

• USDA OIG Semiannual Report to Congress, Second Half (Apr.

1, 2013-Sept. 30, 2013), at 7, available at

https://www.usda.gov/sites/default/files/sarc2013_2nd_half.pdf (sentencing in

criminal investigation of company that falsely represented itself as an

SDVOSB to obtain more than $1.7 million in SDVOSB set-aside contracts

funded by the USDA);

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• SBA OIG Semiannual Report to Congress Fall 2013 (Apr.1-Sept.

Sept. 30, 2013) at 10, available at https://www.sba.gov/content/semi-annual-

report-congress-fall-2013-0 (sentencing in criminal prosecution for

fraudulently establishing a firm as an SDVO business and receiving over

$13.6 million in SDVO set-aside contracts from the GSA, the VA, and the

Army);

• Department of Defense OIG Semiannual Report to the Congress

(Oct. 1, 2012 to Mar. 31, 2013), at 6, available at

https://media.defense.gov/2019/Dec/11/2002223353/-1/-1/1/SAR-1-OCT-2012-

31-MAR-2013.PDF (sentencing and forfeiture for owner of LLC who falsely

certified his business as an SDVOSB to obtain more than $5 million in

contracts set-aside by the Department of Defense for SDVOSB entities);

• SBA OIG Semiannual Report to Congress Fall 2012 (Apr.1-Sept.

Sept. 30, 2012) at 10, available at https://www.sba.gov/content/semi-annual-

report-congress-fall-2012 (owner of construction company pled guilty for

fraudulently claiming SDVOSB status to obtain 11 federal government

contracts from the VA and the Army valued at over $6.8 million, which his

company otherwise would not have been entitled to receive); and

• SBA OIG Semiannual Report to Congress Fall 2010 (Apr.1-Sept.

Sept. 30, 2010) at 15, available at https://www.sba.gov/content/semiannual-

report-congress-fall-2010 (indictment of owner of company for falsely

claiming SDVOSB status for his company in obtaining three SDVO set-aside

contracts in excess of $10.9 million).

166. Prior to the award of, and during the entire time that the USDA and

DLA contracts were being performed and VE Source was being paid under these

contracts, employees at USDA and DLA whose duties related to the administration

or payment of the contracts did not have knowledge that VE Source had

fraudulently certified itself as an SDVOSB.

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CLAIMS FOR RELIEF

COUNT ONE

Defendants Presented or Caused to be Presented False or Fraudulent

Claims to the United States in Violations of the False Claims Act, 31 U.S.C.

§ 3729(a)(1)(A)

167. The United States repeats and re-alleges the allegations set forth in all

of the preceding paragraphs as if set forth fully at length herein.

168. As set forth above, Defendants presented or caused to be presented to

the United States for payment or approval false and fraudulent claims, with

knowledge that they were false, and/or with deliberate ignorance of their truth or

falsity, and/or with reckless disregard for their truth or falsity.

169. Plaintiff United States has sustained damages as a result of the false

claims of Defendants, in an amount to be determined at trial, and is entitled to a

civil penalty as required by law for each violation.

COUNT TWO

Defendants Made or Used, or Caused to be Made or Used, a False Record or

Statement in Violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(B)

170. The United States repeats and re-alleges the allegations set forth in all

of the preceding paragraphs as if set forth fully at length herein.

171. In connection with the foregoing schemes, Defendants knowingly, or

with deliberate ignorance or in reckless disregard for the truth, made, used or

caused to be made and used, false records and statements material to false and

fraudulent claims that were made to the United States.

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172. Alternatively, in connection with the foregoing schemes, Defendants

knowingly, or with deliberate ignorance or in reckless disregard for the truth, made,

used or cause to be made and used, false records and statements to get false and

fraudulent claims paid or approved by the United States.

173. By reason of the aforementioned false claims, the United States has

sustained damages in an amount to be determined at trial, and is entitled to a civil

penalty as required by law for each violation.

COUNT THREE

Neary and Barton Conspired to Present or Cause to Be Presented

False or Fraudulent Claims to the United States and Conspired to Make,

Use or Cause to be Made or Used False Records and Statements Material

to False and Fraudulent Claims to the United States in Violation of the

False Claims Act, 31 U.S.C. § 3729 (a)(1)(C)

174. The United States repeats and re-alleges the allegations set forth in all

of the preceding paragraphs as if set forth fully at length herein.

175. Upon information and belief, Neary and Barton agreed with each other

to defraud the Department of Defense and the USDA by obtaining government

contracts set-aside for SDVOSBs, and by submitting invoices for payment to those

agencies for reimbursement, despite their knowledge that VE Source was not

eligible as an SDVOSB to receive those contracts or payments. Further, upon

information and belief, Neary and Barton agreed with each other to conceal

evidence relating to the conspiracy by, for instance, concealing the true amount of

compensation paid to Neary and Barton and by concealing Barton’s lack of control

over VE Source as needed to meet the SDVOSB eligibility requirements.

