U.S. SMALL BUSINESS ADMINISTRATION WASHINGTON, DC 20416 December 20, 2013 VIA CERTIFIED MAIL -- RETURN RECEIPT Microtechnologies, LLC Anthony Jimenez 3330 Boone Blvd. 1107 Robindale Drive Suite 600 Great Falls, VA 22066-1300 Vienna, VA 22182-2624 Re: Notice of Proposed Debarment Dear Mr. Jimenez: I am the Suspension and Debannent Official at the U.S. Small Business Administration (SBA). SBA is proposing to debar Micrctechnologies, LLC d/bfa MieroTech (MicroTech) (Duns: 1454541 32, and D78-463013), and Mr. Anthony Jimenez from future contracting with any agency of the Executive Branch of the United States Government under Section 9.406 of the Federal Acquisition Regulation (FAR), Title 43 of the Code of Federal Regulations (CFR). This letter notifies you of your opportunity to submit a response for my consideration as the SBA's Suspension and Debarment Official. I am proposing the debarment of Mic1'oTech, and Mr. Jimenez based on information showing that Mr. Jimenez and MicroTech submitted false and misleading statements to the SBA in comiection with MicroTech's application to participate in 3(a) Business Development (BD) Program. As the PresidentfCEC) and Managing Member of MicroTech, Mr. Jimenez is responsible for and is assumed to be aware of information submitted to SBA on behalf of MicroTech, and therefore the conduct of MicroTech in submitting false and! or misleading information to SBA may be properly imputed to Mr. Jimenez. Mr. Jimenez is being proposed for debarrnent based on his own conduct and as an affiliatel of MicroTech. 1 Affiliates." Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both. Indicia of control include, but are not limited to, interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity organized following the suspension, or proposed debarrnent of a contractor which has the same or similar managenient, ownership, or principal employees as the contractor that was debarred, suspended, or proposed for debarment. FAR 9.403 SBA's 8(a) BD progam provides companies meeting the qualifications for program participation additional opportunities to obtain Government contracts. The program provides these opportunities in order to assist in the overall business development of 8(a) participant firms. 3(a) ED participants are eligible for both set--aside and sole source contracts (collectively 3(a) BD contracts). 13 C.F.R. 3(a) ED participants, with exceptions not relevant to this matter, must be managed on a 'fullutime basis by one or more disadvantaged individuals. 13 C1.F.R. SBA may deny admission to the 3(a) BD program if SBA learns that an applicant submitted false infonnation during the application process, notwithstanding whether that information was material. 13 C.F.R. SBA may debar a person or business for any reason listed in FAR 9.406--2, when there is a preponderance of evidence to suspect a person (including a corporation) has committed an offense in connection with the performance of a public contract. According to the PAR: The debarring official may debar -- A contractor for a conviction of or civil judgment for -- (1) Commission of fraud or a criminal offense in connection with Obtaining; (ii) Attempting to obtain; or Performing a public contract or subcontract; . . . A contractor or subcontractor based on any other cause of so serious or compelling a nature that it affects the present responsibility of a Government contractor or subcontractor. FAR and SBA believes that MicroTech's present responsibility is questionable due to the false and misleading information contained in its 3(a) BD application. Mr. Jimenez submitted an application for SBA's 8(a) BD program on behalf of MicroTech in April 2005. On April 15, 2005 and May 4, 2005 SBA asked for additional documents and information from MicroTech and Mr. Jimenez regarding the relationships between MicroTech, its owners and officers, and two other firms, MicroLink, LLC (MicroLink), and GovWare, LLC (Govware). The infonnation shows that MicroTecl1's two minority equity holders, Mr. Timothy Wharton (Mr. Wharton), and Mr. David Truitt (Mr. Truitt) were the sole owners of MicroLinl<<:, as well as partial owners of CiovWare. SBA's request for information about GovWa.re, stated the following, "Explain the relationship if any, between Govwarc, LLC and Microtech, SBA also requested that Mr. Jimenez provide corporate documents for GovWare, as well as tax returns for the firm. In response to this request Mr. Jimenez and MicroTech provided GovWare's Operating Agreement, including recent changes and amendments, and the finn's recent ta:-L retums. Mr. Jimenez and MicroTech also provided this statement: Until January 1, 2005, Anthony Jimenez had controlling ownership in Govware, LLC. In an effort to devote the entirety of his time to the