Civil charges filed against DRC

The U.S. Attorney's Office in Boston filed a civil complaint today against Dynamics Research Corp. seeking penalties and triple the dollar amount of damages arising from a kickback scheme carried out by two former DRC vice presidents.

The civil complaint alleges that DRC, based in Andover, Mass., violated the False Claims Act, the Anti-Kickback Act of 1986 and common law by engaging in a fraudulent scheme of kickbacks and overcharges to the federal government for computer systems and RAM memory units.

The complaint alleges that DRC netted more than $10 million in overcharges to the Air Force. The complaint says the activities took place from 1997 through 2000, and that DRC used its position to direct the placement of government contracts for computer equipment and services so that kickbacks would be paid to company employees and others in connection with procuring government contracts.

"The conduct by two high level executives of Dynamics Research is something for which the corporation must be held responsible," said U.S. Attorney Michael Sullivan. "Companies that contract with the government must foster a culture of compliance by all of their employees and ensure proper conduct in the performance of their work for the government."

James Regan, chairman and chief executive officer of DRC, broke the news of the government's civil action Wednesday, the day before the action was filed.

In a telephone press briefing, he said the company has been in settlement discussions with the government attorneys for some time, but they were unable to reach an agreement.

Regan said he didn't know the amount of damages being sought by the government, but he expected it would be "a multiple of the $10 million the government claims two employees defrauded the Air Force," even though the government has recouped most, if not all, of the money through fines and taxes paid by the two men.

"Under these circumstances, we believe the government is overreaching and acting without any apparent concern" of the impact on innocent employees of DRC, Regan said.

The two former DRC employees, Paul Arguin and Victor Garber, pleaded guilty in 2001 and were sentenced to prison in March 2002.

Regan also pointed out that DRC had fired Arguin and Garber as soon as it was notified of the charges against them, and that the U.S. Attorney had thanked the company for its "full and complete cooperation" in October 2000 in unraveling the case.

DRC's stock price closed down 15.25 percent on Thursday.