City Attorney Dennis Herrera filed a lawsuit in 2018 alleging a former city worker steered a health department contract toward the company where her husband worked as a salesman. (Kevin N. Hume/S.F. Examiner)

SF reaches settlement in $1.2M cybersecurity contract steering case

Whistleblower complaint led to fraud investigation at Department of Public Health

San Francisco is expected to approve a $851,000 settlement to a contract steering lawsuit brought by City Attorney Dennis Herrera against two former Department of Public Health employees, a salesman and a cybersecurity company.

The two city workers accused in the lawsuit have lost their jobs and are banned from future city employment, while the company and its former salesperson will pay The City back most of the contract amount, according to settlement agreements obtained by the San Francisco Examiner through a public records request.

“We’re pleased this proposed settlement recoups the vast majority of taxpayer funds without the need for further litigation,” City Attorney Dennis Herrrera’s spokesperson John Cote said. “This outcome also ensures that none of the individuals involved profited from ill-gotten gains.”

The civil lawsuit, filed in San Francisco Superior Court last November, was the result of a joint investigation with the City Attorney’s Office in collaboration with the City Controller’s Whistleblower Program, according to Cote.

The lawsuit alleged that when Heather Zalatimo was working as an information technology systems engineer for the health department she worked with her then-husband, Maarek Zalatimo, to steer a $1.2 million city-contract to the cybersecurity company Fidelis Cybersecurity, Inc., where he was employed as the company’s regional sales manager for Northern California.

Since Maarek Zalatimo’s pay included a commission on sales, the couple stood to gain financially from the contract, in violation of state conflict of interest laws that prohibit government employees from using their position for personal gain, the lawsuit alleged.

In addition to Fidelis, the lawsuit also named former Department of Public Health IT Chief Operating Officer Jeff Jorgenson, who was Zalatimo’s supervisor and allegedly knew her husband worked for Fidelis.

Jorgenson previously reached a settlement in the case that included resigning from his city position and a prohibition on future city employment.

Heather Zalatimo also previously reached a settlement in the case that included resigning from her city job, a ban on future employment and payment of a $5,000 civil penalty.

Both agreed to cooperate as part of their settlements.

A settlement agreement involving Fidelis and Maarek Zalatimo, who also goes by Mark Zalatimo, is now pending approval before the Board of Supervisors for $850,978. Documents submitted to the board said that the settlement agreement includes “the payment of $850,978 over 18 months by Fidelis Cybersecurity,Inc. to the City and by the City’s return of hardware purchased from Fidelis Cybersecurity, Inc.”

The settlement amount includes a payment of $55,373 by Maarek Zalatimo, which he must make through Fidelis. That is the commission sales amount he made on the contract. He is no longer employed with the company.

Fidelis Cybersecurity said in a statement to the San Francisco Examiner that the company “does not comment on litigation.”

“However, Fidelis takes all public integrity issues, including conflict of interest rules, very seriously,” the statement said. “We continue to work with the City Attorney’s Office to resolve this matter.”

In December 2015, Maarek Zalatimo began discussing products with Heather Zalatimo Fidelis in her official position with the health department, according to the lawsuit. Those conversations continued and included demos and product pitches. In April 2016, she created a document recommending Fidelis products to “address perceived security gaps” at the Department of Public Health, according to the lawsuit. In August 2016, Jorgenson approved the purchase of $1.2 million in Fidelis products and services.

An attorney who represented Heather Zalatimo in the matter declined to comment. Maarek Zalatimo’s attorney did not respond to a request for comment.

The board’s Government Audit and Oversight Committee is holding a closed session discussion Thursday on the settlement agreement and is expected to vote to send it to the full board for approval on Oct. 29.

Cote said that “everyone in government has a duty to the taxpayers we serve.”

“Our office will remain vigilant when it comes to rooting out those who would use their public position for personal gain,” he said.

For information on filing a whistleblower complaint click here.

jsabatini@sfexaminer.com

This story has been updated to add additional information.

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