oversight

SBIR

Published by the National Science Foundation, Office of Inspector General on 1998-12-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                          NATIONAL SCIENCE FOUNDATION
                                           OFFICE OF INSPECTOR GENERAL
                                             OFFICE OF INVESTIGATIONS

                                     CLOSEOUT MEMORANDUM

    TO: AIGI          File Number: I95120053                                          Date: 17 March 2002

    Subject: Closeout Memo                                                                      Page 1 of 1


          There was no closeout written at the time this case was closed. The following information was
          extracted from the file in conformance with standard closeout documents.

         Our investigation determined that the subject' was a full time employee of an institution2 and
         ineligible to receive support for the first six months of the NSF award. Our investigation also
         determined that the subject represented data in the NSF final report as that obtained during the NSF
         project, when in reality, it was obtained prior to the NSF project for an unrelated federal project. We
         forwarded a report of investigation to the US Attorney's office3 recommending that action be
         brought against the subject and/or his company under 3 1 USC 3729, Civil False Claims ~ c t The      . ~
         US Attorney's Office began settlement discussion with subject's company. The subject and his
         company agreed to pay $75,000.00 to the United States.

1        Accordingly this case is closed.




                      Prepared by:                    Cleared by:
                  I




    Signature &
       date:
             National Science Foundation
             OIG Case Number I95 120053



    -
I
    This document is loaned to you FOR OFFICIAL USE ONLY. It remains the
    property of the Office of Inspector General. It may not be reproduced. It may
    be disclosed outside of NSF only by the Inspector General, pursuant to the
I
    Freedom of Information and Privacy Acts, 5 U.S.C. 552,552a.
                                                    Investigation Report

                                                    Case No. I95 120053


            -1.     Violations
                                                                                                                 .   .
            Based on the evidence gathered during this investigation, we have determined that
            president of              V   Y                                                       , knowingly and
             intentionally caused three false claims totaling $49,032 to be paid by the National Science
            .Foundation (NSF) to -.            , violating 3 1 U.S. C. $ 3 729, civil False Claims Act.


            -
            11.     Background: The National Science Foundation

            The National Science Foundation (NSF) is an independent federal agency that was created in 1950
            to provide financial and other support for research, education, and related activities in science,
            mathematics, and engineering. Annually, NSF designates approximately $3 billion for over 18,000
            individual grants.



i
    .   .   -
            111.    Background: The Small Business Innovation Research Program
            There are 11 federal agencies (including NSF) that have the Small Business Innovation Research
            (SBIR) program. The program objectives are to stimulate technological innovation in the private
I           sector, strengthen the role of small business in meeting Federal research needs, increase the
I
            commercial application of federally supported research results, and encourage participation by
            minority and disadvantagedpersons in technological innovation.
I
            The SBIR program is divided into three phases. Phase I objectives are to establish the feasibility of an
            innovative scientific concept proposed to address the goals of a solicitation for SBIR projects. Phase I
            awards are currently limited to a six-month time period and $75,000 made in three payments: the first
            being three weeks after the effective date of award, the second being three months afler the effective
            date of the award, and the third upon the submission of a final report. Phase I1 is the principal research
            effort and awards last as long as 24 months and may total as much as $300,000. Phase I11 is conducted
            by the small business using non-federal funds to pursue commercial applications based on its
            government-hndedSBIR activities.


I           -
            IV.    Basis for Inveatigation

I
            On October 12, 1995, our office received an allegation from a     '

            I                 -- . ) employee that        I           Principal Investigator (PI) on NSF SBIR
            Phase I grant             had not paid          -               for subcontracted services used by
         during the course of this grant. This employee also alleged that          used data from
 previous experiments in the final report he submitted to NSF. Additional review by our office also
 determined that, in violation of NSF regulations,         was a full-time employee of '                      V


                    during a significant portion of the SBIR Phase I period of the grant. Based on
 these allegations and our initial findings, we opened an investigation into      s conduct on the
 NSF SBIR award.


 -
 V.       Investi~ativeFindings

 On December 22, 1995,            received NSF SBIR Phase I awarc'        -      for $49,032. The
 effective dates of this grant were from the period of January 1, 1993 to September 30, 1993, and
 included a three month unfunded flexibility period. [See Attachment #1]

The Phase I award was made based on                          s submission of a proposal on June 13, 1992 to NSF,
entitled, '
                                ---.            -            -         - - - - - - -" which proposed to "4
                                                                             -J


                                            .
                                                                                                                  F
                                                                                                  ,
 .-                                    ..
                                                                                                      (


                         -. .                       .   >-*-     9,
                                                        submitted the f&al report for this project
to NSF on September 30, 1993. [See Attachment #2] A subsequent Phase I1 proposal was
submitted to NSF on October 29, 1993 but was declined funding by NSF on' July 13, 1994.