management and running of MicroTech, LLCJ on January 1, 2005 Mr. Jimenez sold controlling interest of the company to James Hawkins. Mr. Jimenez currently owns 9 percent of GovWare, LL. There is no relationship between Govware, LLC and MicroTech, LLC. Mr. Jimenez is a passive investor in C-'rovware, LLC. A mere two years later in 2007, Mr. Jimenez, the passive investor, would formally retake control of Gm/Ware, and in a letter from Mr. Timothy Wharton (also a managing member of Gm/Ware as well as a member of MicroTech and MicroLink) would inform GovWare's members that "all or substantially all" of GovWare's assets would be sold to MicroTech, a firm that SBA had been told had "no relationship" with Govware. In 2007, MicroTech described its acquisition of GovWare's assets, which is the company that two years earlier Mr. Jimenez and MicroTech had assured SBA had "no relationship" to MicroTech, as follows: On June 30, 2007, the Company [MicroTech] assumed all assets, liabilities and contract obligations of a company owned by the Company's members, Grovware, LLC (GovWare). The merger was between entities under "common control". Therefore, the assets and liabilities assumed were recorded at historical cost as if the companies were combined since inception in accordance with accounting principles generally accepted in the United States of America. Prior to June 30, 2007, the Company [MicroTech] and GovWare, in the nonnal course of business, entered into certain transactions for the purchase and sale of services. These intercompany transactions have been eliminated in the accompanying financial statements. In statements to SBA in 2005, Mr. Jimenez maintained that he was merely a passive investor in GovWare and that the two companies had no relationship. In 2007, the were described as under common control and as having intercompany contracts and transactions that relate back to the inception of the firms. The two statements are not compatible. The 2005 statement had the effect of misleading SBA about the true nature of the relationship and connections between the two firms and their officers and owners. SBA was led to believe by Mr. Jimenez that the two finns would be separate, and that he and MicroTecli would have "no relationship" with the firm, and this was asserted along with his statement of being just a "passive" investor. How is it that Mr. Jimenez, and his partners in MicroTech (Mr. David Truitt and Mr. Timothy Wharton) were able to own and control GovWa:re in 2007 when Mr. Jimenez and MicroTech previously told SBA that Mr. Jimenez and his MicroTech partners were just passive investors and that the businesses were completely separate and had "no business relationships"? It appears that the answer is that Mr. Jimenez and MicroTech purposefully misled SBA about the relationship in 2005 and also withheld corporate documents from SBA. Specifically while Mr. Jimenez and MicroTech did provide GovWare's Operating Agreement, including amendments and updates, they failed to provide with a May 31, 2005 Option Agreement between the 3 MicrcTech was not admitted to 3(a) program until June 10, 2005 and its application was still under review at the time the option agreement was dated. Further, even if the option agreement was dated after Mic1'oTccl1 had been admitted the program, the firm would have had an affirmative duty to provide SBA with a copy. "The concern must 3 members of GovWare. That Option Agreement was never disclosed to SBA during the review of MicroTech's application, or after the firm was accepted into the program in June 2005. The Option Agreement allowed Mr. Jimenez to "repurchase" Mr. Hawkins shares at any time for a few hundred dollars. In 2007, Mr. Jimenez exercised those options, and he and his partners then transferred all the assets of GovWare to the company that Mr. Jimenez had certified to SBA that it had no business relationships with, MicroTech. The existence of options is extremely important to SBA in evaluating ownership and control, as well as in determining affiliation for size purposes. Pursuant to SE-A's regulations for its various socio--economic programs, including the 8(a) ED program, SBA will generally treat stock options as exercised in determining who controls the firm under review. See 13 C.F.R. and Where another individual or business entity has the authority to exercise options or convert debentures to voting stoclc in a firm that would affect the control of the firtn where an individual would own more than 50% of a firm after options are exercised), SBA will consider the options as'already exercised and that individual or business entity will be deemed to control the firm. The rules are in place to cover the exact situation that occurred with Mr. Jimenez seizing control of Govware. Reported