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Defense Contractor to Pay $25 Million in Fraud Case - Qui Tam Team

Defense Contractor to Pay $25 Million in Fraud Case

 

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Skokie defense contractor to pay $25M in U.S. fraud case

By: Paul Merrion Oct. 15, 2009

(Crain’s) — Skokie-based defense subcontractor MPC Products Corp. agreed to pay $25 million to settle federal contract fraud claims alleging it falsified labor costs to inflate its profits on military contracts for more than a decade.

MPC, which makes throttles for fighter jets and a wide variety of other parts for aircraft and helicopters, was acquired last year by Colorado-based Woodward Governor Co. It agreed to plead guilty, accept two years’ probation and pay a $2.5-million fine on a felony wire fraud charge, plus an additional $22.5 million to settle a civil complaint originally brought by an MPC pricing analyst.

The Justice Department intervened in that suit, and the whistle-blower will receive $4.5 million of the civil settlement, plus attorney’s fees, as part of the agreement.

The complaint alleged that upper management “supported and condoned” the filing of false cost data on 11 contracts from 1993 to 2005 in order to overcharge the government, allowing MPC to lower its bids for civilian work.

For instance, MPC allegedly charged for individually manufacturing parts that it supplied from an inventory of previously assembled parts, according to the complaint. One example was a spare throttle unit for the F/A-18 jet made by Boeing Co. MPC allegedly charged about $176,000 for a part that cost about $60,000, for a 194% profit.

The whistleblower, Joseph Caputo, refused to continue falsifying documents and was fired in 2000, then returned to work at MPC about a year later, secretly wearing an FBI wire, according to a statement by his attorneys, Mark Kleiman of California and Dennis Favaro of Palatine.

Earlier this month, the Pentagon lifted MPC’s suspension from bidding on new federal contracts, which had been imposed in July. Two former MPC executives, Michael Norwood, 57, of Wheaton, and Wayne Penfold, 57, of Fort Collins, Colo., both of whom had been vice-president of sales and marketing at different times, are facing a criminal charge of obstructing a federal audit in connection with the case. Each faces a maximum five years in prison and a $250,000 fine. The civil complaint also names as defendants the estates of MPC’s former co-owners, Joe and Vince Roberti, who are both now deceased.

In a statement, Woodward said the settlement was agreed to in principle before it acquired MPC last year, and the $25-million penalty had been accrued as part of the acquisition, reducing the cost of acquiring MPC by that amount.

An attorney in Los Angeles for the Roberti estates, Gary Lincenberg, issued a statement saying that the brothers had approved the settlement before their “untimely” deaths and “after wrongdoing at MPC was discovered in 2005, the Robertis spent millions of dollars to put into place strong new compliance procedures and discipline wrongdoers.”

“While this settlement closes an unfortunate chapter in the history of MPC, it should not obscure the 45 years of high quality products provided by MPC and its hard working employees,” he said. “Quite appropriately, neither the criminal nor the civil settlement agreements contain any admission or proof of any wrongdoing by Vincent and Joseph Roberti.”

SOURCE Crain’s Chicago Business

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