Elements of a False Claim:

False Statement


Knowingly and Willjiully


Falsi$es or Conceals


Material Fact


Motive                                      -            -




         was Ineligible to Receive the NSF Award

Based on the NSF regulations set forth in the 1992 NSF SBIR program solicitation, clearly :               .
was ineligible to receive the NSF award. This solicitation (Section 2.2) states:
    .   -
                     If a          investigator is employed by an academic institution or has hll-time status with an
                     academic institution at the time the proposal is submitted, he or she is considered to have primary
                     employment with that institution and must take full-time leave to be eligible for SBIR (emphasis
                     added). [See Attachment #3]
                     --        .
                                                             during the effective time-period of the NSF
            However,         was a full-time employee of
            SBIR grant, January through June 1993.' An August
                                                         .    25, 1992 letter of offer addressed to
                                                                        .. .                           :.
            from 1                j, Provost, '                 [See Attachment #4], stated:

                     This is to confirm your reappointment to the indicated position without tenure. . . . During the fiscal
                     year beginning July 1, 1992, your salary will be at the,following rate.

                     Position Title:              Research Associate in Radiology
                     Monthly Salary:              $4,375.00                                     FTE:     100%

            As W h e r evidence of        , activities, on August 16, 1993,
                                              -      :                                      signed and submitted a
                                   semi-annual "Personnel Activity Report" (PAR) for the period representing
                                                                  --
            lanuary-1993 through June 1993. In this document,             states that, during this time period, 81%
                                                                                           -   . -. .       -
            of his time was spent working on "-                                                                                  f


                                while 19% of his time was spent working on "Departmental Research,
                                                  .      . . sertified in this document:
                                                            9
                                                                    a




                     I confirm the above activity distribution represents a reasonable estimate of effort expended by me
                     during the period stated. [See Attachment #5]
I
!           In addition, during an interview with NSF OIG agents on December 18, 1996,           admitted that     '

I           he received an NSF Phase I award (SBIR) in January 1993 but that he did not start work on this
I           award until March or April 1993 [See Attachment #6]. He further admitted that up until March or
            April 1993 he worked nearly full-time on          s NIH prosthetic award.3 In a notarized affidavit
I
            submitted to NSF OIG special agents after the interview,       also stated:

                     I did not start any substantial work on the NSF Phase I award until March or April 1993. Up until
                     March or April 1993 1 worked primarily on a research project funded by NIH relating to a prosthetics
                     fitting systems ("NIH Project"). [See Attachment #7]

            During this interview          also admitted that he did not notify the cognizant NSF grant or
            program officials for his award about his delayed start date. [See Attachment #6] Bhatia explained

             The period fiom July through September of 1993, during which timc             was on unpaid leave fiom      ,
            constituted the unfunded flexibility period of award, to be used in the completion of the final report.

             'This grant was awarded to Dr.                     ,       's supervisor at   ., and was used to support        s
            employment there.
I
             During this interview,       signed two affidavits and refused to sign two others that NSF OIG special agents had
            drafted.
            that at one point during his award (he stated he could not remember exactly when) he contacted the
            NSF SBIR office and inquired about submitting his final report late.        i alleged that he was told

            (he was stated that he could not remember by whom) that if the final report was late he would not be
            eligible for that year's Phase I1 award and would have to wait until the following year to apply.
            Consequently ' :. claimed that he attempted to complete his project because he wanted the NSF
            Phase I1 funding.

            Finally, testimony from          ' c supervisor, Dr. _           1           ,   and other      employees that
                    supervised supports the documentary evidence that
            -c---.--_                                                                       was working nearly fill-time at
            the University on non-SBIR projects during the entire first half of 1993. In an interview conducted
            on December 3 1, 1996,                stated that up until July 1993,               , worked full-time on '
            projects that             : was       conducting, predominantly the NIH prosthetics project
                                       ' Research Engineer                           stated to NSF OIG special agents that
                                                                                 - - -.
                    T   I  '    , ,

            he himself worked full-time on the NIH grant (                              1 from January through June 1993.
            Commean also asserted that               was also involved close to full-time on this NIH project during
            this same time period and thai            worked on the NIH grant .                            on a daily basis.  1

             Another          Research Engineer,                   I   ,

                                                                        ~tatedto NSF OIG special agents that, during
                                                                           $




            January through June 1993, he saw '                 on a daily basis did not notice any decline in            's
            level of effort 01.                "
                                               ,.     a  - - - -- - - - -A      .



