In November 1993, Farmingdale, New York-based American Precision Components Inc. and its owner, David D'Lorenzo, pleaded guilty in Philadelphia to two counts of wire fraud relating to a scheme to defraud government contractors by providing commercial grade fasteners, fittings and o-rings instead of parts which met government specifications.
The aerospace, aviation and military industries require fasteners, fittings and o-rings to meet certain rigid testing and other specifications for use in spacecraft, submarines and weapons systems.
The fasteners, fittings and o-rings supplied by American Precision were used in the space shuttle and Hubble space telescope support systems, the Kitty Hawk Aircraft Carrier and the Titan IV missile program.
D'Lorenzo forfeited $2.2 million, a 1992 Porsche 968 Convertible and a 1993 GMC Typhoon. He was sentenced in May 1994 to five years in prison.
American Precision, the corporate defendant, was previously convicted in 1988 in Maine for selling substandard parts to the Portsmouth Naval Shipyard.
In the current case, American Precision pleaded guilty to two counts of fraud and agreed to what has been called "the corporate death penalty" provision of the organizational sentencing guidelines. Because the company operated primarily by criminal means or for a criminal purpose, U.S. District Court Judge John P. Fullam in May set its fine at an amount sufficient to divest the corporation of all of its assets, in this case, $75,000, according to Assistant U.S. Attorney David Howard.
Federal officials charged that American Precision and D'Lorenzo defrauded hundreds of customers, including military and aerospace contractors, and the Federal Aviation Administration, out of approximately $3 million by selling them ordinary commercial fasteners and fittings when they had ordered parts that complied with rigid specifications. American Precision represented to its customers that it had an elaborate quality control system supervised by a quality control manager named Don Hastings. Federal officials said that no such procedure existed, and that there was no individual named Don Hastings.
During its search of American Precision, federal agents seized D'Lorenzo's diary. The diary contained the following entry from July 31, 1989, during the period when the company was suspended from doing business directly with the government as a result of its first conviction: "Phones dead! Slow as shit! The government's revenge. Well, I'll get even with them!"
The warrant brands Suleiman Nassar as a fugitive from justice. U.S. officials say the government is expected to seek his extradition from Switzerland, where he is believed to be living.
Nassar was regional vice president for Lockheed Corp. International in Geneva in 1989 when the California-based defense contractor secured a contract from the Egypt ian government for the sale of three C-130 transport planes.
"His attorneys stated that he would surrender himself voluntarily at the arraignment, but he failed to show up," says John Davis, criminal branch chief at the U.S. Attorney's Office in Atlanta.
Davis adds that Nassar's absence is expected to spark an international manhunt for the retired executive.
The federal indictment alleges that the company through a number of high-level executives violated the Foreign Corrupt Practices Act, conspired to commit wire fraud and impeded Defense Department agencies.
Federal authorities allege the company illegally paid Egyptian Member of Parliament Leila Takla in exchange for her help in securing the C-130 contract from the Egyptian government.
Executives then allegedly made up false documents to conceal the identity of Takla, who was described in company records as a "consultant."
Attorneys for Lockheed Corp. entered a not guilty plea to charges handed down last week in a federal grand jury indictment against the company.
"The individuals in this case were indicted separately from the company and are represented by their own counsel," a spokesperson for Lockheed says, "Because of the expected length of this case, it would be inappropriate for the company to make any comment on their cases."
Charges were filed in the United States and Canada against Mitsubishi Corporation, two subsidiaries and a former president of a U.S. subsidiary for their involvement in a price-fixing conspiracy that raised thermal fax paper prices by approximately 10 percent.
The defendants agreed to plead guilty and to pay criminal fines of more than $6 million.
The charges were filed against Kanzaki Specialty Papers Inc., and its former president, Kazuhiko Watanabe, who were charged with conspiring with Tokyo-based Mitsubishi Corporation, New York-based Mitsubishi International Corporation and others to fix and raise prices of thermal fax paper sold in North America in 1991 and 1992.
"Foreign firms that want to do business in the U.S. must take our antitrust laws seriously and must play by our rules of fair competition when setting prices to be paid by U.S. consumers," says Attorney General Janet Reno.
