PHILADELPHIA – United States Attorney William M. McSwain announced that Lehigh University in Bethlehem, Pennsylvania, has agreed to pay $200,000 and abide by compliance requirements in connection with any application seeking federal grant funds or cooperative agreements with any federal agency. The settlement agreement resolves allegations under the False Claims Act relating to Small Business Innovation Research (“SBIR”) grants awarded to ArkLight, a company owned by Dr. Yujie Ding, a former Lehigh University professor.
The Small Business Innovation Research program is a competitive program that encourages American small businesses to engage in research on behalf of the federal government that has the potential for commercialization. Although small businesses may subcontract a portion of the work to other entities, including universities, the small business itself must perform a majority of the work under the program.
Between 2004 and 2013, Lehigh University employed Dr. Yujie Ding, first as an Associate Professor and then as a Professor. During that time, Ding used a sole proprietorship he created called ArkLight to apply for SBIR program research grants funded by the National Aeronautics and Space Administration (“NASA”), the United States Department of the Army, the United States Air Force, and the National Science Foundation (“NSF”). ArkLight received grants totaling $2,740,000.
In each proposal, Yuliya Zotova, Ding’s wife, was listed as ArkLight’s principal investigator, the person designated to lead the scientific and technical effort. Under applicable program rules, Professor Ding was not eligible to serve as the principal investigator. The proposals represented that ArkLight would do a majority of the work under the leadership of Zotova. Lehigh University agreed to act as a subcontractor on some of ArkLight’s grants.
Under the applicant programs, ArkLight was to complete a majority of the research work. In reality, and unbeknownst to Lehigh University, none of the work was completed by ArkLight. Instead, all of the work was done by graduate students and others working in Ding’s university laboratory, under Ding’s supervision. The United States contends that, at the time, Lehigh University had an inadequate compliance program in place to detect and prevent Ding’s fraud. Although the work was done at Lehigh University, the University was ineligible for payment because there was no small business serving as the primary contractor. As the nominal subcontractor, Lehigh was paid over $1 million.
Ding and Zotova were criminally were charged by Indictment by the U.S. Attorney’s Office for the Eastern District of Pennsylvania. That indictment was unsealed on February 5, 2015, and on November 12, 2015, a jury returned guilty verdicts against Ding and Zotova on six counts of wire fraud. Ding was sentenced to a year and a day in prison for his role in the fraud. He was also ordered to pay a fine of $3,000 and restitution of $72,000. Zotova, was sentenced to 3 months in prison, along with a fine and restitution. Lehigh University cooperated in the criminal investigation and trial of Ding and Zotova by responding to subpoenas and making witnesses available for interviews.
“Institutions that receive research funding from the federal government must be rigorous in rooting out fraud.” said U.S. Attorney McSwain. “While it did not detect the problems itself, Lehigh University, to its credit, did take proactive steps to improve its existing compliance program once it learned that one of its employees had committed fraud. We value Lehigh University’s research contributions and hope that the enhanced compliance measures will have a positive impact in the future. We also appreciate the University’s cooperation in the criminal prosecutions of Ding and Zotova.”
“The success of SBIR programs often lies with small business awardees, and its subcontractors, being good stewards of taxpayers’ dollars when conducting Federal Research. The NASA Office of Inspector General (OIG), along with its law enforcement partners, will continue to aggressively investigate those individuals and entities that take advantage of the trust of the American taxpayers,” stated Special Agent-in-Charge, Mark. J. Zielinski, Eastern Field Office, NASA OIG.
“Ensuring the integrity of the Air and Space Forces’ research and development process is a top investigative priority of the Air Force Office of Special Investigations (OSI). Those who seek to conduct business with the Department of the Air Force must be candid and truthful. OSI will aggressively investigate those who attempt to defraud the Air Force and will work with our law enforcement partners to identify and prosecute those who would take advantage of the Air and Space force and their interests. I’d like to thank Lehigh University for their cooperation in the investigation,” said Special Agent in Charge Jason T. Hein, OSI, Office of Procurement Fraud Investigations Detachment 6.
“The settlement agreement announced today is the result of joint investigative effort to protect Small Business Innovative Research contracts from fraud and abuse," stated Special Agent in Charge Leigh-Alistair Barzey, Defense Criminal Investigative Service (DCIS), Northeast Field Office. “The DCIS is committed to working with its law enforcement partners and the U.S. Attorney’s Office to ensure the integrity of federal research and development procurement programs, such as SBIRs. Of note, in addition to entering into this civil settlement agreement, Lehigh University provided assistance in a related criminal investigation of a former Lehigh professor and his spouse who defrauded the SBIR program.”
Since its enactment in 1982, as part of the Small Business Innovation Development Act, SBIR has helped thousands of small businesses compete for federal research and development awards, which have enhanced the nation’s defense. “The proactive efforts of agencies like NASA, the Air Force, the DCIS, and the NSF are critical to identifying potential fraud and safeguarding limited government resources,” said U.S. Attorney McSwain.
The investigation was conducted by NASA, the Air Force, the DCIS, and the NSF. The civil case is being handled by Assistant U.S. Attorney Veronica J. Finkelstein.
The claims resolved by this settlement are allegations only and there has been no determination of liability.
USAO - Pennsylvania, Eastern;
National Aeronautics and Space Administration OIG