Three San Diego-based defense contractors were ordered to pay millions after their owners pleaded guilty to defrauding the Pentagon, a federal judge ruled.
The owners of Veteran Logistics, Inc., Industrial Xchange, Inc., and Boston Laser Technology, Inc. manipulated the EMALL system to substitute unapproved items for the goods purportedly sold to the Department of Defense.
EMALL is a website that allows authorized users to search, compare and purchase commonly used products.
The companies must forfeit over $1.4 million and pay a $1 million fine, according to the ruling by U.S. District Judge Michael M. Anello.
The companies made approximately $45 million for EMALL sales from March 1, 2008 and January 31, 2015, according to prosecutors.
When examining 60 of the more than 12,000 transactions handled by the companies, federal prosecutors found the U.S. Navy lost approximately $1,417,395.
In one example, prosecutors said Veteran Logistics, Inc. agreed to sell industrial, motorized plumber snakes to USS Ronald Reagan. Instead, the company substituted the plumber snakes with 100 29-inch Toshiba TVs, 60 32-inch Toshiba TVs and 160 TV tilt mounts.
According to prosecutors, the company bought the TVs and TV mounts for $39,558 but billed the government $66,807.
“Their scheme posed a significant danger of corrupting Navy personnel and others by essentially creating a ‘slush fund’ to purchase non-military items, such as televisions, computers, gaming systems, cameras, iPhones and other electronics,” said U.S. Attorney Adam Braverman.
The two owners, Jeffrey Harrington and Michael Mayer, will spend 15 months in federal custody, pay fines and restitution to the IRS, forfeit hundreds of thousands of dollars in assets and no longer work as a government contractor.
They admitted to conspiring to commit wire fraud and filing false claims, and to making false statements on their federal income tax returns.