A 55-year-old former CEO of a defense contracting firm has been forced to pay out $4.5 million dollars for creating fake front companies to take advantage of a special category of contracts offered to small businesses.

Former Marine Keith Hedman, currently serving time in prison on criminal charges, formed Protection Strategies, Inc. (PSI) in 2001 and designated an African-American female president as CEO, in order for the firm to qualify for contracts through the Small Business Administration's Section 8(a) program. Under Section 8(a), a certain number of contracts must be made available for businesses owned by disadvantaged minorities.

However, in 2003, the African-American CEO left the company, rendering PSI ineligible to continue activities under 8(a). At exactly the same time the CEO left, Hedman created a new company called Security Assistance Corporation (SAC) and picked Dawn Hamilton, a female employee with a Portuguese background, to lead the company, figuring she counted as a marginalized individual.

Hamilton worked closely with Hedman to mislead the Small Business Administration (SBA). The two claimed that Hamilton was the only person in company management, and as a result, SBA finally granted SAC 8(a) status in 2004.

Since Hamilton was actually unable to direct the company in any capacity, Hedman conducted corporate operations behind the scenes, and over a period of 8 years, SAC brought in $31 million dollars. In the course of his business dealings, Hedman also bribed a regional director for the National Capital Region of the Federal Protective Service.

"The civil settlement illustrates the importance of not stopping at a criminal resolution when a defendant has pled guilty to fraud against the government," said U.S. Attorney Boente. In 2013, the Department of Justice finalized the criminal charges against Hedman, sentencing him to 72 months in prison.

At the hearing, Michael Davis, owner of small business Davis-Paige Management Systems, testified that he had had to cut employees after losing the contract to Hedman's firms. Some employees were forced into part-time roles, since the company lost $100,000 in bidding on the contract.

What's new is that Hedman has finally agreed to return $6.1 million dollars of money earned from contracts with the federal government. He will also pay a $15,000 dollar fine. Once released, Hedman will be under close supervision for two years.

The Department of Justice (DOJ) emphasized that although Hedman is currently serving sentence under criminal charges, this new development is a civil settlement, meaning that there has been no determination of civil liability, as Hedman was willing to come to the table and sign off on the proposed DOJ settlement.

Before starting in the private security industry, Hedman taught interrogation resistance while serving as a decorated Marine. According to his biography, Hedman "has been particularly successful in acquiring and managing contracts from the U.S. government."

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