Whistle-Blower Lawsuit Accuses Derco Aerospace Of False Billing

Aug. 13--A whistle-blower's lawsuit claims Milwaukee-based Derco Aerospace Inc. and others used special software to overbill the U.S. Department of Defense by nearly $50 million for aircraft parts.

The false billing extended back to at least July 2006, according to the attorney for plaintiff Mary Patzer, a former Derco financial analyst and assistant controller.

The attorney, Nola Hitchcock Cross, said the government is entitled to triple damages plus penalties of $5,500 to $11,000 for each request for payment. Altogether, it could add up to $150 million.

"This is potentially the largest whistle-blower suit ever filed in Wisconsin under the False Claims Act," Hitchcock Cross said.

Derco is a subsidiary of Sikorsky Aircraft Corp., based in Stratford, Conn. Sikorsky spokesman Paul Jackson said the lawsuit's allegations had no merit, and the company intended to defend itself vigorously. He declined to comment further.

As the "relator" in the lawsuit, Patzer may be entitled to between 15% and 25% of any money recovered.

The original complaint was filed in 2011 but remained secret until it was unsealed this week by U.S. District Judge Rudolph Randa.

The complaint alleges that Derco and its parent and sister companies, Sikorsky Aircraft and Sikorsky Support Services Inc., respectively, submitted false bills to the Department of Defense with an impermissible 20% markup on parts the companies had purchased from other vendors. According to the complaint, special software hid the markup to make it difficult to detect, as the price billed to the government appeared to be the actual purchase price of the spare parts, but was instead the price plus the markup.

The markups, on parts for military training aircraft supplied to the U.S. Navy, totaled nearly $50 million, according to Hitchcock Cross.

Patzer was hired by Derco in 2002 as a financial analyst. In 2003, she became assistant controller for financial reporting and Sarbanes-Oxley compliance. By 2009, she was the point of contact for the company's defense contract audits, according to the complaint.

"In the course (of) her employment, Patzer gained firsthand knowledge of fraudulent and improper billing practices by Derco and its parent and affiliated companies," the complaint says. "Such practices included presenting inflated bills for costs to the United States government based on an unauthorized and undisclosed markup of parts and repair services obtained from suppliers, billed to Sikorsky Support Services Inc., and ultimately billed to the United States government."

Soon after Patzer exposed the billing issues to a Sikorsky manager in 2010, she was fired due to a "reduction in force," according to the lawsuit.

"I had to stand up and do the right thing. But after I questioned the markups with the company, I was walked out," Patzer said in a statement through her attorney.

The complaint alleges she is entitled to damages for retaliatory discharge, including but not limited to reinstatement, double back pay and benefits, and special damages resulting from the damage to her career.

The U.S. Department of Justice said it would file its own complaint within 60 days, according to the online publication Law 360. It only intervenes in whole or in part in about 26% of False Claims Act cases, Cross said.

For the fiscal year ended Sept. 30, 2013, the U.S. government recovered $3.8 billion in settlements and judgments under the False Claims Act. Such recoveries generally are based on complaints filed by individuals, most often employees, who have original information about fraud against the government, according to Hitchcock Cross.

"The statute establishes a private-public partnership to recover monies from those who have defrauded the government," she said.

Founded in 1979, Derco maintains one of the largest and most diversified aircraft spare parts inventories in the world, according to the company's website.

Sikorsky Aircraft designs, manufactures and services aircraft including military helicopters. Sikorsky and Derco are part of United Technologies Corp., also named in the lawsuit, which has more than 212,000 employees and had $63 billion in revenue last year.

United Technologies, based in Hartford, Conn., provides high-technology products and support services to the aerospace and building systems industries.

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