Most cases of fraud involve a party attempting to gain money or some form of financial advantage by depriving another of the same. This holds true in the case of military and defense contract fraud, which frequently involves a company or individual providing a product or service below the value of that promised. While similar financially to other frauds, defense contract fraud puts the lives of our nation’s bravest at risk. This is part of the reason our San Francisco defense contract fraud law firm partners with whistleblowers to fight military contract fraud.
Guilty Plea in Case Alleging Military Contracting Fraud Involving Knockoff Parts
Last week, Law360 reported on guilty pleas by Harry Ray Bettencourt Jr., owner of defense contracting firm Kustom Parts Inc. (“KPI”), and his sons to allegations pending in an Oregon federal court. According to the allegations, KPI contracted to provide equipment and services to the Department of Defense (“DoD”) between 2006 and 2010. In some instances, KPI committed fraud when it underbid its rivals by using cheaper knockoff parts obtained from unapproved vendors. The contractor skimped on contracts including for so-called critical application items, products essential to protecting the lives of military personnel or necessary for weapons systems. In total, KPI fraudulently secure 750 DoD contracts that added up to over $10 million.
One example of KPI’s fraud involved a DoD contract from 2008. KPI agreed to provide aviation locknuts to be used in Kiowa helicopters. Instead of using one of the two approved manufacturers, Bettencourt arranged for another company to make thousands of nonconforming locknuts. The Justice Department said the manufacturer was not aware that the locknuts were intended for critical military applications. Bettencourt continued to lie even after the defective locknuts were detected. When asked to replace the items, KPI used the same nonconforming locknut manufacturer and tried once again to pass off defective items.
Discussing the case, an investigator explained “This is an unfortunate example of a dishonest contractor who disregarded safety and profited through risking the lives of our troops by knowingly placing faulty and unsafe parts and equipment, including flight critical components, into the military supply chain.” Likewise, an agent quoted in an FBI press release on the same case noted that the financial cost of the KPI fraud had been significant, over $10 million, but that the human cost could have been turned out to be much higher. As he explained, the counterfeit pieces could have caused a catastrophic failure of land and air vehicles used by the military.
The False Claims Act and Defense Contract Fraud
The Justice Department’s paper “False Claims Act: A Primer” explains that a company or individual violates the Act when they knowingly submit a false claim, cause another to do so, or make a false statement/record in order to get the government to pay a false claim. In this context, a claim is essentially a request for payment made to the government or that otherwise would end up being paid from government coffers. The Act contains specific qui tam provisions which allow a private individual, called a “realtor,” to file allegations of an violation on behalf of the government. After an initial qui tam complaint, the government can choose to intervene in the claim, basically taking it over, or can allow the realtor to act as the plaintiff. If a qui tam claim results in money paid to the government including pursuant to a settlement agreement or verdict, the realtor is entitled to a reward for their role. The realtor’s award is a percentage of the payments, from 15%-30%, to be paid to the realtor based on the role the realtor played in pursuing the allegations.
The False Claims Act recognizes the importance of private whistleblowers in identifying and pursuing cases of fraud on the government. Violations of the Act are often about much more than money (although money is certainly important given tight budgets in health care, defense spending, and other arenas!). In the case of military contracting fraud, violating the Act can endanger our armed forces and thus endanger our nation as a whole. We are committed to playing an active role in fighting government fraud, including military contracting fraud. If you know of a company or individual engaging in this dangerous crime, please call our Northern California defense contract fraud law firm and arrange a consultation with our qui tam attorney in San Francisco, Oakland, or one of our other convenient law offices. Join the fight.
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