ASG files $4M lawsuit against Native Hawaiian Holding Co Mon, 04/07/2014 - 9:32am Local News DOL asking for $3Mil+ repayment of disallowed costs from ASG, not NHHC By Joyetter Feagaimaalii-Luamanu joy@samoanews The American Samoa Government has filed a lawsuit against the Native Hawaiian Holding Company for close to $4million, on allegations of fraud, failure to pay taxes, compensatory damages, exemplary punitive damages, and unjust enrichment. The 41-page lawsuit was filed last Friday with the High Court, by Assistant Attorney General Masaya Uchino, naming NHHC’s President Quin Rudin, NHHC’s CEO Dennis Kanahele, CGC Digital, Community Investment Corporation (CIC), Malama First and John and Jane Doe as defendants in this multimillion civil litigation. According to the lawsuit, in 2009 the territory was awarded a National Emergency Grant (NEG) from the USDOL, and one of its purposes was to fund training and employment for individuals who were unemployed as a result of the 2009 tsunami. The grant was also meant to help bolster the local economy. In 2010, Department of Human Resources submitted this contract out for bid through the Procurement Office seeking a development plan team to find an entity which could create a Call Center Training Facility. The aim was to utilize ASNEG funds to find approximately 1,500 unemployed individuals in the territory who qualified under ASNEG. In 2011 the bid was awarded to American Pacific Resources (owned by Michael McDonald and his wife Paula Stevenson McDonald) based on a cost analysis; however five months later APR withdrew its bid as they were unable to meet certain financial requirements set forth in the federal NEG. Other companies, which had also submitted bids, were contacted again, however they were unwilling or unable to meet the financial requirements. In the period of Dec 2011 to Jan 2012, DHR was approached by APR leadership (the McDonalds) and NHHC President Quin Rudin claiming they had experience with call centers and working with Samoan communities. After numerous meetings and phone calls, Rudin represented that NHHC had the capabilities and funds to successfully complete ASNEG’s goal in coordination with its off island partners and APR. On Jan. 13, 2102, NHHC provided a detailed report that outlined its plan — a detailed strategy of how they intended to place ASNEG participants into employment utilizing partner companies and their subsidiaries, including CGC Digital, CIC and Malama. Procurement said they had no reason to question the veracity of NHHC’s capabilities based on its presentations, and the following month, NHHC was awarded a sole source contract. KEY PROVISION OF CONTRACT NHHC was told they must accomplish four objectives to fulfill their contract: 1) creation of a comprehensive center industry supply chain to facilitate the ASNEG Call Center project; 2) creation of a job fair and economic development program; 3) creation of a one-stop workforce development center; and 4) successful job placement. The contract required NHHC to place 75% of the 900 eligible participants in the long term (minimum of one year) and any failure to do so would be considered a breach of contract for nonperformance. According to the lawsuit, NHHC’s plan and Scope of work of the contract said that a majority of the job placements would occur in Hawai’i and the job placements were to be completed by June 30, 2012. BREACH OF CONTRACT & TERMINATION The lawsuit states that on Feb. 24, 2012 NHHC submitted an invoice for the first payment and the first payment was issued to NHHC on March 30, 2012. It was received by Paula Stevenson McDonald in April 2012. However, as of June 2012 — the target date for completion of job placements in Hawa’ii — NHHC failed to provide any verification that a single NEG participant received any job placement. The monthly reports submitted by NHHC only confirmed job placements for a few direct hires by NHHC itself and the One Stop Career Center that it established, however even for the direct hires, NHHC failed to produce any legitimate paperwork that could provide confirmation to ASG that the job placement had actually occurred. On June 20, 2012, NHHC submitted an invoice for the second payment and on July 6, 2012 the check was ready, however former DHR Director (Evelyn Langford) instructed staff to hold the check, due to the fact that NHHC had not reported any progress on the contract. However, the check was later released to Paula Stevenson McDonald. The following month, ASNEG told NHHC that the second payment needed to be reimbursed; however, that