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Published: Friday January 24, 2014 MYT 5:55:02 AM
Updated: Friday January 24, 2014 MYT 5:55:52 AM

U.S. brings fraud charges against firm that vetted Snowden

(Reuters) - The U.S. Justice Department accused United States Investigations Services (USIS), the largest private provider of security checks for the government, of bilking millions of dollars through improper background verifications.

USIS - which had vetted former spy agency contractor Edward Snowden - filed at least 665,000 flawed background checks between March 2008 and September 2012, which was about 40 percent of total submissions, the Justice Department said in a court filing on Wednesday.

The DOJ accused USIS of receiving millions of dollars that it otherwise would not have received had the government been aware that the background investigations had not gone through the quality review process required by contract.

Through a software known as "Blue Zone," USIS was able to quickly make an electronic "Review Complete" notation without fully going through the mandated review process, DOJ said.

"USIS management devised and executed a scheme to deliberately circumvent contractually required quality reviews of completed background investigations in order to increase the company's revenues and profits," DOJ said in its filing.

USIS said it has been cooperating with the government's investigation, and the allegations in the complaint related to a small group of people over a specific time period. The company said it had appointed a new leadership team, enhanced oversight procedures, and improved control protocols.

"The alleged conduct referenced in the civil complaint is contrary to our values and commitment to exceptional service," a USIS spokesperson said via email.

USIS has a contract with the government since 1996 to vet individuals seeking employment with federal agencies. Such background checks include investigative fieldwork on each application.

The company is a unit of Altegrity Inc, whose debt prices fell slightly on Thursday on news of the fraud charges.

A former employee of USIS filed a whistleblower lawsuit in July 2011 under the False Claims Act, which lets people collect rewards for blowing the whistle on fraud against the government.

The lawsuit alleged that USIS failed to perform quality control reviews in connection with its background investigations.

The DOJ filing said federal payments to the firm ranged from $95 to $2,500, depending on the type of background investigation. It requested a jury trial and seeks to recover treble damages and penalties.

USIS also vetted Aaron Alexis, the technology contractor who killed 12 people at the Washington Navy Yard in September. The lawsuit is not about the firm's review of Alexis or Snowden, who is wanted by the U.S. government for leaking documents about the surveillance programs at the National Security Agency.

Private equity firm Providence Equity Partners LLC acquired Altegrity from Carlyle Group LP and Welsh, Carson, Anderson & Stow in 2007 for $1.5 billion. Altegrity later expanded its intelligence and security consulting business through its $1.13 billion acquisition of Kroll Inc in 2010.

Even before the fallout from the Snowden controversy, Providence's bet that Altegrity would benefit from government spending had turned sour, as sequestration and defence spending cuts weighed on the business of government contractors.

Altegrity has tapped Evercore Partners Inc for advice on shoring up its finances, a person familiar with the matter said earlier this month.

The case is United States Of America ex rel. Blake Percival vs U.S. Investigations Services, Case No. 11-cv-527, U.S. District Court, Middle District of Alabama (Northern Division)

(Additional reporting by Greg Roumeliotis in New York and Tanya Agrawal in Bangalore; Editing by Supriya Kurane, Saumyadeb Chakrabarty and Bernard Orr)

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