The Justice Department charged that the defendants and co-conspirators, through a series of meetings and telephone conversations, agreed to charge higher prices to fax customers in North America.
"This conspiracy primarily affected small businesses and home fax machine owners, since thermal paper is the most affordable for those users," says Anne Bingaman, assistant attorney general of the Antitrust Division.
Federal officials charged that Shiley, to obtain FDA approval to market the Bjork-Shiley Convexo-Concave mechanical heart valve (C/C valve), made unsubstantiated claims during the application process that the valve caused less blood-clotting than other valves on the market. Federal officials said that the advantage is much smaller than Shiley represented. In addition, Shiley failed to provide the FDA with all the information it possessed concerning fractures of valves during life-testing.
In a 1990 report, FDA medical device experts found that "Shiley Inc. has engaged in a continuing scheme to interrupt, deflect, and misdirect FDA's regulation of the Shiley Convexo-Concave heart valve."
Finally, the government contends that Shiley's manufacturing process was considerably flawed. On numerous occasions, valves were rebuilt or rewelded an excessive number of times, and cracked valve struts were polished, rather than rewelded. In addition, the employee identification numbers listed on cards attached to the bags containing the reworked valves were in many instances falsified, federal officials charged.
The $10.75 million civil penalty settles the government claims under the federal False Claims Act. Shiley and Pfizer also will pay for all qualifying medical costs that federal agencies such as the Department of Health and Human Services and the Department of Veterans Affairs could incur in the elective replacement or fracture of certain C/C valves.
"Shiley made false claims to the FDA to get its heart valve approved," says FDA Commissioner David Kessler. "This case shows once again that the FDA will not tolerate deceptive practices that endanger people's lives."
But the Justice Department came under heated criticism from Dr. Sidney Wolfe, director of Public Citizen's Health Research Group, who charges that the company and responsible executives should have been criminally prosecuted.
Wolfe says that the Justice Department action "falls far short of what should have been done." Wolfe says that "there are approximately 900 people now dead because of this device which arguably would never have been marketed if the [Food and Drug Administration (FDA)] had not been misled during the approval process."
"For this multibillion company to get off with a $10 plus million dollar civil penalty and for the responsible officials to escape jail sentences for the tragic loss of so many lives is inexcusable," Wolfe says.
In a letter to Kessler in June 1994, Dr. Wolfe pointed out that Shiley "expressly directed the valve's chief designer, Dr. Viking Bjork, to withhold evidence of valve fractures and not to publish his data."
"The government's conduct here sends a strong, but inexcusable signal that future corporate criminals have little to fear," Wolfe says. "As long as there is no jail sentence for any of the people in a company responsible for over 900 deaths, other companies will breathe a massive sigh of relief."
"Shiley�s primary concern is the welfare of the people using our products," Shiley spokesperson Bob Fauteux says. "This action is an effort to resolve the issues surrounding the C/C valve."
A company statement announced that the settlement is "expected to have no material adverse financial effect on Pfizer."
Perry and Deutch are former employees of Martin Marietta. According to Newsday, Perry and Deutch obtained waivers of ethics regulations against dealing with former employers while implementing the deal.
Newsday reported that under the deal, the Pentagon granted Marietta unprecedented approval for reimbursement of expenses related to the $208 million acquisition of the Space Systems Division of General Dynamics.
The Pentagon's Board of Contract Appeals ruled in April 1993 against Defense contractors attempting to get money from the federal government for acquisition fees.
But Perry and Deutch approved the agreement anyway in July 1993, without the usual notification of Congress or the public through the Federal Register, Newsday said. The Pentagon told Newsday that the decision was only a clarification of existing policies and did not need to be reported.
According to Newsday, the Pentagon acted to reimburse Marietta after the company's chairman, Norman Augustine, complained about Pentagon regulations regarding reimbursement of acquisition expenses. Only a month later, Deutch approved the deal and reversed previous interpretations of the regulations to allow the Pentagon to cover acquisition expenses.
In 1992, Marietta was a client of Perry's consulting firm, Technology Strategies Alliances (TSA). Also in 1992, Deutch was listed as a member of Marietta's advisory board and was paid $42,500 in consulting fees. Deutch was an adviser to Marietta for nine years.
- Ben Lilliston