did not happen, and ASNEG was never reimbursed from NHHC. Two months later, ASG approved a contract change order extending the duration of the contract from Sept, 20120 to Dec 31, 2012. In November, 2012, ASG sent two letters to NHHC. One letter detailed ten major items of immediate concern regarding NHHC’s inability to fulfill its obligation under the contract, and the second letter listed additional concerns regarding the programmatic and financial activities of NHHC. “Meanwhile, in November 2012 the ASNEG team conducted an initial on-site compliance check of NHHC’s files and found that (1) NHHC had no evidence that any work had been done with ASNEG participants; (2) no documentation existed that showed any verification of job placements and (3) there were significant questionable costs. The next month ASNEG sent a corrective action plan to work with NHHC and conducted a follow up, wherein they noted “NHHC created 484 physical files. However, those files were missing critical biographical information about the participants and most files did not contain any notes regarding progress of training or job placement. There were glaring inconsistencies that indicated fraudulent omissions, according to the lawsuit. One example given was the fact that names and social security numbers did not match up. Meanwhile NHHC still had not created participant files for at least 405 participants.” They also had never submitted a project budget, only a profit and loss statement, says the lawsuit. “After a detailed review of the NHHC’s expenditures, $3,092,831.65 out of the $3,131,974.00 awarded were unallowable, questionable costs or unjustified costs,” the lawsuit noted. HISTORY OF FRAUD BY NHHC NETWORK Pointing to a history of fraud, the government said that Rudin had been indicted by a Federal Jury on two counts of wire fraud and one count of aggravated identify theft. The indictment and complaint indicated how Rudin had used CGC Digital, a company he controlled, to defraud Cisco Systems Inc, for millions. According to the lawsuit, ASG uncovered — after a review of expenditures — that Rudin, Kanahele and NHHC had used ASNEG funds to pay approximately $2,742,214 to CGC, approximately $230,763 was paid to CIC and a payment to Malama was in the amount of $152,250 from ASNEF funds, yet the payments were not justified nor had there been any job placement with these companies. “On information and belief, Quin Rudi and Dennis Kanahele and other individuals unknown at this time orchestrated the scheme of NHHC, using ASNEG payments to fraudulently remit funds to CGC Digital, CIC and Malama and other companies that they controlled.” FAILURE TO PAY TAXES NHHC has also an outstanding amount of $285,365.59 owed to ASG for income taxes on wages paid to employees when it conducted business in the territory, says the lawsuit. (In response, NHHC pointed out they were unable to pay anything until ASG remitted the final payment of contract.) UNJUST ENRICHMENT The lawsuit says that — based on detailed financial compliance records of NHHC’s expenditures — of the $4million only $39,142.35 of the expenditures could be justified, and thus defendants were unjustly enriched by $3.09million. PRAYER OF RELIEF ASG seeks the court to order relief of an award against NHHC for $3.09million in compensatory damages, $285,365.59 for income taxes owed, an award against defendants for exemplary punitive damages, to disgorge the monetary benefit unjustly retained by them, an award of prejudgment interest, costs, attorney fees and any other relief the court may deem appropriate and just under the circumstances. BACKGROUND In 2011 Native Hawaiian Holding Company (NHHC) signed the contract with the government to provide training and employment in the contact center industry for 900 NEG participants and authorized it to operate job placement and supportive services in a setting that would serve as part of the Workforce Investment Act (WIA) Workforce System which was overseen by the Human Resources. Following an audit by the Federal Audit Report (FAR) where financial statements and monthly reports disclosed unallowable costs of $2.53million, and USDOL is asking for repayment. Last month the governor informed his directors he’s seeking thorough information prior to anything being done on this matter, because this is a substantial amount, yet at the same time the AG’s office was instructed to go after NHHC for the unallowable cost it’s alleged NHHC incurred.
Posted on: Mon, 07 Apr 2014 21:55:41 +0000
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