                        -   -
                                  Knowledge of Rules and Requirements
    .   .     he evidence in this case also shows that       -new of NSF's requirement that he take full time
1
I
I
            leave during the NSF award. Most importantly, during the December 18, 1996 interview.with NSF
            OIG special agents,      signed an affidavit stating:
I

                                In the case of the NSF proposal I submitted, I read the NSF solicitation for 1992 and understood the
                                rules and regulations stated in this solicitation governing 213 of the work had to be done by the
                                proposing firm, the principal investigator had to be primarily employed by the proposing firm, and
                                that duplicate proposal submissions had to be stated. [See Attachment #6]

                            's knowledge can also be seen prior to the actual award being made. In a June 5, 1992 letter
                                                                                                    -
            submitted together with the Phase I Proposal,                               wrote to

                            I am aware that you are applying for a SBIR grant entitled                     , :
                                                                                                                            ..      kc . .
                                                                                                                                  .?--


                                                   ;" through your company,                   Please be advised that if t h ~ sgrab     .:
                                                o u need to take full-time leave from the university to be eligible for SBlR support. I
                            a ~ i r d e d , . ~ would                                                                                      ....

                            approve of this effort and will enthusiastically support. your project as proposed. [See Attachment .
I
I                           #1]


                            -ncluded the required certifications, statements, and documents in his proposal. On the cover
            page of the proposal,                 certified:

I                           By signing and submitting this proposal, the prospective grantee is (1) certifLing that statements
                            herein are true and complete and to the best of hisher knowledge; (2) agreeing to accept the
                            obligation to comply with NSF award terns and conditions if an award is made as a result of this


                                                                                 5
                   application. I understand that willfully making a false statement or concealing a material fact in this
                   proposal, a progress report, a final report, or any other communication submitted to NSF is a
                   criminal offense (U.S. Code, Title 18, Section 1001). [See Attachment # I ]

         Although         admittedly knew of this leave requirement, he did not formally request leave until
                                                                                                        '
         May, 1993, five months after the start date of his NSF SBIR award. Most striking is that, by this
         time,        had already received two of the three NSF Phase I payments (totaling $32,688): one on
         February 2, 1993 and one on May 4, 1993. Also by this time,           had received notification that
         he had obtained SBIR funding from the U.S. Air Force (USAF) and knew he had a pending proposal
         with the National Institutes of Health (NIH).' In fact, during May 1993, L      was simultaneously
         receiving payments from the NSF SBIR award and the USAF SBIR award, and receiving salary
         fron.         s NIH ,                   1) award.

         In a May 17, 1993 letter from          to        ,.      acknowledges the NSF requirements by
         quoting and attaching excerpts from the NSF Program Solicitation:

                  As you are already aware,                          /as recently awarded three SBIR Phase I grants with
                  me as the principal Investigator. Most SBIR guidelines require that the PI be principally employed
                  by the small business (i.e. more than half time) during project performance. The NSF guidelines
                  require that 'the PI take full time leave from the educational institution during the six months Phase I
                  period of performance and for the full Phase 11 period of performance if a Phase 11 award is made'.
                  A copy of the relevant section of the NSF SBIR solicitation is attached for your reference. In this
                  regard, I would like to request a full time six month leave of absence. [See Attachment #9]
I   .
I       Attached to '       ' s letter to       were summary documents reported by               - - T-,.

I       (r     's company), each reflecting an SBIR award or pending award. Of the five summaries I~stea,
        the NSF, USAF, and NIH SBIR awards were each listed as "Status: Awarded" with an "Expected
        Start Date: July 1993" and "Duration: 6 Months". [See Attachment #9]
I
i
I
                 's leave of absence was thereafter approved for July 1993.                        's stated that he felt that it
I       would have been "very difficult" to complete his NIH                                        grant without           and
        that '      worked full-time on       projects that                           was conducting (predominantly the NIH
I       project) up until July 1993. [See Attachment #8]

I
I       .-_-      Used Previously Obtained Data in the NSF Final Report



,                .as informed that he was awarded the NSF grant in December 1992. In fact,       wrote an electronic mail
        note to   ' employees                                         on December 28, 1992, stating "the NSF proposal is
        funded. Congrats."

        ' Both awards were made: "                                                                    NIH SBlR Phase 1, Contract
                               :@ective August 15, 1993 through August   14, I r y r ~ , i . .                      .-
                                                                              -   -                             ,
               .--..       A      USAF SBIR Phase I, Contract t                                  ,effective May 17, 1993 through
I
        November 17, i993,
I
        -    -                       Several     employees have alleged that           used data obtained previous to the submission of
                                     the NSF proposal in his final report to NSF, and then represented this data as that obtained through
                                     the NSF award.

