SAN JOSE, Calif. (KRON) — Two Silicon Valley biotechnology companies and their co-founder will pay more than $10 million to the United States to resolve allegations of fraud, announced U.S. Attorney Stephanie Hinds.

Dr. Paul Andrew Rhodes co-founded two technology companies, iSense and Specific Diagnostics.  iSense designs and develops applications for colorimetric sensor arrays.  Specific, headquartered in San Jose, designs antimicrobial susceptibility tests.

“This office continues to combat fraud wherever it lurks in Silicon Valley,” said U.S. Attorney Stephanie Hinds. “Federal awards for biotech research are a critical aspect of this country’s strategy to promote and support innovation and research.  Regrettably, some recipients mislead auditors and divert funds to enrich themselves.”

Dr. Rhodes, iSense, and Specific entered into a settlement agreement to resolve allegations that the firms mischarged federal grants by billing for costs incurred by another business. The settlement also resolves allegations of backdating services.

Under the settlement, iSense will pay $4 million, Specific will pay $4 million, and Rhodes will pay $2,068,875.

Rhodes and the biotech companies allegedly billed the Department of Defense and others for disallowed, unreasonable, or mischaracterized costs.

According to the allegations, from January 1, 2015, to December 31, 2019, iSense knowingly misallocated to itself costs incurred by Specific. Rhodes partially owned both companies. In one example, iSense shared office space with Specific, but the costs for that space were allocated to iSense, and submitted for payment under DOD grants.  The United States also alleges that iSense and Rhodes knowingly submitted backdated cost-sharing agreements with Specific to the federal government. 

According to Rhodes’ biography on Specific’s website, he holds degrees in physics and neuroscience from Harvard University and Stanford University.

The investigation and settlement resulted from a coordinated effort by the U.S. Attorney’s Office for the Northern District of California, Department of Health and Human Services Office of Inspector General, DCIS, and the Major Procurement Fraud Field Office of Army-CID.