equity holders and their percentages of ownership are illusionary if there are options outstanding that can be exercised at any time and effectively change the control of a firm. In this case, Mr. Jimenez held options for CiovWare that would give him majority ownership and control of the firm. These options were never disclosed to SBA. Mr. Jimenez and MicroTech misled SBA about the extent and nature of the relationship between himself, MicroTech, Mr. Tmitt, Mr. Wharton, and Govware. In addition, Mr. Jimenez, Mr. Truitt and Mr. Wharton were deemed to be the "Initial Members" of GovWare. Pursuant to GovWare's Operating Agreement, certain rights were granted exclusively to the Initial Members. Thus, even after Govware added Mr. James Hawkins as an additional Member, Mr. Jimenez, Mr. Truitt and Mr. Wharton continued to control GovWare regarding sigiificant actions. When Mr. Hawkins later attempted to dispute actions that eliminated his ownership interest in GovWare, he was told that as an "additional member" of GovWare, he did not have the authority to do so. Specifically, he was told that the "Right of First Refusal to Purchase Company Assets" was "solely and expressly granted to the Initial Members." See July 3, 2007 Letter from Patton Boggs LLP. As such, it appears that Mr. Jimenez continued to possess significant control over CiovWare even after his supposed sale of his controlling interest to Mr. Hawkins in January 2005, contrary to his assertions in MicroTech's 8(a) application. During the application process, SBA also requested information from MicroTech regarding the relationship between itself, its owners and members, and the firm MicroLink and that finn's owners and officers. In response to request, MicroTech provided the following response: Anthony Jimenez is the majority owner of Micro Tech, LLC, David Truitt is a minority owner in Micro Tech, LLC. Although David Truitt holds ownership in the firm, he does not hold any position within the firm. Additionally, he receives no regular salary from Micro Tech, LLC. He is not in any managerial capacity inform SBA in writing of any changes in circumstances which would adversely affect its program eligibility, especially economic disadvantage and ownership and control." 13 C.F.R. 124.112 (2005). 4 within the company. David Truitt is the majority shareholder of Micro Link, LLC in the capacity of CEO and President. There is no link, relationship, or partnership of any kind between Micro Tech, LLC and Micro Link, LLC. Micro Tech, LLC operates in an entirely different NAICS code than Micro Link, LLC. The NAICS code that Micro Tech is operating under is 517212. Micro Link is operating under NAICS code 541511. Micro Tech, LLC is neither a vendor to nor a customer of Micro Link, LLC. fig business has ever been conducted between these two companies. [Emphasis addedj This is a very clear statement on the part of MicroTech that it does not do any business with MicroLink, and, given the different NAICS codes that the two companies operate in, that there is no intention of doing business together in the future. The clear intent of this statement is to lead SBA to believe that no business relationship exists now, and that no business relationship will exist in the future. That is the clear intent of the statement, and that is the meaning that SBA applied to the statement. However this statement appears to be a complete fabrication, and the fiiture conduct of all parties now being proposed for debannent sheds light on their original motives. MicroTech's actions after its acceptance into the 8(a) BD program paint a much different picture of the relationship between the companies and between Mr. Jimenez, Mr. Truitt, and Mr. Wharton than the one presented by the firms and Mr. Jimenez at the time of MicroTech's application. Rather than having no links, no relationships, no partnerships of any kind, and no business together ever, MicroTech reported substantial payments to MicroLink3. In 2005, MicroTech recorded $35,924 in rent, and $258,780 for "subcontractor, commissions, accounting, and consulting expenses" to MicroLink. In 2006, MicroTech recorded $177,626 for rent and an additional $120,65 8 for "subcontractor, commissions, accounting, and consulting expenses" to MicroLink. In 2007, MicroTech recorded $182,630 for rent and an additional $622,618 for "subcontractor, commissions, accounting, and consulting expenses" to MicroLink. In 2008, MicroTech recorded $353,450 for rent and an additional $529,003 for "subcontractor, commissions, accounting, and consulting expenses" to MicroLink. MicroTech and MicroLink Transactions 2005-2008 Rent Subcontractor, Total commissions, accounting, and consulting expenses 2005 $35,924 $258,780 $296,709 2006 $177,626 $120,658 $300,290 2007 $182,630 $622,618 $596,999 2008 $353,450 $529,003 $884,461 Total $749,630 $1,531,059 $2,280,689 3 The records being referenced do not name MicroLink, but rather state a "company owned by two of its members." With knowledge from outside these documents I am assuming this is a reference to MicroLink and not to another firm not disclosed to SBA. In the year in which MieroTecl1 applied to the 8(a) BD program and the following three years, MicroTech had $749,630 recorded in rent payments and $1,531,059 recorded in "subcontractor, commissions, accounting, and consulting expenses". Mr. imenez's and MicroTech's assertion that the two firms were separate and had no relationships is not bom out by their subsequent conduct. $2,230,689 is not a small or de minimis amount of business between two finns and is a far cry from the, "no link, relationship, or partnership of any kind between Micro Tech, LLC and Micro Link, statement made to SBA. Further, MicroTech's application and response does not state that Mr. Timothy Wharton, a member of MicroTech since its inception in 2004, also owns 20% of MicroLink, is member of both companies, and is an officer of MicroLinlt. Further with respect to MicroLinl<, LLC and Mr. Wharton, SBA's application for the 8(a) ED program asks the following the question, "Does any owner, director, officer or management member have an ownership interest in any other firm?" MicroTech's application states that the answer to that question is "yes", but only provides the name of Mr. David Truitt, and not Mr. Timothy Wharton. The response also states that, "Although David Truitt holds ownership in the firm, he does not hold any position within the thin." Whether this was true at the time of MicroTech's application is debatable4, but Mr. Truitt either officially or unofficially held officer titles and positions at MicroTech during the firm's participation in the 8(a) ED Program. SBA was never informed at the time that Mr. Truitt's role had changed, and that he had been made an officer of the firm as required by SBA regulations. The record also shows that MicroTech may not have been a small business concern for many of the contracts it was awarded between 2005 and 20105 due to the affiliation between MicroTech and Microlinlt. See 13 C.F.R. 121.103. The record shows a deep and thorough connection between the two firms, its management and its owners. The firms had common ownership and management (Mr. Truitt has been shown to be listed as an officer of both firms), shared resources and were co-located at the same location. Pursuant to SE-A's regulations, considers factors such as ownership, management, previous relationships with or ties to another concem, and contractual relationships, in detennining whether affiliation exists." 13 C.F.R. 121 While no one factor may be dispositive, SBA regulations clearly state that, determining whether affiliation exists, SBA will consider the totality of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation." Although SBA did conduct several size determinations of the firm during this time period in response to protests relating to specific contracts, the issue of affiliation was not raised by the protestor and was not determined by SBA. The issue of affiliation was raised in a size determination in 2012, but at that time Mr. Wharton and Mr. Truitt no longer owned MicroLinl-:, and Mr. Truitt was no longer working for In 2012, Mr. Truitt was working full time for MicroTech. However, prior to 2010 there are substantial links between the 4 It appears that Mr. Truitt may have always held an officer title and position within the firm, but MicroTech did not view this as an officer position because Mr. Jimenez had ultimate control. At the least, SBA believes that further clarification was required because common sense would lead to a conclusion that a person with a title and a position as an officer is an officer. 5 In 2010, MicroLinlc was sold to another business. two companies, and clearly Mr. Truitt and Mr. Wharton owned significant interests in both firms, as well as C':'ovWare. Rather than operating as two independent entities, the record appears to show a very close relationship between all parties, and separate entities owned by common individuals operating together bot11 formally and informally. For example, when Mr. Truitt sold MicroLink, he did not go to work for another firm; he continued to work as an officer for MicroTech. There is also an issue regarding the total amount of compensation provided by MicroTech to Mr. Jimenez and Mr. Truitt. SBA's 8(a) BD regulations require that Mr. Jimenez be the highest compensated individual in the 8(a) participant firm. See 13 C.F.R.. Records show that Mr. Truitt and Mr. Jimenez were both paid dividends by MicroTech for most