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Settlement in Whistleblower Suit Against Cafeteria Food Vendor

A 2006 qui tam lawsuit under the False Claims Act brought against Sodexo - a large school cafeteria operator -- by two brothers, who were former managers of the company, resulted recently in the company's $20 million settlement with New York state.

A qui tam - or whistleblower - suit is brought by private citizens on behalf of the government in cases where fraud against the government is alleged. If the government joins the suit and wins, the whistleblower receives a portion of the recovery.

In the case against Sodexo, the brothers alleged that the company was retaining kickback rebates from large food suppliers, which is illegal because it is a strong incentive to use only those companies rather than seeking products based solely on quality and competitive price.

New York Attorney General Andrew Cuomo stated that Sodexo "promised to provide goods at cost but failed to acknowledge rebates from suppliers, resulting in illegal overcharges to the schools." It has been a common practice for large food service providers to provide the kickbacks - also known as off-invoice rebates - in the cafeteria context. Rather than keeping the money, though, a vendor - such as Sodexo - must pass it along to its government clients.

Both John and Jay Carciero, the whistleblowing brothers, were fired by Sodexo following their fraud allegation. "My brother, Jay, and I were angry when we learned that Sodexo, a multi-billion company, was ripping off school lunch programs," said John.

In the wake of the settlement, New Jersey Assembly members have called for an investigation into Sodexo's activities in managing cafeterias in that state.

Related Resource: "Qui Tam Whistleblower: Shame on Sodexo" August 24, 2010

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