Paragon Systems to Pay $52 Million to Settle Fraud Allegations Over Small Business Contracts

Security giant Paragon Systems has agreed to pay $52 million to settle accusations that it rigged the system meant to benefit small businesses. The Herndon, Virginia-based contractor, which supplies security guards to federal buildings nationwide, stands accused of using fake "small businesses" as fronts to win contracts set aside for disadvantaged groups, all while allegedly funneling millions in kickbacks to its executives.

Federal investigators allege that Paragon masterminded an elaborate scheme involving friends and family, using them as “owners” of fake small businesses to qualify for contracts reserved for groups like Woman-Owned Small Businesses and Service-Disabled Veteran-Owned Small Businesses. But in reality, these so-called small businesses handed most of the work back to Paragon, locking out genuine small businesses from the bidding process.

“This is a big win for accountability,” said Principal Deputy Assistant Attorney General Brian Boynton. “Programs for small and veteran-owned businesses should go to the people they were meant for, not to contractors gaming the system.”

But that’s only half the story. Paragon’s scheme didn’t just end with bagging contracts. The DOJ claims Paragon executives arranged for the fake companies to pay more than $11 million in kickbacks disguised as “consulting fees” to Paragon’s leadership through shell companies—essentially recycling taxpayer dollars back into their own pockets.

In a related development, Athena Services International LLC (ASI), one of Paragon’s partner companies, agreed to pay $1.6 million in a separate settlement over its own role in the scheme. ASI is also accused of fraudulently securing a pandemic-era Paycheck Protection Program loan by misrepresenting its compliance with PPP rules. Together with its joint venture Athena Joint Venture Services LLC and owner Alisa Silverman, ASI agreed to cooperate with the ongoing investigation, underscoring just how much scrutiny the government is putting on these kinds of operations.

“This is a clear message that misusing government contracts and cashing in on kickback schemes won’t fly,” said U.S. Attorney Erek L. Barron for the District of Maryland. He pointed out that the settlement with Paragon is the biggest civil recovery by the Department of Homeland Security in over a decade.

Therese Meers, General Counsel for the Small Business Administration, didn’t mince words either. “Fraudsters who exploit these programs take opportunities away from real small businesses,” she said. “When they go after emergency funds like the PPP loans, they hit a lifeline intended for businesses that truly needed help.”

This whole case might have stayed under wraps if not for a whistleblower—someone who decided to speak up and call out the alleged wrongdoing. Thanks to their efforts, Paragon’s actions came to light, and the whistleblower, Robert Pattison, will receive over $9 million from the Paragon settlement and an additional $280,000 from the Athena settlement under the False Claims Act.

In what’s shaping up to be a serious cautionary tale for government contractors, this settlement sends a clear signal that exploiting small business programs won’t be tolerated. Paragon’s settlement marks a significant step in the government’s ongoing efforts to protect set-aside contracts for the groups they’re meant to serve.

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