United States v. Nayak
| Decision Date | 05 May 2022 |
| Docket Number | CRIMINAL ACTION 5: 20-144-DCR |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. SUBHADARSHI NAYAK, Defendant. |
| Court | U.S. District Court — Eastern District of Kentucky |
Defendant Subhadarshi Nayak pleaded guilty on August 30, 2021, to one count of conspiring to commit wire fraud (Count 1) in violation of 18 U.S.C. § 1349 and two counts of wire fraud (Counts 2 and 3) in violation of 18 U.S.C. § 1343. [Record Nos. 46 and 47] He was sentenced on December 13 2021, to six months' incarceration, six months of home detention (to be served during the first six months of supervised release), and three years of supervised release. [Record No. 57, pp. 1-2] The Court reserved a final restitution determination pending a separate hearing on the issue. The parties presented their respective evidence at the restitution hearing held on April 8, 2022. Thereafter, the defendant submitted a supplemental brief.[1] [Record No. 70]
Having considered the evidence presented by the parties and relevant authorities on the pertinent issues, the Court finds that the defendant is liable for the full amount of grant funding awarded by the Department of Energy (“DOE”) and Environmental Protection Agency (“EPA”). As set forth below, the defendant's judgment shall be amended to reflect this ruling and the Court will issue a monthly installment payment plan upon the commencement of his term of supervision.
Nayak and his then-wife, Jyoti Agrawal, founded ScienceTomorrow, LLC, in 2009. [Presentence Investigation Report (“PSR”), ¶ 9] ScienceTomorrow applied for, and received, $153, 696.00 in Phase I Small Business Innovation Research (“SBIR”) program grant funding from the DOE for a quantitative secondary electron detector (“QSED”) project for scanning electron microscopes. [Id.]
After Phase I concluded in late 2013, the couple applied for more substantial Phase II funding. [Id. at ¶¶ 10-11.] They had been in contact with the University of Tennessee regarding a potential Phase II subcontract and received a provisional letter of commitment from that university for a subcontract worth $221, 576.00. [Id. at ¶ 11.] However, Nayak and Agrawal composed a different letter, which indicated that the University of Tennessee had agreed to a $300, 006.00 subcontract. They then submitted this forgery and a corresponding false budget to the DOE as a part of their Phase II application. [2]
The DOE awarded ScienceTomorrow a $999, 266.00 Phase II grant based, in part, on the falsified letter. [PSR, ¶ 11] The grant contemplated the $300, 006.00 subcontract with the University of Tennessee. [Id.] University personnel performed some, albeit very little, work on the QSED project but were never paid from the $300, 006.00 allocated for the institution in Phase II. [Id.] Additionally, Nayak and Agrawal did not finalize an actual subcontract with the university and failed to disclose this issue (or their actions in falsifying the letter) to the DOE. [Id. at ¶ 12.] Nayak and Agrawal drew down grant funds in increments of $50, 000.00 on at least two occasions prior to August 2014. [Id. at | 13.]
Unfortunately, Nayak and Agrawal's personal and professional relationship deteriorated, and Nayak left ScienceTomorrow in August 2014. [See id.] Nayak later ceded his ownership and intellectual property interests in ScienceTomorrow to Agrawal in a 2016 divorce property settlement agreement. [Defendant's Exhibit 4, I 7] Despite the inharmonious nature of their relationship, however, Nayak performed additional work on the QSED project as a consultant in 2016. [Id. at ¶ 9.]
Agrawal continued ScienceTomorrow's work on the QSED project following Nayak's departure. But in doing so, she used a portion of the DOE Phase II funds to pay tuition for a University of Chicago Master of Business Administration program. [Id. at ¶ 17-18.] She also made false representations to the DOE regarding project costs and expenditures in her final project certifications submitted in early 2017 and retained over $300, 000.00 in DOE grant money after the project had ended in contravention of SBIR program guidelines. [Id. at ¶ 16.]
Nayak operated other businesses after he left ScienceTomorrow, including QMetry Corporation. QMetry applied for a Phase I SBIR grant from the EPA to fund a project concerning a remediation technique for perfluoroalkyl substance (“PFAS”) contaminants in soil. [See id. at ¶ 20; Defendant's Exhibit 12.] Nayak falsely claimed in the December 19, 2017, Phase I application that he had an agreement with a University of Kentucky soil science professor to perform work on the PFAS project because he knew that such a representation would significantly increase QMetry's chances of receiving the grant. [Id. at ¶¶ 20-22; Government's Exhibit 3, p. 1.]