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176. Neary and Barton undertook and caused the undertaking of multiple

actions in furtherance of the conspiracy, including but not limited to, (i) false

certifications of VE Source’s SDVOSB eligibility; (ii) false bids to obtain contracts

that were set-aside only for eligible SDVOSBs; (iii) submission of invoices to DLA

and USDA that contained express and/or implied representations that VE Source

continued to qualify as an SDVOSB or that contained representations but omitted

to disclose VE Source’s lack of SDVOSB eligibility; and (iv) the structuring of

corporate records (i.e., QuickBooks files and tax returns based on those files) to

create the appearance that Barton was paid more than Neary.

177. As set forth above, in connection with the foregoing schemes, Neary

and Barton knowingly, or with deliberate ignorance or in reckless disregard for the

truth conspired to submit or cause to be submitted, false claims, or conspired to

make, use or cause to be made or used false records and statements material to

false and fraudulent claims that were made to the United States, and took actions

to further these conspiracies.

178. By reason of these false claims, the United States has sustained

damages in an amount to be determined at trial, and is entitled to a civil penalty as

required by law for each violation.

COUNT FOUR

Defendants Committed Common Law Fraud

179. The United States repeats and re-alleges the allegations set forth in

all of the preceding paragraphs as if set forth fully at length herein.

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180. Defendants made material misrepresentations of fact, with knowledge

of, or in reckless disregard of, their truth, in connection with claims for payment

submitted by, or on behalf of, Defendants, to the United States.

181. Defendants intended that the United States rely upon the accuracy of

the false representations referenced above.

182. The United States in fact relied upon the accuracy of the false

representations referenced above when it awarded the USDA and DLA contracts

and issued payments under those contracts to the Defendants.

183. The United States made substantial payments of money in justifiable

reliance upon Defendants’ false representations.

184. Defendants’ actions caused the United States to sustain damages in

an amount to be determined at trial.

COUNT FIVE

Defendants Were Unjustly Enriched

185. The United States repeats and re-alleges the allegations set forth in

all of the preceding paragraphs as if set forth fully at length herein.

186. By reason of the payments made to Defendants by the United States,

Defendants were unjustly enriched.

187. The circumstances of Defendants’ receipt of contracts as an SDVOSB,

and subsequent payments by the United States are such that, in equity and good

conscience, Defendants are liable to account for and pay such amounts which were

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paid to them that should not have been paid, including the disgorgement of any

profits and money that Defendants unjustly received.

COUNT SIX

Defendants Received Payment by Mistake

188. The United States repeats and re-alleges the allegations set forth in

all of the preceding paragraphs as if set forth fully at length herein.

189. This is a claim for the recovery of monies paid by the United States to

Defendants by mistake.

190. The United States, acting in reasonable reliance on the accuracy and

truthfulness of the information contained in the claims, paid Defendants certain

sums of money to which it was not entitled, and are thus liable to account and pay

such amounts back to the United States.

COUNT SEVEN

VE Source is the Alter Ego and a Mere Instrumentality of Vertical Source

191. The United States repeats and re-alleges the allegations set forth in

all of the preceding paragraphs as if set forth fully at length herein.

192. VE Source and Vertical Source are alter egos of one another, by virtue

of the fact that, among other things, (1) VE Source and Vertical Source shared some

of the same officers and employees, (2) some of Vertical Source’s employees

performed work for VE Source, for which they were paid by Vertical Source, (3) VE

Source and Vertical Source shared a common address and work space, (4) VE

Source provided extensive interest free loans to Neary and Vertical Source and/or

Case 3:20-cv-14167 Document 1 Filed 10/09/20 Page 48 of 49 PageID: 48

gave Neary and Vertical Source money that was not paid back, (5) the bank

accounts of VE Source and Vertical Source were electronically linked, (6) Vertical

Solutions assumed responsibility for management and performance of the DLA

contract awarded to VE Solutions, and (7) vendors and independent contractors

hired by Vertical Source worked on behalf of VE Source.

139. Because VE Source and Vertical Source are alter egos of one another,

Vertical Source is liable for the actions taken by VE Source, its officers, directors,

and/or employees.

140. Vertical Source is liable to the United States to the same extent as VE

Source, for any of the actions of VE Source, its officers, directors, and/or employees,

as set forth above.

PRAYER FOR RELIEF

WHEREFORE, the United States demands a jury trial and judgment

against the Defendants for damages, civil penalties, attorneys’ fees, costs, and any

other relief that the Court may deem just and proper.

Dated: Newark, New Jersey

October 9, 2020

CRAIG CARPENITO

United States Attorney

By: /s/ David V. Simunovich

DAVID V. SIMUNOVICH

MARK C. ORLOWSKI

Assistant United States Attorneys

Attorneys for Plaintiff

United States of America

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