SAN DIEGO–A federal jury March 4 convicted two San Diego-area defense contractors and one corporation of conspiracy and bribery in connection with a fraud and corruption scheme at Naval Air Station (NAS) North Island in Coronado.
The three defendants—Robert Ehnow, the owner and president of Poway defense contractor L&N Industrial Tool & Supply Inc. (“L&N”); Joanne Loehr, the owner and operator of Poway defense contractor Centerline Industrial Inc. (“Centerline”); and Centerline itself (a California corporation)—were charged with one count of engaging in a conspiracy to commit wire fraud, bribery, and money laundering; and with additional counts of bribery. The case was tried before a jury beginning on February 20. After two days of deliberations, the jury returned verdicts of guilty for each defendant as to the conspiracy count and as to one or more bribery counts. The jury also returned verdicts of not guilty as to each defendant on one or more bribery counts.
The evidence presented at trial showed that as part of the conspiracy, defense contractors provided U.S. Navy officials with a wide range of personal benefits, including cash, checks, retail gift cards, flat screen television sets, luxury massage chairs, bicycles costing thousands of dollars, model airplanes, and other items. In return, the navy officials placed millions of dollars in government orders with the defense contractors.
Additionally, the defense contractors prepared and submitted fraudulent invoices to the Department of Defense, making it appear that they were billing the department for goods and services within the scope of legitimate government contracts. In fact, the Defense Department was unknowingly paying for, among other things, the cost of bribes provided to the navy officials. Compounding the cost of the fraud, the defense contractors also routinely charged a markup on the fraudulent invoices.
L&N and Centerline also engaged in money laundering by using its government contract to fraudulently bill the navy for items that were never supplied and then, at the request of navy co-conspirators, to pass along the criminal proceeds to Centerline, keeping a portion for itself as compensation for serving as a conduit for the criminal proceeds.
During the course of the conspiracy, the Department of Defense paid Ehnow’s company, L&N, over $3 million. Centerline obtained over $1.5 million in payments from Defense Department during the conspiracy. A third defense contractor, X&D Supply Inc. (“X&D”), located in Carlsbad, California, was paid over $2 million during the conspiracy. L&N, also known as Mardoc Corporation, filed for Chapter 7 bankruptcy in June 2011. Centerline remains in business.
The verdicts bring to 11 the total number of individual defendants convicted in connection with this scheme. Of the eight individuals previously convicted, five were navy officials: Donald Vangundy, Kiet Luc, David Lindsay, Brian Delaney—all four of whom worked in the navy’s E2/C2 aircraft program, which is dedicated to maintaining the tactical readiness of the navy’s E-2 and C-2 aircrafts—and Kenneth Ramos, who worked in North Island’s Industrial Business Operations Department. These five former navy officials admitted to receiving a total of more than $1 million in cash, goods, and services for their personal use, all fraudulently charged to and paid for by the Department of Defense in connection with this fraud and bribery scheme.
The other four defendants previously convicted were owners or sales managers of San Diego-area defense contracting firms: John Newman was the sales manager of L&N, Paul Grubiss was the sales manager of Centerline, Michael Graven was the owner and operator of X&D, and Jesse Denome was the owner and operator of JD Machine Tech Inc., another San Diego defense contractor.
According to United States Attorney Duffy, the investigation into possible corruption at Naval Air Station North Island was initiated on the basis of citizen complaints. These complaints followed the July 2009 indictment of six individuals on fraud and corruption charges centered at the Space and Naval Warfare Systems Command (SPAWAR). As part of the SPAWAR corruption case, the government publicized a hotline dedicated to the reporting of possible waste, fraud, and abuse related to government and military contracts. U.S. Attorney Duffy noted that the investigation is ongoing.
U.S. Attorney Laura Duffy said she was pleased with the verdict. “This case, which has snared 11 navy officials and defense contractors, is shocking for the brazen way the parties conspired to take millions of dollars out of public coffers for big-screen TVs and massage chairs. We won’t stand for these secret deals between greedy defense contractors and government officials, who received luxurious gifts at taxpayers’ expense. These defense contractors profited, not from doing business the right way, but by fraud and bribery.”