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March 4, 2013 Healthcare Fraud

Defense Contractors Convicted of Fraud by a Federal Jury

A federal jury recently convicted two Poway-based defense contractors and a Poway corporation of conspiracy and bribery in connection with a defense fraud and corruption scheme at Naval Air Station North Island.

The defendants in the case were Robert Ehnow, owner and president of Poway defense contractor L&N Industrial Tool & Supply, Joanne Loehr, owner and operator of Poway defense contractor Centerline Industrial, and Centerline itself. Each defendant was charged with conspiracy to commit wire fraud, bribery and money laundering out of a Coronado military base. The case went before the jury on Feb. 20, 2013 and after just two days of deliberations, jurors returned returned a split verdict in the case.

According to charges, the defense contractors allegedly provided Navy officials with a range of gifts and luxury items that included cash, checks, retail gift cards, flat-screen televisions, luxury massage chairs, extremely expensive bicycles, model airplanes and other items. In return, the Navy officials placed more than $6 million in government orders.

The Fraudulent Activity in Detail

The defense contractors also allegedly submitted fraudulent invoices to the Department of Defense. These invoices made it appear the contractors were legally billing the government for goods and services within the scope of legitimate contracts. However, the Defense Department was unknowingly paying for, among other things, the cost of bribes provided to the Navy officials.

Adding to the cost of the fraud scheme, the defense contractors also regularly charged markups on the fraudulent invoices, according to evidence introduced during the trial.

In addition, L&N and Centerline each engaged in money laundering activities by using their government contract to fraudulently bill the Navy for items that were never supplied. Then, at the request of Navy co-conspirators, the money was passed along to Centerline.

L&N received more than $3 million in defense contracts during the conspiracy, officials said. Centerline, which is still in business, received more than $1.5 million from the Defense Department, prosecutors said. A third defense contractor, Carlsbad-based X&D Supply Inc., was paid over $2 million during the conspiracy.

Convictions in the Case

The  convictions brought the total number of people convicted in this ongoing case to 11. Of the eight previously convicted, five were Navy officials who 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 Department of Defense in connection with this fraud and bribery scheme.

“We won’t stand for these secret deals between greedy defense contractors and government officials, who received luxurious gifts at taxpayers’ expense. These defense contractors profited, not from doing business the right way, but by fraud and bribery,” U.S. Attorney Laura Duffy stated in a prepared news release.

The Whistleblowers

The investigation grew out of whistleblower complaints following a July 2009 indictment of six individuals on fraud and corruption charges centered at the Space and Naval Warfare Systems Command in San Diego.

As part of the SPAWAR corruption case, the government created a “hot line” number that was dedicated solely to the purpose of reporting possible waste, fraud and abuse related to government and military contracts.