                                     According to the statements of       '. Research Engineer                the data presented in the NSF
                                     SBIR Phase I Final Report was really pilot data for a          prosthetics   project funded by the NIH.
I
                                     (See Attachment). Specifically,           related how the figures appearing in the data Tables 3 and 4
                                     in the NSF Final Report were really those taken for a paper originally drafted in October 1992.~
                                            claimed that it would have been impossible fol           to have duplicated these results exactly
                                     because, in general, there are variable, uncontrollable factors that affect each scan. [See Attachment
                                     #81
I
                                     Documentary evidence (scanning logs) of various objects which were used as the basis of a portion
                                     of        F final report research results show that the scans were completed prior to NSF SBIR
                                     funding. [See Attachment #lo] In fact, only one of the four items to be scanned for this project was
                                     scanned during the award period.        '
                                     In a      memorandum dated January 29, 1996,                           and         explained their final                 .j


                                     report contribution origins in detail. Among other data reported, it is stated that the research results
                                     of SBIR Final Report Tables 1-4 and Figures 12, 14, 15, & 16 were all prepared by                     in
                                     preparation for non-NSF related studies. [See Attachment #11]

        -   !.
                                 A review of the data in Tables 3 and 4 of the article, "                           .-    ,- , -    i                     -
                                                            - -    . . . . . . . " shows it to be the same data as that in the Phase I
                                                   t . ~Attachment # 121
                                 Final ~ e ~ 0 x -[See
                                     -
                                            also stated that he had reviewed the NSF final report prior to its submission, and had
                                 recognized that data presented in the final report was duplicative of that found in other    - trojects
                                 completed before the NSF project was even awarded.          I . . alleged that the software programs
                                 presented in the final report were actually those he worked on in 1992 with a few cosmetic changes.


                                 6
    I                             Data in Tables 3 & 4 represent results originally obtained by
                                                                  - - . . - -      -                             ,     ,.   ;   in his 1992 pilot study for          ?roposal

                                 published in !    , L ......       ., -6.             '. .    -
                                                                                              -'~ith
                                                                                                :
                                                                                                                       r as principal,investigator. This data was 'later
                                                                                                                     C l . . -     =       '   --                          .
                                 '   !.     .   1 .   ,                            .- - .-----.. ,
                                                                                              t.ll"                              ..    I




                                 'Scanning log status reports recording the scanning of a cylinder and plaster bust for '  b,
                                 Radiologist Technologist, are dated October 30, 1992 and December 18, 1992, respectively. The thlrd Object, a
                                 hairdryer, was scanned during the unfunded flexibility period on September 3, 1993. The fourth item, a coffee mug,
                                 was scanned on January 27, 1993, during the effective period of the NSF SBIR award but when       , was still a full-
                                 time employee of ,

                         .   ,   'The Final Report also contains verbatim copy from another article
                                 1.                                                                   . . . .
                                                                                                                (.
                                                                                                                                                8'   ',              - .
                                                                                                          This copy represents backgrotind explanatory
                 .:.             work rather than the merits of the research. However, the existence of additional duplicative material is indicativg of a .                           .
                 ,   .       .   pattern of re-usage. [See Attachment # 131                                                         .    .        . ... . . .  ...     .       .   .
    -        -             I  said that he had brought these issues to ,      i attention prior to the submission of the
                 final report, but that
                                      ..      felt that he had done nothing wrong. [See Attachment #8]

                 In the December 18, 1996 interview with NSF OIG agents,      declared that all data in the Final
                 Report was obtained for and during the NSF project and that the Article used data which was
                 originally generated for the NSF Final Report. However,     admitted that he could not furnish
                 proof of this because he no longer had the documents he used to draft the Final Report. [See
                 Attachment #6]


                 VI. Conclusion and Recommendations

                 We find   .     's actions to be particularly egregious and unacceptable because they are in stark
                 contrast to NSF's SBIR rules and, equally important, program philosophy. NSF's SBIR philosophy
                 has always been to foster small business, and NSF SBIR program managers will not make awards to
                 those principal investigators whose grant requests appear to be mere supplements to work already
                 being pursued by the PIS at their respective academic institutions.

                 In the case at hand, the evidence clearly shows that        did not meet the requirements for NSF
                 SBIR program eligibility, and that he caused false claims to be made in an effort to obtain funds
                 under his award. Specifically,        i was a full-time employee of -    during the majority of the
                 NSF grant period. In addition, - _    represented data from work completed prior to the start of the
-       .I       NSF SBIR award as that obtained under this award.

                 Consequently, we recommend that the U.S. Attorney's Office take appropriate action agains
                 and/or                       in the amount of $177,096 (treble the cost of the award plus three
                 penalties of $10,060 for each false claim).
-   -   -
        VII.      Attachments

        1.                  -   .   - SBIR Phase I proposal submitted to NSF on June 13,1992
        2    '----
                            -   u
                                w
                                     SBIR Phase I final report submitted on September 30, 1993

        3. 1992 NSF SBIR Program Solicitation, Form NSF 92-30

        4.                       I letter of employment for July 1992 through July 1993 and for July 1993

             throughodecember 1993

        5.             -a. -                      Personnel Activity Report for                                             for January through June 1993

        6 . NSF OIG memorandum of interview of                                                       .ind affidavits drafted during this interview

        7. December 20, 1996 signed and notarized statement by - .                                                      .         submitted to NSF OIG

        8. NSF OIG memorandum of interviews of 7 -                                                             ,    .             ,
                                                                                                                                      - , -, ..

