Maximus Settles Fraud Case for $30.5 Million

By Alejandro Lazo
Washington Post Staff Writer
Tuesday, July 24, 2007

Maximus, a Reston company that provides consulting services for local and state social service agencies, settled a Medicaid fraud lawsuit with the federal government for $30.5 million yesterday.

Separately, the company announced that it had hired UBS Investment Bank to review its strategic options and would consider putting itself up for sale.

"Maximus accepts responsibility for the conduct of its employees, and since that time, we have taken remedial actions to improve oversight to prevent a recurrence," chief executive Richard Montoni said in a statement.

He added in a separate statement that the UBS review would help Maximus realize its "full potential."

The company did not return a call for further comment. Maximus said it would record legal fees and settlement expenses totaling approximately $33 million, which includes certain unrelated legal costs, in the third quarter.

"I think overall you have a positive resolution to a long-standing investigation with the federal government," said Charles Strauzer, an analyst with CJS Securities. "Strategic alternative reviews are viewed positively" because they show the company is taking into account the concerns of shareholders.

In the legal case, Maximus neither admitted nor denied the government's allegations. The government alleged that Maximus had helped the District of Columbia's Child and Family Services Agency submit false claims to the Medicaid program.

The U.S. government had previously recovered $12.15 million from the Child and Family Services Agency, bringing the total collected to $42.65 million.

The investigation began after a lawsuit was filed on behalf of the government by Benjamin Turner, a former division manager at Maximus, under whistle-blower provisions of the False Claims Act.

Turner will receive $4.93 million as his share of the settlement, the Justice Department said.

Investors have been pushing for a sale of the company for the past two years, said Erik Olberter, an analyst with Stanford Group.

Olberter said Maximus's strategy of acquisitions to expand its core government service business has struggled because the company required each investment to contribute to the bottom line, making it difficult to invest in individual business units and realize synergies.

Olberter said Maximus could decide to sell off individual units instead of the whole company.

"A lot of the business units that Maximus has could grow a lot faster if they were part of a firm that was willing to invest in them," Olberter said.

Staff researcher Richard Drezen contributed to this report.

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