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Contractor to Repay Government for Scheme

By Jerry Seper
Washington Times
June 28, 6000

One of the world's largest defense contractors — the Bethesda, Md.-based Lockheed Martin Corp. — agreed on Friday to pay $15.8 million to the U.S. government to settle allegations that it mischarged perishable tools used on numerous contracts, the Justice Department said.

The settlement, announced by Assistant Attorney General Stuart F. Delery, who heads the department's Civil Division, resolves allegations arising from a pricing scheme by Tools & Metals Inc. (TMI), a subcontractor that sold perishable tools to Lockheed Martin for use on military aircraft, including the F-22 and the F-35 fighter jets.

Specifically, Mr. Delery said, the allegations were based on TMI's inflating of the costs of the tools between 1998 and 2005, which were then passed by Lockheed Martin on to the United States under its various contracts with the government.

In March 2006, Todd B. Loftis, a former TMI president, was sentenced in federal court in Fort Worth, Texas, to 87 months in prison and ordered to pay $20 million in restitution following his December 2005 guilty plea in connection with his role in the scheme.

Loftis had waived an indictment and pled guilty to a one-count Information, charging conspiracy to defraud the government with false and fraudulent claims. He admitted that from 1998 through 2004, as president and chief operating officer at TMI, he, along with others, conspired to defraud the Defense Department and Lockheed Martin Aeronautics by obtaining payments from both through false and fraudulent billings.

In 1998, TMI, acting through Loftis, obtained a sole source integrated supply contract with Lockheed Martin Aeronautics to supply all of Lockheed's perishable tools for the manufacture of airplanes including the Defense Department's F-16, F-22, and other military needs in Fort Worth, Marietta, Ga., and San Diego.

Perishable tools are the drill bits, router bits and other small tools that are consumed in the manufacturing process.

In order to cover up this activity, the government said Loftis and others under his direction created false invoices using a computer scanner to remove actual pricing data and substitute fictitious data to give the appearance of legitimate pricing. Loftis was able to control the audit sample of invoices as well so as to limit the possibility that a fraudulently priced part would be found. After the audits Loftis ordered the fraudulently created documents and computer files to be destroyed.

TMI and Loftis realized approximately $20 million in profits on these fraudulent sales to the government, prosecutors said.

"It is troubling that a large defense contractor with long-established contractual ties with the United States failed to undertake appropriate measures to ensure the integrity and validity of the costs it submitted to the United States," said Mr. Delery of Lockheed Martin.

The federal government brought civil claims against Lockheed Martin under the False Claims Act, alleging that it contributed to the inflated amounts paid by the United States in connection with TMI's pricing scheme. The government alleged that Lockheed Martin acted recklessly by failing to adequately oversee TMI's charging practices and by mishandling information revealing these practices.

The case was jointly handled by the Defense Criminal Investigative Service, the Air Force Office of Special Investigations, the Defense Contract Audit Agency, the Contract Integrity Offices of the Departments of the Air Force and the Navy, the Defense Contract Management Agency, the Justice Department Civil Division and the U.S. Attorney's Office for the Northern District of Texas.

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