Seven plead guilty in Navy contracting fraud


Seven plead guilty in Navy contracting fraud

By Greg Moran, Jeanette Steel
March 29, 2012

— Seven people, including four civilian employees at North Island Naval Air Station in Coronado, pleaded guilty Wednesday in federal court to participating in a bribery and fraud scheme that went on for seven years.

The U.S. Attorney’s Office said the four Navy employees netted more than $1 million in personal benefits, which came in the form of cash, store gift cards, expensive toys such as bicycles and model airplane engines and home remodeling projects that included new cabinetry.

“This was not $1 million worth of tchotchkes,” Assistant U.S. Attorney Robert Huie said. “This was liquid assets like cash, flat screen TVs and the like.”

Also pleading guilty were three defense contractors who hid the payments by submitting more than $6 million in bogus invoices to the Navy under existing contracts they had. The invoices contained a markup of 25 percent, prosecutors said.

That meant the Navy was unwittingly paying for the personal gifts to the North Island employees, plus a markup on the gifts to the defense contractors.

The Navy employees who pleaded guilty before U.S. Magistrate Judge Bernard Skomal were Donald Vangundy, 54, of Chula Vista; Kiet Luc, 53, of San Diego; David Lindsay, 57, of San Diego; and Brian Delaney, 55, of La Mesa.

All worked at the “E2/C2” aircraft program at the base’s Fleet Readiness Center.

The three defense contractors who entered pleas were Michael Graven, 43, of Carlsbad, owner of X & D Supply in Carlsbad; John Newman, 51, of Poway, a sales manager and former owner of a company in Poway that prosecutors identified only as “Company A”; and Paul Grubiss, 39, now of Wickliffe. Ohio, a former sales manager at a second Poway contractor that also was not identified.

The U.S. Attorney’s Office said the fraud led to the Navy paying Newman’s employer $3.31 million, X & D $2.26 million and Grubiss’ employer $1 million.

Authorities would not say why two of the companies were not named, though Huie said the investigation is ongoing.

All seven appeared before Skomal and answered basic questions about their guilty pleas, most in calm but subdued tones. They will remain free on $20,000 bond each until sentencing on July 2.

All pleaded guilty to conspiracy to commit wire fraud. Vangundy and Grubiss also pleaded guilty to conspiracy to commit bribery. Vangundy, Luc and Graven also pleaded guilty to filing false tax returns or aiding and assisting in filing a false return.

Lindsay and Delaney retired from their jobs, Vangundy resigned and the Navy is in the process of removing Luc, who was suspended, from federal service.

Delaney was the highest situated of the four, serving three or four levels below the center’s military commanding officer. In middle management, he was a deputy program manager and had worked there for 37 years.

Lindsay, a supervisor, worked under him and had been an employee for 38 years.

Vangundy was an engineering technician and 31-year worker. Luc worked on the aircraft floor for seven years and was the lowest-ranking member of the group.

U.S. Attorney Laura Duffy said the probe began from citizen complaints made following the high-profile indictment in 2009 of six people involved in a kickback and bribery scheme at the Space and Naval Systems Command in San Diego, known as SPAWAR.

In the wake of that scandal, the government set up a hotline for citizens to phone in tips about corruption. One call in August 2009 launched the investigation that led to the guilty pleas Wednesday, Huie said.

The tip line — (877) NO BRIBE, or (877) 662-7423 — still operates, Duffy said.

Vangundy supervised tool replacement and purchases for all Fleet Readiness Center programs, according to court documents.

According to the indictment, Lindsay got $20,000 in labor and appliances for a home remodeling project, and Delaney got $50,000 in labor and materials for his home remodel.

The investigation, dubbed “Country Store,” involved FBI, Internal Revenue Service and military investigators.

Fleet Readiness Center Southwest spokesman Michael Furlano said the Navy has put new controls in place to combat against future fraud at the center.

Any purchases have to go through an executive steering committee made up of the commanding officer, executive officer and senior management. Also, managers will get mandatory training on ethics, fiscal law, contracts and procurement fraud, Furlano said.

He said the Navy also is conducting an internal investigation of the center’s operations, which wasn’t possible during the U.S. attorney’s legal action.

Furlano called the situation unfortunate, especially as it involved such longtime employees.

“They took advantage of their positions. We have 4,200 employees at the command, and we’re talking about four that did wrong and in turn make the command look poor,” he said. “The vast majority of our people are dedicated, hard-working family people. Most of them are former military.”

The center performs maintenance on military aircraft. The workforce includes 3,200 civilians and about 1,000 uniformed service members.



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