Proprietors of a Perris-based construction firm that allegedly illegally obtained federal contracts by using a veteran-owned business as a false front Tuesday paid $2.5 million to settle a civil case.

Scott and Beverly Bailey, husband and wife operators of Stronghold Engineering Inc., entered into a non-prosecution agreement with the U.S. Attorney’s Office based on an investigation that began in 2019.

According to federal prosecutors, the case stemmed from SEI’s access to 14 government contracts awarded by the U.S. Veterans Administration between 2007 and 2013.

The contracts were actually assigned to a now-defunct Riverside construction company, Kadena Pacific Inc., controlled by Fred Neff, Beverly Bailey’s father, a disabled veteran who died last year.

Neff qualified for “service-disabled, veteran-owned small business” government set-aside contracts due to his status.

The U.S. Attorney’s Office alleged that Neff’s company was, in fact, managed by SEI staff, including his daughter and her husband. SEI was not qualified for the federal contracts, prosecutors said.

The government contended that the Baileys and their construction firm illegally benefited from the VA contracts by using Neff’s company as the source for procuring the work, which was really entirely handled by SEI.

In addition to paying the civil claims, the defendants agreed to institute an “ethics and compliance program” over a two-year period, according to the U.S. Attorney’s Office.

Inspectors general at the VA and Small Business Administration investigated the case, culminating in the civil fraud allegations.

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