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Federal Government Experts Won $38.5 Million in Mask Contracts for Masks It Did Not Have

The VA and FEMA agreed to pay $38.5 million for N95 masks the company did not have. The contracts paid nothing; two relief loans paid out $1.07 million.

Pandemic Darlings · Published

In April 2020 the Department of Veterans Affairs and FEMA agreed to buy 6.5 million N95 masks, at a total price of $38,510,000, from Federal Government Experts, LLC, a Falls Church, Virginia, contractor owned by Robert S. Stewart Jr.1 The company had no masks. Over the same weeks it borrowed $1,066,500 from two pandemic relief programs on payroll and revenue figures that were also false.

The masks were "on hand and ready"

Stewart was the chief executive and sole owner of the company. Between April 1 and May 14, 2020, he told VA and FEMA procurement officials that he and the company held large quantities of N95 masks. According to the criminal information he later pleaded guilty to, neither he nor the company had actual or constructive possession of any such stock.1

The House Select Subcommittee on the Coronavirus Crisis later obtained the agencies' files. Its majority staff counted more than 30 false statements and quoted several: the masks were "on hand and ready," "masks had been delivered to LAX," and "masks had been intercepted by a member of Vice President Pence's Covid19 task force." VA officials, the memo says, described the result as "a shell game of 'where are the masks?'"2

How a $4.00 mask became a $5.90 mask

On April 5, 2020, VA officials told Stewart they would pay $4.00 per mask. He answered that FEMA officials had notified him that same day of "their intent to purchase" two million masks. VA then agreed to buy six million masks at $5.90 each, noting that "given the short amount of time and emergency nature of the procurement [the contracting officer] was only able to do a minimal amount of price analysis." On April 15 a FEMA regional office ordered 500,000 masks at $7.02 each.2

At the memo's prices the two orders come to $35.4 million and $3.51 million. The Justice Department put the VA contract at $35,000,000 and the FEMA contract at $3,510,000, which matches the information's total of $38,510,000.31

No masks arrived. The memo says VA terminated the contract and referred it to its Inspector General, then, two weeks later, awarded Stewart a second contract, for $249,900 of N95 masks. That one was canceled before any money was spent.2

The terms that protected the mask money

The contracts called for payment on delivery and inspection. Because nothing was delivered, the Justice Department said, "the U.S. government suffered no financial loss," and prosecutors told the court that no restitution was due on the mask count.34

The relief programs had no such clause. On March 30, 2020, Stewart applied to the Small Business Administration for an Economic Injury Disaster Loan. The application said the company had $1,348,000 in revenue and $825,000 in cost of goods sold over the prior twelve months, figures the information calls materially false and significantly overstated. The SBA paid a $10,000 advance on April 14 and $251,500 more on April 20, a total of $261,500. Some of it went to personal expenses, which the program did not allow.1

On May 2 he applied to Celtic Bank for a Paycheck Protection Program loan. The application listed 37 employees and an average monthly payroll of $322,000. The company had 9 employees and an average monthly payroll of $13,907, so the stated payroll was about 23 times the real one. Attached was an IRS Form 941 showing $960,000 in first-quarter wages; it had never been filed with the IRS. Celtic Bank disbursed $805,000.1

On July 23, 2020, after federal agents interviewed him about the mask contracts, Stewart repaid Celtic Bank $791,507.95.14

A third program, and the sentence

The information added one more count. Since 2013 Stewart had drawn VA benefits on an application stating that he had served in the Marine Corps and received military awards. He had served in the Air Force, not the Marines; the VA paid him $73,722.45 he was not owed.14

He pleaded guilty on February 3, 2021, to making false statements, wire fraud and theft of government funds.5 Before sentencing he paid $348,714.50 in restitution: $261,500 to the SBA, the remaining $13,492.05 to Celtic Bank and $73,722.45 to the VA. The guidelines range was 21 to 27 months, and prosecutors asked for 24.4 On June 16, 2021, the court sentenced him to 21 months in prison and three years of supervised release.3

Notes

  1. Criminal Information, United States v. Robert S. Stewart, Jr., No. 1:21-cr-00005 (E.D. Va.). ↩1 ↩2 ↩3 ↩4 ↩5 ↩6 ↩7
  2. House Select Subcommittee on the Coronavirus Crisis, majority staff memorandum, "Investigation into Federal Government Experts, LLC" (June 17, 2021). ↩1 ↩2 ↩3
  3. U.S. Attorney's Office for the Eastern District of Virginia, "Former CEO Sentenced for Defrauding Multiple Federal Agencies" (June 16, 2021); original at justice.gov. ↩1 ↩2 ↩3
  4. Government's sentencing memorandum, United States v. Stewart, No. 1:21-cr-00005 (E.D. Va. filed June 9, 2021) (ECF 14). ↩1 ↩2 ↩3 ↩4
  5. Plea Agreement and Statement of Facts, United States v. Stewart, No. 1:21-cr-00005 (E.D. Va. Feb. 3, 2021) (ECF 6, 7). ↩
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