‘American’ Parts for Army Were Korean, Suit Alleges

A federal judge Monday unsealed a civil fraud case against a Los Angeles defense contractor who has been sentenced for fraudulently providing South Korean-made military parts under the government’s “Buy American� program.

The U.S. District Court suit, seeking about $15 million in damages, alleges that Jerry M. Lewis Truck Parts & Equipment Inc. of Los Angeles defrauded the government by supplying foreign-made items to the Army, ranging from clutch parts for tanks to propeller shafts. The company falsely claimed that the parts had been made in the United States, the suit said.

Lewis got numerous military contracts under the government’s “Buy American� program designed to benefit domestic manufacturers, particularly small domestic manufacturers, but the company obtained much of the material it sold to the government from South Korean companies, according to court documents.

Lewis officials disguised the origin of its products by creating a false paper trail of invoices and other documents, the suit said. In some instances, it set up sham companies and in other instances created phony purchase orders and invoices involving real domestic companies.

Losses to the government exceeded $5 million, according to an affidavit filed by Gregory S. Mosely, an auditor for the Army’s Tank-Automotive Command, who monitored the Lewis company’s contracts with the command.

In November, Steven Lewis, the company’s president, and Robert Holtzman, its vice president, pleaded guilty to federal criminal charges stemming from the same alleged incidents. In January, Lewis was sentenced to 18 months in prison and fined $250,000. Holtzman was sentenced to six months in prison and fined $20,000.

Assistant U.S. Atty. Thomas A. Hagemann, who prosecuted the case, urged U.S. District Judge Robert M. Takasugi to impose stiff penalties because of the nature of the crime and because of the potential danger the defendants had created for U.S. military personnel.

In a sentencing memorandum filed in January, Hagemann referred to Mosely’s affidavit which said, “By its intentional disregard of contractual requirements and its elaborate scheme to cover up product defects and nonconformities,� the Lewis company “compromised the operation of multimillion-dollar defense systems, and imperiled the lives of American soldiers who used and depended on those systems.�

Total of $11.8 Million

At the time the fraud was discovered, Mosely said, Lewis had 44 open contracts with the government and one open purchase order with a total dollar value of $11.8 million. In tests performed by the tank command, 86% of the material supplied by the company was defective, according to Mosely’s affidavit.

He also stressed that the company had been able to underbid legitimate U.S. producers because it had obtained goods cheaply in South Korea.

The civil case unsealed Monday was filed by Hall & Phillips, a Los Angeles firm that specializes in defense fraud under the False Claims Act, which allows private citizens to file cases on behalf of the United States in an attempt to deter fraud.

The plaintiffs are Alnoor Virani, a former quality control manager at Lewis Truck Parts who was fired when he raised questions about the company’s practices, and Taxpayers Against Fraud, a nonprofit organization incorporated in California in 1986 for the purpose of investigating and prosecuting corporations and persons that have made false claims against the U.S. government.

Basis of Allegations

The suit states that the fraudulent acts occurred “from at least 1984 to October, 1987,� and perhaps longer. The suit states that defendants Lewis and Holtzman submitted invoices to U.S. agencies which falsely represented that the Lewis company was manufacturing or supplying military parts from small businesses in the United States and “deceived� the government about the quality of the parts.

Such suits, known as qui tam cases, initially are filed under seal for at least 60 days to give the Justice Department time to determine whether it wants to jointly prosecute the case with the private citizen. This case was originally filed under seal on March 5. After the Justice Department filed notice of its decision to intervene in the case, the suit was unsealed.

Assistant U.S. Atty. Catherine Lunsford said the U.S. attorney’s office would make no comment on the case. Janet L. Goldstein, who filed the suit for Hall & Phillips, said that liability had been established as a matter of law in the case because the defendants already had pleaded guilty. She said that the sole issue to be determined now was the extent of damages.

The False Claims Act provides for treble damages, so if the government was injured to the extent of $5 million, the defendants could be liable for $15 million. Under the law, a plaintiff in a qui tam case that has been joined by the Justice Department is entitled to a minimum of 15% of the recovery to a maximum of 25%, depending on a judge’s assessment of how much the individual plaintiffs contributed to the success of the case.

Dick Oliver, a Los Angeles lawyer who represented the Lewis company in the criminal case, declined to comment on the new suit, saying he had not seen it.