Ex-Employees of Bankrupt Security Clearance Firm Aim to Resolve Some Unfinished Business

Former staffers of one of the government’s most prominent defunct contractors continue to battle for a share of a shrinking pie.

As many as 2,000 jobless former employees of U.S. Investigative Services (USIS) are proceeding with a class-action suit against the firm’s ex-directors and officers, seeking redress under the Worker Adjustment and Retraining Notification (WARN) Act, which requires 60 days advance notification of mass layoffs.

USIS -- spun off from the Office of Personnel Management in 1996 as an efficiency measure -- enjoyed lucrative agency background-check work and field support contracts in its earlier years, and has alumni at competing contractors industrywide.

But more recently USIS also earned some black marks: the Justice Department filed a $1 billion suit against the Falls Church, Va.-based firm for “dumping” as many as 665,000 incomplete  background checks on OPM to meet deadlines, while postmortems on the Edward Snowden domestic surveillance leaks and the 2013 Aaron Alexis Navy Yard shootings showed that USIS had conducted their background checks (though agency officials approved the clearances). Lawmakers became angry that the troubled USIS’ parent company awarded its executives bonuses.

In September 2014, OPM terminated USIS’ contracts following a security breach of its Homeland Security Department personnel files, and USIS’ parent company in February filed for bankruptcy protection. USIS employees were not given adequate warning that they would lose their jobs, according to the class action lawsuit.

 “The employees were given notice in August 2014 that they were to stop working,” Jack Raisner, an attorney with Outten & Golden LLP in New York who represents the class, told Government Executive. The employees, nearly all of whom had been performing background checks for the government, “were put in a limbo status, cut off from computers, and had to wait and see what their status going to be.” Without collecting pay, “they learned at the end of that September they were not going back to work.”

Though the suit began a year ago in federal district court in Pennsylvania, it was cut short, Raisner said, when USIS’ parent Altegrity Inc. declared bankruptcy. “The direction of the bankruptcy forestayed any litigation against the entity, and virtually all of the assets were liened up and belonged to the secured lenders,” he said. “The nature of the restructuring gave stock to those lenders in a new ongoing company” composed of the subsidiaries Hire Right, which performs background checks, and Kroll, a risk and management services firm. “That didn’t leave much free to pay creditors of the liquidated entity, the employees of USIS,” he said. The suit has now moved to bankruptcy court in Delaware.

Altegrity filed to protect its 37 affiliates, all of which continue except for USIS, which accounted for nearly 40 percent of revenues, according to the Wall Street Journal.

The parent firm argues that it needed to preserve assets for the two remaining companies, which left little to the unsecured creditors of USIS, Raisner said. Hence the employees—grouped into a class for the lawsuit this June— lodged a claim against the directors and officers of the liquidated entity as a resource for recovery of funds. “Basically the creditors are standing in the shoes of companies seeking to recoup transfers of money that belong to the estate under the bankruptcy code and losses caused by breaches of fiduciary duty,”  Raisner said.

The timing of the case is hard to predict, Raisner added, because full information on the data breach of Homeland Security files at USIS “has yet to emerge.” Many of the former USIS employees could be hired by firms now performing background checks for OPM, such as KeyPoint Government Solutions.

Asked for comment, an OPM spokeswoman said there are no restrictions on the hiring of former USIS employees except those directly involved in the past “dumping” of incomplete background checks. “OPM currently has contracts with KeyPoint and CACI to conduct fieldwork for our investigations and a contract with NT Concepts to perform support services for investigations,” she said.

“As a matter of policy, OPM sets general requirements for the training and credentials needed for personnel working on our contracts, but we cannot and do not interfere with the hiring of particular individuals at a private company,” she added. “We are comfortable with other firms that OPM does business with bringing on former USIS employees and contractors who they deem are qualified for a number of reasons. It should be noted that any USIS personnel that were identified as being involved in the dumping that took place were no longer with USIS when OPM’s contractual relationship with the company ended.”

The corporate world once inhabited by USIS has many overlapping parts. A month before the bankruptcy announcement, USIS last January sold its Global Security and Solutions business unit to Arlington, Va.,-based PAE, which has major contracts with Homeland Security and the Justice Department to perform mission support services, not background checks, a spokeswoman said.

PAE this August learned that the Government Accountability Office had upheld a bid protest of a contract that PAE/USIS Professional Services Division had won to provide field office support services for the Homeland Security Department. PAE said most likely new requirements led the agency to cancel the original procurement and issue a new request for proposal.

The bid protester was FCI Federal of Leesburg, Va.  FCI Federal’s chief administrative officer is Susan Kirton, who spent 16 years at USIS.