DOJ Catch of the Week -- Kilgore Flares
By the C|C Whistleblower Lawyer Team
This week’s Department of Justice “Catch of the Week” goes to Tennessee-based defense contractor Kilgore Flares Company. On Monday, the company and one of its subcontractors, New York-based ESM Group Inc., agreed to pay $8 million to resolve charges they violated the False Claims Act by selling defective infrared countermeasure flares to the U.S. Army and, for ESM, knowingly evading U.S. customs duties. See DOJ Press Release.
The U.S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft. A key component of these flares is ultrafine magnesium powder. To maintain domestic manufacturing capability in the interest of national defense, Kilgore’s contracts with the army prohibited the use of this powder from foreign countries (except Canada). According to the government, ESM illegally imported the powder from China and Kilgore used it in the countermeasure flares it sold to the U.S. Army.
The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and the engineering specifications required by the contracts. In addition, ESM allegedly misrepresented the content of the imported powder to avoid paying antidumping duties. Kilgore and ESM agreed to pay $6 million and $2 million, respectively, to resolve the government charges. Five former ESM employees and agents, including ESM’s former president Charles Wright, previously pleaded guilty to criminal offenses related to the magnesium importation scheme. They were previously ordered to pay more than $14 million in restitution.
In announcing the most recent settlement, the government stressed how important it is for defense contractors to deal honestly with the government. According to U.S. Attorney William J. Hochul Jr. of the Western District of New York:
Our warfighters– along with everyone who relies upon them, including their families – need to know that the equipment they use is of the highest quality and dependability. In this case, the magnesium flares made by Kilgore were literally the last line of defense for our brave aviators. Because of today’s resolution, Kilgore will now ensure that similar incidents do not happen in the future.
DOJ Civil Chief Benjamin C. Mizer likewise stressed the agency’s commitment “to ensuring that contractors do not cut corners in manufacturing critical items sold to the U.S. military.” Special Agent Craig W. Rupert of the Department of Defense Inspector General Office echoed this commitment “to tirelessly pursue and investigate procurement fraud allegations in order to safeguard our military members and to shield America’s investment in national defense.”
The allegations first arose in a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act by Reade Manufacturing Company, a domestic manufacturer of magnesium powder. The company will receive a whistleblower award of $400,000 from the proceeds of the government’s recovery from ESM.