nLight Photonics: SBIR Ownership Eligibility When the Research Was Performed

nLight Photonics agreed to pay $420,000 to resolve allegations of false certifications about SBIR ownership eligibility, even though the Justice Department reported no indication of inadequate research performance. The company allegedly received funding its ownership structure disqualified it from receiving. For someone who knows the investors, the acquisition documents or the eligibility statements, this case puts the corporate records at the center of the story.

The Laser Company Behind the SBIR Awards

nLight was a privately held manufacturer of high-performance diode and fiber lasers based in Vancouver, Washington. It sought Small Business Innovation Research funding to develop its laser technology. The company received awards from the Army, Navy, Air Force, NASA and Department of Energy for laser technology with military and related applications.

The allegations covered grants and contracts received from 2004 through 2013.

What Is a False Certification?

For nLight, the alleged false certification was its repeated claim to qualify for Small Business Innovation Research funding. The Justice Department alleged that the company’s ownership structure made it ineligible.

During the period covered by the settlement, the department said firms seeking funding had to be at least 51 percent owned and controlled by individuals, or by another business itself owned and controlled at that level by individuals.

The government alleged that nLight was more than 51 percent owned by multiple businesses, including several venture capital firms. That was the mismatch: the ownership structure the government described against the eligibility nLight had repeatedly claimed.

SBIR Ownership Eligibility When the Research Was Performed

nLight Photonics faced SBIR ownership eligibility allegations even when the research was performed. The Justice Department expressly separated the company’s eligibility from the quality of its work:

A research team can know what work it completed while the people handling ownership and grant applications know something different about the company’s qualifications. The laboratory’s account of its work cannot answer who owned the applicant when it claimed eligibility.

A June 2005 article in Contract Management, Small Business Act Certification Fraud: Raising the Stakes, examined that tension in small-business contracting. It discussed false eligibility certifications alongside contracts that had been fully performed. Its distinction was between the value of the work the government received and the opportunity taken from eligible small businesses. A completed contract could deliver the promised goods or services while still defeating the program’s purpose. The article argued that the injury reaches the small-business program itself when an ineligible business receives an opportunity intended for a qualifying one.

Taxpayers fund the research, but qualifying small businesses are meant to receive the opportunity. We think that purpose disappears if a company can claim a place it is not entitled to, then point to the work it delivered. The work was only half the promise.

The Department of Energy Inquiry Connected the Companies

A Department of Energy contracting officer’s request prompted nLight to flag its own ineligibility. The officer was overseeing both an nLight SBIR grant and an SBIR grant awarded to a company nLight had acquired.

After repeatedly claiming eligibility, nLight flagged its own ineligibility when that officer asked for information. We find that more revealing than another assurance on an application: someone could connect the company seeking the money with the company buying another recipient.

The Small Business Administration’s Office of Inspector General, the Department of Energy Office of Inspector General and the NASA Office of Inspector General investigated. The defense investigators were the Department of Defense Office of Inspector General, Defense Criminal Investigative Service, Air Force Office of Special Investigations, Army Criminal Investigation Command and Naval Criminal Investigative Service. The Defense Contract Audit Agency assisted.

What the SBIR Settlement Resolved

The settlement resolved False Claims Act allegations that nLight received grants and contracts for which its ownership made it ineligible. The Justice Department announced the company’s agreement to pay on April 21, 2015.

The Justice Department’s Civil Division, Commercial Litigation Branch assisted with the matter. The inquiry therefore brought together the agencies funding the research, their investigators and the government lawyers resolving the civil allegations. The contracting officer’s question supplied a particularly useful connection: the same officer oversaw an award to nLight and an award to the business it had acquired.

That connection makes the acquisition more than background about the company. The funding agency was dealing with both businesses, while the eligibility certifications described who qualified to receive its money. For an insider, the relevant account follows those relationships through the awards. The ownership information and the research performance answer different questions, and the announcement expressly treated them separately.

What an SBIR Company Insider May Know

Ownership records, acquisition documents and eligibility statements can explain different parts of the same representation. We examine them together with the affected awards and the company’s responses to agency questions. In a case like nLight’s, the connection between those records is the substance of the case.

Someone involved in the ownership transaction may know which businesses held the shares. Someone responsible for grant administration may know which eligibility statements went to which agency. A person who handled an agency’s request may know what prompted the company to revisit its answer. Those are different views of the facts that made the nLight inquiry consequential.

Another SBIR case shows how company records can test the picture presented in a proposal. In its AQUASENT settlement announcement, the Justice Department alleged false representations about principal-investigator employment, research facilities, financial management, timesheets and matching investors for National Science Foundation funding. The allegations also covered false records supplied to investigators.

The common point is the gap between a representation sent to a funding agency and the business an insider knows. We work with you to identify which representation your knowledge explains and how it connects to government money.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our work on a whistleblower reward case starts with the facts you can explain about the company and its funding.

You Know the Ownership Behind the Application

If you know the investors behind an SBIR applicant or the eligibility statements made after an acquisition, speak with our whistleblower experts about how that funding was won. We build your strongest SBIR whistleblower case with you, bring in SBIR fraud whistleblower lawyers who understand research awards and ownership eligibility, and stay with you throughout the case.