The EPA awarded a $100, 000.00 Phase I grant to QMetry based, in part, on this fraudulent representation. [PSR, ¶ 23.] Nayak proceeded to draw down funds from the Phase I grant on six occasions between December 2018 and June 5, 2019, “submitting claims in the form of invoices supported by reports to EPA contracting officers [he] knew contained material falsities or relied upon false pretenses.” [Id. at ¶ 24.] And despite his certification to the contrary, he kept $46, 564.61 in EPA grant funding after the conclusion of Phase I in violation of his agreement with the EPA. [Id. at ¶ 25.]
Nayak pleaded guilty to three counts of a fifteen-count Indictment on August 30, 2021. [Record No. 46] Counts 1 and 2, charging a conspiracy to commit wire fraud and substantive wire fraud, concern Nayak's SBIR activities on behalf of ScienceTomorrow.[3] [See Record No. 1.] Count 3, charging substantive wire fraud, relates to his QMetry conduct. [See id.] Notably, Nayak's plea agreement includes a “five-year exclusion from participating in or receiving benefits from any federal procurement or non-procurement transaction in accordance with Federal Acquisition Regulation (FAR) 48 C.F.R. § 9.4 and 2 C.F.R. § 180.1020.” [Record No. 46, ¶ 11.] “This means that the Defendant will be barred from participating in most procurement and non-procurement programs and activities unless such program is exempted under 2 C.F.R. § 180.215 and 2 C.F.R. § 417.215.” [Id.] The Court sentenced the defendant on December 13, 2021, reserving the issue of restitution for hearing at a later date pursuant to 18 U.S.C. § 3664(d)(5) and the agreement of the parties.[4]
During the final restitution hearing held on April 8, 2022, the government introduced the declaration of Manny Oliver, the SBIR/STTR Programs Director for the DOE.[5] In the declaration, Oliver states:
The statutory purpose of the SBIR program is to strengthen the role of innovative small business concerns (SBCs) in Federally-funded research or research and development (R/R&D) Specific program purposes are to: (1) stimulate technological innovation; (2) use small business to meet Federal R/R&D needs; (3) foster and encourage participation by socially and economically disadvantaged SBCs (SDBs), and by women-owned SBCs (WOSBs), in technological innovation; and, (4) increase private sector commercialization of innovations derived from Federal R/R&D, thereby increasing competition, productivity and economic growth .... The statutory purpose of supporting the commercialization of innovation technologies is stated in each Phase I and Phase II DOE SBIR/STTR Funding Opportunity Announcement (FOA).
[Government's Exhibit 1, | 2 (citations omitted).] Oliver indicates that the DOE achieves this statutory purpose “by providing financial assistance to small businesses to perform early research and development on innovations with commercial potential.” [Id. at | 3.] There is considerable competition for limited funding, and the DOE must turn away “numerous meritorious applicants” every year based on the funds available. [Id.]
In addition to including award budgets (and subaward budgets) in an SBIR application, Oliver states that “each applicant is asked to describe its staff, equipment, and facilities necessary to carry out the [project] effort.” [Id. at ¶¶ 9-10.] “Each application is reviewed for information that shows the Recipient will carry out the project in a cost effective manner as evidenced by the qualifications of the Principal Investigator, other key staff, consultants and subcontractors, if any, and the level of adequacy of equipment and facilities.” [Id. at | 9 (cleaned up) (citation omitted).]
The DOE “places great value in the signed certifications of an applicant to fairly represent both its capabilities and resources as well as its plans to commercialize its innovations, ” and “[a]n applicant who obtains an award by misrepresentation denies another qualified applicant the opportunity to advance its innovations.” [Id. at | 3.]
Oliver also offers the following significant insights regarding the nature of the award at issue:
ScienceTomorrow, LLC's DOE SBIR award was a grant, which is a financial assistance instrument. A financial assistance instrument is used when the principal purpose of the transaction is the transfer of money or property to accomplish a public purpose of support or stimulation as authorized by Federal statute. 31 U.S.C. § 6304. A financial assistance instrument is different from a procurement contract, the latter being for the direct benefit or use of the United States Government. 31 U.S.C. § 6303.
After such a grant is awarded and the project has been completed an awardee must submit progress reports and a final technical report. [Id. at ¶ 12.] The DOE received ScienceTomorrow's...
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