Contractors Get 3 Years in Navy Bribery

FRIDAY, MAY 24, 2013

Defense contractors who showered the Navy with bribes will spend three years behind bars and pay hundreds of thousands of dollars in restitution, under sentences handed down in federal court.

U.S. District Judge Larry Alan Burns sentenced two individuals and a corporation in San Diego for their roles in a bribery scheme related to work at the Navy's Fleet Readiness Center at the Naval Air Station North Island in Coronado, CA, the U.S. Attorney's Office announced Monday (May 20).

The three defendants were Robert Ehnow, 46, owner and president of now-defunct L&N Industrial Tool & Supply Inc.; Joanne Loehr, 52, owner and president of tooling distributor Centerline Industrial Inc., of San Diego; and Centerline itself.

Ehnow and Loehr were both sentenced to 36 months in federal prison. In addition, Ehnow was ordered to pay $759,937 in restitution to the Navy; Loehr was ordered to pay $300,000. After their prison sentence, each will serve three years of supervised release.

Centerline was sentenced to five years of probation and ordered to forfeit $1,809,257 as proceeds of the scheme.

Fat Contracts and Lavish Gifts

During the course of the conspiracy, the Department of Defense paid L&N Industrial more than $3 million and Centerline more than $1.8 million, according to court records.

At the same time, defense contractors provided Navy officials with a wide range of gifts, including cash, checks, gift cards, flat-screen TVs, massage chairs, expensive bicycles and model airplanes, evidence presented at trial showed.

The contractors also submitted fraudulent invoices to DoD that appeared to bill the department for goods and services within the scope of legitimate contracts. However, the department was unknowingly paying for the cost of bribes, authorities said.

Centerline Industrial

Centerline Industrial and owner Joanne Loehr were both sentenced for the scheme. The company, which remains in business, received $1.8 million during the course of the conspiracy, officials said.

The defendants were involved in the Navy's E2/C2 aircraft program, which is dedicated to maintaining the tactical readiness of the aircraft, authorities said.

'Told Lies and Gave Bribes'

The three defendants were each charged with one count of conspiracy to commit wire fraud, bribery, and money laundering, and additional counts of bribery. The case was tried before a San Diego jury beginning Feb. 20, 2013.

After two days of deliberation, the jury returned guilty verdicts March 4 against each defendant on the conspiracy count and one or more bribery counts. Each defendant was also acquitted on at least one bribery charge.

"These defense contractors told lies, and gave bribes, to get millions of dollars in business from the United States Navy," said Laura E. Duffy, U.S. Attorney.

"The sentences handed down today send a message that this corruption will not be tolerated," Duffy said.

The conspiracy to commit bribery charges had a maximum penalty of five years in prison, and the bribery charges carried up to 15 years in prison. Both charges also carried a maximum $250,000 fine, three years of supervised release, forfeiture, and $100 special assessment.

Federal prosecutors had sought sentences of 12 years for Ehnow and nine years for Loehr, the Union-Tribune reported.

Money Laundering

A third contractor, equipment and tool distributor X&D Supply Inc., of Carlsbad, CA, was paid more than $2 million during the conspiracy. X&D's owner was one of nine people previously convicted in the scheme.

Loehr and Ehnow were the only defendants to go on trial. The nine others, including five former Navy workers,  pleaded guilty.

L&N and Centerline also engaged in money laundering by using their government contracts to fraudulently bill the Navy for items that were never supplied. Then, at the request of co-conspirators within the Navy, Ehnow wrote checks passing along the criminal proceeds to Centerline and Loehr, keeping a portion as compensation, the U.S. Attorney's Office said.

L&N, also known as Mardoc Corporation, filed for Chapter 7 bankruptcy in June 2011.

Navy bribe scheme
U.S. Navy

During the conspiracy, defense contractors provided the Navy with a range of gifts, including expensive bicycles, massage chairs and cash. Contractors also submitted fraudulent invoices to the DoD.

9 Plead Guilty

The five former Navy officials admitted to receiving a total of more than $1 million in cash, goods, and services for their personal use, all fraudulently charged to and paid for by the DoD. They are:

  • Donald Vangundy, who oversaw tool control for the E2/C2 program and was promoted to supervise and authorize the purchase and replacement of tools for all Fleet Readiness programs;
  • Kiet Luc, who served as liaison and coordinator for the tools in the program and was responsible for maintaining and controlling the tool program;
  • David Lindsay, the supervisory production controller for the program;
  • Brian Delaney, the E2/C2 deputy program manager; and
  • Kenneth Ramos, who worked in North Island’s Industrial Business Operations Department.

The other four defendants previously convicted were owners or sales managers of San Diego-area defense contracting firms. They are:

  • Michael Graven, owner and operator of X&D Supply, who was paid at least $2.26 million in the fraud;
  • John Newman, a sales manager and former owner of an unidentified defense contractor who was paid at least $3.31 million;
  • Paul Grubiss, a sales manager for an unidentified defense contractor who received about $1 million; and
  • Jesse Denome, owner of JD Machine Tech Inc.

The investigation into the scandal was triggered by citizen complaints, according to Duffy. After six people were charged with corruption and fraud in 2009 at the Space and Naval Warfare Systems Command, the government dedicated a hotline to reporting potential waste, fraud, and abuse related to government and military contracts.

'Abusing the Public Trust'

Chris D. Hendrickson, Special Agent in Charge for the Defense Criminal Investigative Service, Western Field Office, said authorities would "continue to aggressively pursue corruption investigations involving the operations of the DoD."

"Abusing the public trust has serious consequences, and severe punishment is appropriate for stealing resources from our soldiers, sailors, airmen, Marines and the American taxpayer," Hendrickson said.


Tagged categories: Department of Defense (DOD); Enforcement; Program/Project Management; U.S. Navy

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