        9. May 17, 1993 letter from                                   to       .    .



                                                                                                                                                    -
        10. Relevant pages of scanning log maintained by                                                      :o-worker J
        11. August 29, 1996 analysis of                       .                  final report by -                  co-workers as submitted to NSF OIG
        12. Article by                                                                                                                                      -   ..                     --    . -.. - .
                                                          .       .   ..   ...
                                                                           .
                                                                               bc
                                                                                        .. I-.       .   -
                                                                                                                   - - j .: ...
                                                                                                                   !                     !..    n    -          -1 8 r '
                                                                                                                                                                               -        --           1




                       --
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                                                          .'                       .,
                                      3           ,(&,'
                                                                                           ,
                                                                                                 #
                                                                                                               /                       , I_.'
                                                                                                                                                    .   .                  I       L         Ay 1773,
                 1,-
             ~




        13. Article by          1         -   *
                                                                                                         ..        -.                   .. ..                   .          .                       .a
                                                                                                                                                                                                         ..
 SSN:   ---
                                                                                                         L   .
 Applicant for Security Clearance



  ISCR G.
                                    DECISION OF ADMINISTRATIVE JUDGE



                                                    APPEARANCES
                                                  FOR GOVERNMENT

                                                        .    -,
                                                            ..,Department Counsel

                                                            -    - Department Counsel
                                                    FOR APPLICANT

                                                                 Prose   .


  On May 31,2000, the Defense Office of Hearings and Appeals (DOHA), pursuant to Executive Order 10865 (as
  amended), and Department of Defense Directive 5220.6 (Directive), dated January 2,1992, issued a Statement of
  Reasons (SOR) to the Applicant, which detailed the reasons why DOHA could not make the preliminary
  affirmative finding under the Directive that it is clearly consistent with the national interest to grant or continue a
. security clearance for the Applicant and recommended referral to an Administrative Judge to determine whether a
  clearance should be denied or revoked.

  The Applicant responded to the SOR in writing on July 24,2000, and requested a hearing before a DOHA
  Administrative Judge. This case was assigned to the undersigned on October 11,2000.

  On October 12,2000, the Department Counsel, the Applicant, and Applicant's Husband (Husband), (who is the
  Applicant in ISCR Case:                  oined in a motion to consolidate the two cases for hearing purposes. The
  Applicant and her Husband waived &e&privacy rights, the issues involve some identical allegations,' and some
  that are substantially similar. The motion to consolidate the cases was granted on October 17,2000. The cases
  were combined for hearing purposes only, each case was considered and decided separately and independently.

    notice of hearing was issued on October 17,2000. A hearing was held on November 29,2000, at which the
  Government presented twelve exhibits. The Applicant presented two exhibits and called her Husband as a witness.
  The Applicant also testifid on her own behalf. The official transcript (Tr. ) was received on Apnl9,2001.
    I                                                     FINDINGS OF FACT
            The following Findings of Fact are based on Applicant's Answer to the SOR,the documents and the live          : r,
            testimony. The Applicant is 38 years of age, and has a Masters Degree in Management Information Systems and a k'
                                                                                                                                  $
                                                                                                                                  \




            Masters in Business Administration. She is Chief Executive Officer and majority stockholda of her company,
                 - -        :seeks a security clearance on behalf of herself and her company.                                     e
            Pararrraph 1 (Guideline E - Personal Conduct). The Govemment alleges that the Applicant is ineligible for
            clearance because she has engaged in conduct involving questionablejudgment, untrustworthiness, unreliability,
            lack of candor, dishonesty, or unwillingness to comply with rules and regulations that could indicate she may not
            properly safeguard classified information,

            The Applicant was born and raised in India. In January 1993, she became a naturalized citizen of the United States.
1
I
            in the 1992-1993 time kame, she and her Husband co-founde - - -   .
                                                                                          In the beginning the Applicant
            worked full time in the infomation technology (IT) department for another company, and part-time                      3
I                        mibilities at              involved running the business, and handling the administrative matt& of-
            the busin&. In Apnl1995, f& ~ i ~ l i c aquit
                                                        n t her full time job to come on full time witkL            it that
I
            point, she took an active role in the company, implementing the commercial side of the business and procuring
            contracts.The Applicant stated, "In 93 it was the imaging work that was going on and in 95 we started the
            consulting. So the business was more general. It was IT consulting, application development, not specific to
            imaging or 3D imaging." (Tr. p. 125).

