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CVE Cancels Another SDVOSB for Incomplete Documentation

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The U.S. Dept. of Veteran Affairs' Center for Verification and Evaluation (CVE) first verified RealSims on June 4, 2015 and then reverified the company on October 22, 2018.  At the time of initial and reverification, service-disabled Veteran Robert McGraw owned 98 percent of the Service Disabled Veteran Owned Small Business (SDVOSB) company and his wife, Debra McGraw owned two percent.   In May 2018, RealSim executed a Letter of Intent to sell 49 percent of its membership interest to another company, Badger Technology Group, which was owned 50/50 by two non-veterans, Dan Wade and Ralf Persson. 

RealSims submitted a change request on January 10, 2019, with VA Forms 0877 showing Mr. McGraw owning 51 percent and Messrs. Wade and Persson owning 24.5 percent each.  On February 12, 2019, the company submitted a newly executed operating agreement dated January 1, 2019, showing Mr. McGraw as the managing member and Messrs. Wade and Persson as non-managing members.  Realism also submitted “bios” for Messrs. McGraw and Persson, but not Mr. Wade. 

Requested Documents

Because the company’s website showed an address in Wisconsin, the CVE requested a letter of explanation regarding that address, including any lease agreements.  RealSims informed the CVE that the new address belonged to Badger, which was allowing RealSim to use it rent free for the time being. 

On February 13, 2109, the CVE also requested signed copies of the most recent member/manager minutes, minutes reflecting the adoption of the amended Operating Agreement, and the transfer of ownership agreement signed and dated by all parties.  The CVE gave RealSims until February 18, 2019, to comply with the request. Of note, the 13th was a Wednesday, so RealSims only had three business days to fulfill this document request.

On February 13, 2019, RealSims sent the CVE a letter informing it that two of the members were away on international travel and that the soonest RealSims could comply with the document request was February 22, 2019. 

Notice Of Proposed Cancellation

On March 12, 2019, the CVE issued its Notice of Proposed Cancellation (NOPC) which included a list of deficiencies including:

  • Signed and dated Transfer of Membership or Purchase Agreement

  • Current resumes for all owners of the concern which include educational background, all current and prior employment, dates of employment, and duties or responsibilities.

  • Minutes signed by all the members showing the positions held by all current members of the company

The NOPC also pointed out that it was unable to determine whether Mr. McGraw, the SDVOSB owner, fully controlled RealSims given it had a second facility in Wisconsin (the company’s primary address was in Pensacola, FL), which was owned by non-veterans and for which RealSims was paying no rent.  The NOPC gave RealSims 30 days to respond.


Response

RealSims responded in time, by resubmitting the company’s annual meeting minutes, which remained unsigned by the non-veteran owners, Messrs. Wade and Persson.  The company also submitted a Purchase Agreement dated May 18, 2018, which showed that Mr. McGraw would remain as managing member, but that the primary place of business and production facility would be Port Washington, WI, and the registered office would remain Pensacola, FL.

RealSims related that it paid no rent for the facility in Wisconsin and that Mr. Wade’s only job within the SDVOSB was “promoting business and identifying prospects and fielding sales inquiries at the moment.”  The company did not submit Messrs. Wade’s or Persson’s resumes.

Cancellation

The CVE forwarded a Notice of Verified Status Cancellation (NOVSC) on April 18, 2019, citing inadequacies in RealSims response to the NOPC. Examples of deficiencies it cited included the lack of the most recent meeting minutes signed by all members and current resumes for all of the company’s owners.  The CVE also took exception to the fact that RealSims listed an office in held an office in Wisconsin.  Of note, the CVE wrote that RealSims had failed to “submit sufficient documentation to rebut the presumption that non-Veteran individuals or entities control or have the power to control the firm. CVE cannot determine whether business relationships exist with non-Veterans or non-Veteran entities which cause such dependence that [RealSims] cannot exercise independent business judgment without great economic risk pursuant to 13 CFR 125.13(i)(7).”

Appeal

 RealSims appealed the CVE decision to the Small Business Administration (SBA) Office of Hearings and Appeals (OHA) pro se (no attorney) on April 26, 2019.  In its appeal, the company asserted that its January 2019 Operating Agreement superseded its previously executed Purchase Agreement and eliminates any risk of non-veteran control.  RealSims went further and asserted that the LLC’s members had reviewed the May 2018 agreement and rejected it as not reflecting the intent of the parties. 

Like many appellants, RealSims also alleged that the NOPC and NOVSC were unclear in what they required by way of documentation and that RealSims had complied with the document request to the extent that its owners understood the requests.  RealSims’ appeal also relates that the owner called the Vetbiz 800 number and was informed that the person answering the call could not help since the NOPC has already been sent.

SBA OHA Determination

 In denying RealSims’ appeal, the SBA's OHA essentially faulted the company’s owners for not submitting the requested documents.  “Appellant had been asked twice for the meeting minutes signed by all members and for the resumes of the new members.”  The OHA did not reach the merits of RealSims’ appeal, which was whether the documents it had submitted were sufficient to demonstrate that Mr. McGraw owned and controlled RealSims.  It appears from the OHA decision that if the CVE requests a document, no matter how meaningless, it is up to the SDVOSB owners to submit those documents or risk losing their company’s verification status. 

Our firm has helped many SDVOSBs and VOSBs get and maintain their CVE verification.  We draft Sales Agreements, Operating Agreements and any other documents necessary for the process.  Also, if you or your company finds itself needing to file an appeal at the SBA OHA, we have had success there as well. Contact us today to learn more about how we can help ensure you receive the Veterans' benefits you are entitled to. Please call (303) 534-1958 or complete a contact form on our website.

 

 

About the AuthorJoseph Whitcomb

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