years. For example, in 2007 MicroTech paid Mr. Jimenez $175,333 and Mr. Truitt $126,151 in dividends. According to records, neither drew a salary that year. However, records also show, as noted above, that MicroLinl=: received $596,999 ($182,630 for rent and $622,618 for subcontractor, commissions, accounting, and consulting expenses) from MicroTech that year. As a principal of MicroLinlc, Mr. Truitt certainly received benefits fiom the transactions between MicroTech and MicroLinlr.. In order for Mr. Jimenez to be the highest compensated individual in MicroTech, it is conceivable that MicroTech paid certain specified amounts to Mr. Truitt indirectly through MicroLinlc as "consulting services." Further, any rent that was paid by MicroTech to that exceeded the fair market rate for MicroTech's space could also be considered as compensation paid by MicroTech to Mr. Truitt. Given the amount of money transferred between the two firms over the years, there are issues about the compensation of Mr. Jimenez relative to Mr. Truitt that needs further clarification. Conclusion. The proposed debarment is effective throughout the executive branch of the Federal Government and has the following consequences: 1. The names of the Microtechnologies, LLC d/b/a MicroTech (Duns: 145454182, and 078468018), and Mr. Anthony Jimenez will be published in the System for Award Management (SAM), where it will be noted that you are in an "Ineligible (Proceedings Pending)" status. SAM is available at 2. Microtechnologies, LLC d/b/a MicroTech (Duns: 1454541832, and 078468018), and Mr. Anthony Jimenez are excluded from receiving contracts. Agencies shall not solicit offers from, award contracts to, or consent to subcontracts with you unless the agency head determines that there is a compelling reason for such action. 3. Microtechnologies, LLC d/b/a MicroTech (Duns: 145454182, and 078468018), and Mr. Anthony Jimenez are excluded from conducting business with the Government as agent or representative of other contractors. 4. Microtechnologies, LLC dfb/a MicroTech (Duns: 145454182, and 078468018), and Mr. Anthony Jimenez are excluded fi'om acting as an individual surety. 5. Mierotechnologies, LLC dfb/a MicroTecl1 (Duns: 14545-4132, and 073463013), and Mr. Anthony Jimenez are escluded from participating in a Federal agency transaction that is a covered transaction, or act as a principal of a person participating in a covered transaction. The tcrro "covered transaction" is defined in 2 C.F.R. 130.200. If debarntent is imposed, the limitations described above will continue to apply and Microteohnologies, LLC d/b/a Micro"l"ecl1 (Duns: 145454132, and 073463013), and Mr. Anthony Jimenez will he identified i.u SAM as "Ineligible (Proceedings Completed)?' If imposed, debarment will be for a period eomruensuratc with the seriousness ot' the cause. Within 30 days of receipt of this Notice, you or a representative may submit either in person or in writing, or both, information and argument in opposition to the proposed deharment. If you designate a representative to respond, please notify me in writing of the identity of the representative. The designation should specifically state the names and addresses of all individuals or companies the designee has the authority to represent in this matter. Your submission, if any, may include specific information that raises a genuine dispute over facts material to the proposed deharment. lfit is found that the information or argument submitted raises a genuine dispute over material facts, fact-finding may be conducted to determine the disputed facts. This proposed debarment proceeding; has been initiatednon the basis of the administrative record. A copy of the record, except for those materials protected from disclosure, will be furnished upon request. Any written information you submit will become a part of the administrative record. Information or argument presented orally will he considered to be part of the administrative 1'ecord only to the extent such information and argument is submitted in written form. The determination whether to dehar you is discretionary and will he made on the basis of the administrative record, together with any Written materials submitted for the record by the Ciovemment or you during the period of proposed deharment. Any regarding this matter should be directed to Christopher Clarice of my Ottice at 202--205--'73 07. Any written submission should be forwarded to him at US. Business Administration, 409 Third Street SW, Fiith Floor, Washington, DC 20416, with a copy by email to Christopher. clarlte@sha.gov. For your information, a copy of regulations relevant to your proposed debatment are enclosed, 43 C. .R. subpart 9.4. i erely, hn W. Klein BA Suspension and Dehannent Official closures