            The Applicant's Husband was employed as a 111time research associate by a University when he started
               n June 1992,             submitted a proposal to the National Science Foundation (NSF) for a Small Business
            Innovation Research & B I ~award.
                                        )     (Government Exhibit 3). The proposal was accepted, a d               was
            awarded the contract.
                            -



            The work submitted in the final report was presented by the Applicant's Husband as having been performed by
                        mder the NSF award, when in fact it was performed by the University (with whom he was employed)
    I       for a-different purpose before the NSF award was granted. (Govemment Exhibits 2 and 3). In October 1995, the
            NSF was informed by the University that the Applicant's Husband had used data fiom previous research
            experiments in the h a l report he submitted to the NSF.

            It was also determined that the Applicant's Husband violated the terms of the NSF regulations, as he continued to
            be a full time employee of the University during a significant portion of the period of the NSF Small Business
            Innovation Research (SBIR) award. The NSF SBIR award was to begin in December 1992. The Applicant's
            Husband continued his full time employment with the University through June 1993, six months into the nine            -
            month period of tbe SBIR award, and well after receiving the first two NSF checks in payment. The Applicant's
            Husband was aware of the regulations that required that he take full time leave fiom the University while worldng
            on the NSF project, and failed to follow the regulation. (Government Exhibit 2 and 3). The Applicant admits that      -
            the incidents occurred, but denies any wrongdoing. ( See, Applicant's Answer to SOR).

            The Applicant stated that she had no specific knowledge of the validity of any of the allegations, including false
            claims to pd-               noney received by her Husband fiom the NSF during the time he was an employee of
            the University, charges of misconduct, theft of materials and unauthorized telephone calls. The Applicant
            categorically denies any involvement in these issues. (Govemment Exhibit 12). .

            She testified that her Husband may have technically violated the rules of the NSF, but that the violations were not
        I   intentional. (Tr. p.141).
        I


            In 1997, an investigationby the NSF Office of Inspector General (OIG), concluded that tbe Applicant's company
        a   had violated the terms of the NSF SBIR program. NSF OIG concluded that the Applcant's Husband, who was
            President of      -        had submitted three false claims for payment under the contract awarded to the company.
  4
              a(-j              c,   tithe United States Department of Justice to 1
                                                                                  -          $177~096.00in damagesand
      j m a l t i n under the Civil False Claims A d (Governmart Exhibits 2 and 3).
I '     On D s a n b a 16,1998, the Applicant's company entered into a pre-filkg settlement by which the A ~ l i c d s
                      agreed to pay $75,000.00 to the United States Department of Justice, after wbich the matter ww
      k & s s & . (Govaommt E l h i i t 8). The Applicant stated that she made the business decision to settle the case,
        instead of litigating the matter, for economic reasom. p r . p. 140).

        Paramph 2 Guideline B - Foreim Influence. A security risk may exist when an individual's immediate familyy
        including m-habitants ,and other persom to whom he or she may be bound by affection, influence, or obligation
            not       of the Unit4 States or may be subj& to d m .

         These situations could create the potential for foreign influence that could result in the compromise of classified
         information. Contacts wit' citizens of other countries or financial interests in other countries are also relevant to
         security determinatiom if they make an individual potentially vulnerable to coercion, exploitation, or pressure.
                       ofwhich t
         six or seven offices in the United States
                                                     -
                                  h Appli-t is chief Executive Officer   and majority shareholder, F t e s Ilationwide
                                                                   started by her father-in-law in 1970 as a f d y ~ w n e d
         business. Ha father-in-law is the Resident and p & ~ Pconsultant
                                                                    d         and rlNlS the day to day affairs of the compcmy
         in India. The Applicant's Husband is the principal owner c.               with 51% of the shares. Her mother-in-
         law is the other owner.

         In 1995, a joint venture betwe                             .   *    Nas formalized to provide documentation to support
         an L-1 visa application (intra company &fa) for the Applicant's brother-in-law. The Applicant's brother-in-law
         was recruited Erom India to come to the United States to work for                   Her brother-in-law worked for
                        For several years before he moved on to other employment. sib= 1995                     has worked with
                       to recruit and train citizens of India for eventual transfer to the Unit4 States b perform specialized
          P



                                      Recruits fiom India are brought to the United States on either L-1or H-1visas. In
                                 its own ~nployeesf i ~ m  hd*                          s 30 subcontracting firms that also
                                                                                ~ o r kwith
         bring people from India to work in the United States. Many of these subcontractas an in the United States on 8 1
         or L-1 visas.

         The Applicant's Husband testified that presently, his father is winding down -
                                                                                                  business, and
         corporate net worth is now only the real estate value of the building, which is betwe& $400,000.00  and@it the
         $500,000.00. Presently, the Applicant's Husband receives $3,000.00 a year &ow         .- - in total revenue. (Tr.
         pp. 69 -71).

