Coos Bay Defense Contractor Indicted in Conspiracy to Defraud Military in Truck and Aviation Parts
Dec. 16--A Coos Bay defense contractor is accused of perpetrating a multimillion-dollar fraud in which company officials bought cheaply made parts for trucks and aircraft -- some made in Mexico or China -- and passed them off at premium prices to the U.S. military.
Kustom Products Inc. sold defective engine parts for C-5 transport planes, unauthorized locknuts for OH-58 Kiowa helicopters and nonapproved parts in the maintenance kits of transport trucks, a federal indictment alleges.
The indictment, handed up this week in Eugene, accuses the company of trampling the Buy American Act. In once case, officials at the outfit bought truck parts from a company in Mexico and passed them off Freightliner materials, prosecutors allege.
Kustom Products and one of its predecessor companies -- Southern Oregon Sterling Parts and Service -- are accused of selling defective, counterfeit and nonconforming products on at least 392 Department of Defense contracts that paid them more than $7.5 million, the government alleges.
The indictment charges seven of the company's principal employees with a multi-year fraud conspiracy, alleging Kustom Products and Southern Oregon Sterling underbid competitors and provided less-expensive products to reap substantial profits.
Named were owner and chief executive Harold R. Bettencourt II; office manager Susie Bettencourt; sales managers Harold R. "Bo" Bettencourt III and Nick Bettencourt; contract officers Pete Bettencourt and Toni Densmore; and purchasing agent Josh Kemp. The Bettencourts are prominent in south coast business circles.
They are scheduled to appear Monday in Eugene to answer charges of wire fraud; conspiracy to commit wire fraud; fraud involving aircraft parts; conspiracy to commit money laundering, and money laundering.
Kustom Products' troubles appear to have begun on Aug. 28, 2008, when the Kentucky Army National Guard reported deficiencies with eight aviation locknuts that workers had tried to install on the rotor assembly of a Kiowa helicopter.
"The locknuts were flight critical because the failure of the main rotary assembly could be catastrophic, resulting in death or serious injury to military personnel," according to the indictment. It alleges that Kustom Products sold the locknuts to the military.
The defense contractor had begun selling the self-locking nuts to the military's supply center in Philadelphia as early as January 2008.
Only two U.S. manufacturers were authorized to produce the parts. But Kustom Products officials bought the nuts from an unauthorized source -- Coloc Manufacturing of Canton, Texas -- and passed them off as coming from an authorized maker, prosecutors allege.
Kustom Products marked up the knockoff locknuts, buying them for as little as $11 apiece and selling them, in some instances, for more $21, according to the indictment.
The company also made gigantic profits from 22 contracts with the Army to provide truck parts for combat and tactical vehicles.
Kustom Products represented to the military that it was providing parts from Freightliner, a Portland-based truck manufacturer. Instead, according to the indictment, it bought counterfeit products from Promotora Expormex, in Mexico, and Benz Spring Company, in Portland, and marked them up as high as 165 percent.
In late 2008, the Coos Bay company won a contract to sell 180,000 clamps for the engine thrust reverser on C-5 military transport jets.
A company employee notified the Defense Department that the clamps would be manufactured by an approved source, Eugene's Pacific Industrial Components Inc. Instead, Kustom Products outsourced production to Anhui Weiwei Rubber Products Co. Ltd., in Tongcheng City, China, according to the indictment.
A defense official later reported to the company that size and composition of the clamps were defective; the metal had corroded and oxidized, and the rubber was inferior. And the Defense Department began to investigate why the products failed to comply with regulations.
On Sept. 23, 2010, federal agents raided Kustom Products and the homes of Bettencourt II, Susie Bettencourt, Bo Bettencourt, Nick Bettencourt and Pete Bettencourt for evidence of a fraud conspiracy.
As part of this week's indictment, the government seeks the forfeiture of at least 20 bank accounts and personal property that includes cars, pickups, a Peterbilt semi, Sea-Doo jet skies, all-terrain vehicles and a 23-foot powerboat.
-- Bryan Denson
Copyright 2011 - The Oregonian, Portland, Ore.
