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Whistleblower suit nets $20M settlement in New York

By Jessica M. Karmasek | Jul 21, 2010


NEW YORK (Legal Newsline) - New York Attorney General Andrew Cuomo announced Wednesday he has reached a $20 million settlement with food services provider Sodexo for allegedly overcharging various New York schools.

Cuomo alleges the company promised to provide goods at cost but failed to acknowledge rebates from suppliers, resulting in illegal overcharges to 21 state school districts as well as the State University of New York system.

"This company cut sweetheart deals with suppliers and then denied taxpayer-supported schools the benefits," Cuomo said in a statement.

Cuomo's office said the investigation was sparked by former employees of Sodexo under the state's False Claims Act, which allows whistleblowers to come forward to disclose wrongdoing without fear of retribution.

"The state and federal regulations regarding such contracts exist to protect taxpayers, and I thank the whistleblowers for having the courage to bring this to our attention," Cuomo said Wednesday.

Brothers John and Jay Carciero, former general managers for Sodexo in Massachusetts, said they discovered the company'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.

John Carciero says after he blew the whistle internally on Sodexo's unlawful retention of rebates and filed suit in 2006, the company fired him.

Jay Carciero, now deceased, was retaliated against, demoted and later fired for the same reason, it is alleged.

"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," John Carciero said. "Sodexo betrayed the trust of the clients it was supposed to serve and hurt taxpayers at the same time.

The settlement is the largest monetary settlement under the act that doesn't involve Medicaid funds.

The 21 K-12 schools in the settlement participated in the state's child nutrition programs and the National School Lunch program, which require that rebates, credits and discounts be credited to the schools. On average, Sodexo received 14 percent rebates from its suppliers, the Attorney General's Office said.

The settlement funds will be distributed to the whistleblowers ($3.6 million), New York State ($15 million) and allegedly impacted school districts.

Also, as part of the settlement, Sodexo must implement "greater transparency in the contracting process" and create built-in safeguards to ensure clients are informed about rebates.

According to Cuomo's office, the company also must:

-Disclose in future contracts with public entities that it is receiving rebates and indicate whether rebates will be retained by Sodexo or credited to the client;

-Provide written disclosure to school district clients for the next two years that it is receiving off-invoice rebates;

-Establish a hotline for clients to call with any questions concerning rebates; and

-Pay for an independent auditor's review of its off-invoice rebate program for the next three years.

Sodexo is among the world's largest food services companies and the world's largest private food purchaser, with more than 313,000 employees serving 6,000 clients.

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