         The Applicant stated that she has no financial interests in lndia, including no ownership interests L
         and will not inherit anything h m her parents. (Tr. p. 145, and Government Exhibit 12). ' '                   -       ,
         The Applicant's mother and father are citizens of the Republic of India and reside in &a        They have green cards
         and are visiting the United States most of the time. When the Applicant's parents are in India she maintains
         monthly contact. When they are in the United States she contacts them once a week or so. (Tr. pg. 142).
                                                                                                                           -
         The Applicant also has two sisters who are citizens of India and reside in that country. She contacts them about
         once every month or two by telephone or e-mail. (Tr.p. 143). The Applicant also has other relatives including
         three nephews and one niece, aunts, uncles and cousins who are citizens of India and reside there. The Applicant
         has not had contact with these relatives for at least five years.

              e Applicant's mother-in-law and father-in-law are also citizens of the Republic of India, and reside in India.

        The Applicant's usb band was born in India and is a naturalized citizen of the United States The Applicantts
        children were born in the United States.
 i   The Applicant's brotha lives in the United States and became a naturalized citizen wirhio t21e last two to three
     years. (Tr. pg. 143).                                                                                                              z.-
                                                                                                                                        f



                                                                                                                                                  I

   Senuity clearance drcisiooasre not made i n a v a . Accordingly, the Department of Defeaac, io Enclome 2
  the 1992 Directive sets forth policy factors and conditions that could raise or mitigate a se&@ m n c m ; wKch
  must be given binding consideration in making security clearance determhatiom. These factors should be
                                                                                                                                    d,
  followed in every case according to the pertinent criterion. However, the conditions are neither automatically
  determinative of the decision in any case, nor can they supersede the Administrative Judge's reliance on her own
1 common sense. B s a u e each security clearance case presents its own unique facts and circumstances, it cannot be
  assumed that these factors exhaust the realm of human experieoce, or apply equally in every case. Based on the
  Finding of Fad set fad above, the factors most applicableotothe evaluation ofthis case am:

                                                   Guideline E (Personal Conduct)
 Conditions that could raise a security concern:

                o A pattern of dishonestyor rule violations; to include violation of any written or recorded agreement llnde
                                                                                                                                              I
                     h e n the individd                                                                                     '   I


         Conditions that could mitigate security concerns:
                           ,   .                           . .
         None.

                                                        Guideline B (Foreim Influence)

         A security risk may exist when an i;dividual1s immediate family, including cohabitants, and other persons
         whom he or she may be bound by affection, influence, or obligation arc: (1) not citizens of the United States
         or (2) may be subject to duress. These situations toad create the potential for foreign influence that could
         result in the compromise of classified information. Contacts with citizens of other countries or financial
         interests in other countries are also relevant to security determinations if they make an individual potentially
         vulnerable to coefcion, exploitation, or pressure.

             Conditions that could raise a security concern:

                o an immediate family member, or person to whom the individual has close ties of affection or
                   obligation, is a citizen of, or resident or present in, a      country;                                          *

                 o A substantial financial interest in a country, or in any foreign-owned or operated business that could
                   make the individual vulnerable to foreign influence.                                             .'  "
                                                                                                                                    A
                                                                                                                                    .




             Conditions that could mitigate security. .concerns:                 r L   i            '   ,'   t*c   i
                                                                                                                   i.




             None.                             ,    ,
                ,"
         ,   In addition, as set forth in ~nclosure2 of the Directiveconsider
                                                                      at pages 16-17, in evaluating the relevance of an
                                                                              the followidg general factors:
             individual's conduct, the ~dmihistrativeJudge shouldt   r




               The nature and seriousness of the conduct and mounding circpnstances'
                                                                                               .
                                                                                                                                    0
             b. The circumstances mounding the conduct, to include knowledgeable participation

              c. The frequency and recency of the conduct
14
     d. The individual's age and maturity at the time of the condud
1-
     e. The voluntariness of participation

     f. .The presence or absence of rehabilitation and other pertinent behavior changes

     g. The motivation for the conduct

     h. The potential for pressure, coercion, exploitation or dureis
                                                                                            -   I


     i. The likelihood of continuation or recurrence.

     The eligibility criteria established in the DoD Directive identify personal characteristics and conduct which
     are reasonably related to the ultimate question, posed in Section 2 of Executive Order 10865, of whether it is
     "clearly consistent with the national interest" to grant an Applicant's request for access
                                                                                           r
                                                                                                to classified
     information.

     The DoD Directive states, "The adjudicative process is an examination of a sufficient period of a person's
     life to make an aflirmative determination that the person is eligible for a security clearance. Eligibility for
     access to classified information is predicted upon the individual meeting these personnel security guidelines.
     The adjudicative process is the careful weighing of a number of variables known as the whole person
     concept. Available, reliable information about the person, past and present, favorable and unfavorable
     should be considered in reaching a determination. The Administrative Judge can draw only those inferences
     or conclusions that have reasonable and logical basis in the evidence of record. The Judge cannot draw
     inferences or conclusions based on evidence which is speculative or conjectural in nature. Finally, as
     emphasized by President Eisenhower in Executive Order 10865, "Any determination under this order ..        .
     shall be a detemination in terms of the national interest and shall in no sense be a determination as to the
     loyalty of the Applicant concerned."

