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Whistleblower in Sodexo kickback case comments on New York settlement

ALBANY, NEW YORK, July 21 -- The kickback case against Sodexo that the New York Attorney General settled today for $20 million began with the efforts of two brothers who persevered in stopping the fraud even after they were fired by Sodexo.

John Carciero and Jay Carciero, former general managers for Sodexo in Massachusetts, were outraged when they discovered Sodexo's practice of pressuring food and beverage vendors to kick back huge rebates and then secretly pocketing the savings rather than passing them on to government clients as required by their contracts - a practice known as "off-invoice rebates." Sodexo's clients included hospitals, universities, schools and nursing homes.

After John Carciero blew the whistle internally on Sodexo's unlawful retention of rebates, the company fired him. Jay Carciero was retaliated against, demoted and later fired for the same reason. The brothers filed in 2006 a "qui tam" (whistleblower) lawsuit against Sodexo under the federal False Claims Act and added claims under similar state laws, including New York's. Their claims that Sodexo had defrauded New York government programs were resolved as part of today's settlement.

Below are comments from:

  • John Carciero, the whistleblower. (Jay Carciero is now deceased.)
  • The whistleblower attorneys who represented the Carcieros: Colette G. Matzzie and Tim McCormack, both Washington, DC, attorneys with Phillips & Cohen LLP.

Comments of John Carciero, who filed the whistleblower lawsuit against Sodexo:
"My brother, Jay, and I were angry when we learned that Sodexo, a multi-billion dollar company, was ripping off school lunch programs and other government food services. The millions of dollars from the rebates should have gone back to schools and other government clients. Sodexo betrayed the trust of the clients it was supposed to serve and hurt taxpayers at the same time."

"We went through some tough times because we chose to speak out against what Sodexo was doing. We are grateful to the New York Attorney General's Office for vigorously investigating this matter and recouping money for the taxpayers. We hope other states will do the same."

Comments of Colette G. Matzzie, a Washington, DC, attorney with Phillips & Cohen LLP:
"Sodexo serves meals to 10 million customers daily. Our lawsuit alleges that Sodexo takes advantage of its market position to enrich itself with hidden side payments and kickbacks, known as ‘off-invoice' rebates. New York law prohibits food vendors from retaining such rebates, recognizing that vendors otherwise would have an incentive to steer their clients to purchase products from companies with the largest off-invoice rebates rather than those with the best products at the lowest prices."

"New York is not the only state where Sodexo operates school cafeterias and accepts rebates from vendors. With so many state and local governments short on funds, we hope that other governments will look to what New York has done for its citizens and make sure that Sodexo and other food vendors pass along savings to those who are paying the bills."

"The New York Attorney General's office is truly to be commended for its work. Its efforts will save New York taxpayers money for years to come."

Comments of Tim McCormack, a Washington, DC, attorney with Phillips & Cohen LLP:
"John and Jay Carciero tried many ways to stop these fraudulent practices, first reporting the wrongdoing to Sodexo managers then contacting every government agency they could find, travelling at their own expense to meetings across the Northeast to explain Sodexo's misconduct. They paid a heavy personal price to bring this misconduct to light."

"This case is about more than just accounting. It is about responsibility and abusing a position of trust. The complaint alleged a sophisticated and deliberate scheme where Sodexo abused its role as a trusted contract agent. We can't afford to let big companies fraudulently enrich themselves at the expense of our public schools, our hospitals and other public institutions, particularly in these tough economic times."

Information about the "qui tam" (whistleblower) lawsuit against Sodexo
Phillips & Cohen filed the qui tam lawsuit against Sodexo on the Carcieros' behalf in federal district court in Boston in 2006, and the following year added fraud charges under the New York False Claims Act.

The state law allows private citizens to bring a qui tam lawsuit against companies that defraud local governments and the state. If the government recovers any funds as a result of the lawsuit, whistleblowers are entitled to a reward.

New York investigated the allegations in the whistleblower lawsuit and, according to the settlement agreement, found that Sodexo failed to disclose and pass through rebates to many state facilities as required by its contracts, including:

  • Institutions within the State University of New York (SUNY) system, in particular SUNY Binghamton.
  • The Children's Village, a New York treatment center for at-risk-youth, with facilities in Westchester County and New York City.
  • Abbott House, which provides services to abused, neglected and abandoned children and their families and to developmentally disabled children and adults in the New York City area and surrounding counties.

Attorney Terence K. Ankner served as local counsel on the case. The settlement agreement is posted on the Phillips & Cohen website.

P&C