      The Government must make out a case under Guideline E (Personal Conduct) and Guideline B (Foreign
      Influence) that establishes doubt about a person's judgment, reliability and trustworthiness. While a rational
      connection, or nexus, must be shown between Applicant's adverse conduct and her ability to effectively
      safeguard classified information, with respect to sufficiency of proof of a rational comection, objective or
      direct evidence is not required.

      Then, the Applicant must remove that doubt with substantial evidence in refutation, explanation, mitigation
      or extenuation, which demonstrates that the past adverse conduct, is unlikely to be repeated, and that the
      Applicant presently qualifies for a security clearance.
'I


      An individual who engages in personal conduct of a questionable nature and who has foreign connections
L     may be prone to provide information or make decisions that are harmful to the interests of the United States.
      The Government must be able to place a high degree of confidence in a security clearance holder to abide by
      all security rules and regulations, at all times and in all places.



      Having considered the evidence of record in light of the appropriate legal standards and factors, and having
      assessed the Applicant's credibility based on the complete record, this Administrative Judge concludes that
      the Government has established its case as to all allegations in the SOR,and that Applicant's personal
      conduct and foreign influence has a direct and negative impact on her suitability for access to classified
      information.                                                          1




      The Applicant was born in India, and became a citizen of the United States in 1993. She is co-founder and
            I   Chief Executive Officer fi -
                company her Husband owns in 1ndia In 1997,
                                                            n the United States,
                                                                            '
                                                                                  which is in a joint venture witk
                                                                                 was investigated by the United States
                                                                                                                        -
                                                                                                                                   'i-
        I       Department of Justice for alleged wrongdoing, in viblation of the Civil False Claims Act, which involved the?
                Applicant's Husband submitting false claims for payment under a SBIR contract The matter was settled by
                the Company A for $75,000.00. Although the Applicant denies any knowledge of or any involvement in
        I
                wrongdoing b-
                day operation of
                                      - - I do not find her testimony credible. She was intimately involved in the day t
                                       -       - - ~usiness.She is intelligent, and well educated in her field. As both the
                                                                                                                            "%
                administrative officer a n i ~ h i e~xecutive
                                                    f         Officer of the company since its inception, she knew or should
                have known that her Husband was not in compliance with NSF regulations. Accordingly, she is also held
                responsible for the actions of her company. Under the particular circumstances of this case, the Applicant's
                conduct or lack thereof shows poor judgment, unreliability and untrustworthiness and falls far short of
                meeting the eligibility requirements for access to classified information under Guideline E.

                With respect to Guideline B, the Applicant has substantial foreign contacts in both her business and personal          -
                life. She has business and financial interests as well as significant emotional and family ties in India. She is
                the co-owner of a business in the United States that does substantial business with a foreign owned and                .i

                operated company that her Husband owns in India She has substantial emotional ties to India, including her
                parents, sisters and other relatives, who are all Indian citizens and reside there, and with whom she is in
                consistent contact. Her Husband is &om India, and maintains continuing and regular contact with his family.
                It is the Applicant's burden to show that these ties are not of a nature that could create the potential for
                influence that could result in the compromise of classified information. She has not done so. Accordingly, I
                cannot say that she would not be vulnerable to foreign influence. The risk is considerable, and is of present
                security significance. Accordingly, the Applicant's request for a security clearance must be denied under
                Guideline B.

                Considering all of the evidence, the Applicant has not introduced persuasive evidence in rebuttal,
                explanation or mitigation, which is sufficient to overcome the Government's case. On balance, it is
                concluded that the Applicant has failed to overcome the Government's case opposing her request for a
                security clearance. Accordingly, the evidence supports a finding against the Applicant as to the factual and
                conclusionary allegations expressed in Paragraphs 1 and 2 of the Government's Statement of Reasons.
                                                                                                                             a
                                                           FORMAL FINDINGS

                Formal findings For or Against the Applicant on the allegations in the SOR, as required by Paragraph 25 of
                Enclosure 3 of the Directive are:
I
                Paragraph 1:Against the Applicant.
I

                Subpara. 1.a,: Against the Applicant.                                                                              C




I               Subpara. 1.b.: Against the Applicant.

I               Paragraph 2: Against the Applicant.

1               Subpara. 2.a.: Against the Applicant.

    I
                Subpara. 2.b.: Against the Applicant.

                Subpara. 2.c.: Against the Applicant
    I
    I           Subpara. 2.d.: Against the Applicant.
    I
                Subpara. 2.e.: Against the Applicant.
,f?   Subpara. 2.f.: Against the Applicant.
t
      In light of all the circumstances presented by the record in this case, it is not clearly consistent with the
)     interests of national security to grant or continue a security clearance for the Applicant.



                                                    Administrative Judge