Defense Contractor Armorsource LLC Agrees To Pay $3 Million To Settle False Claims Act Allegations

The U.S. Justice Department released the below information:

ArmorSource, LLC has agreed to pay $3 million to resolve False Claims Act allegations in connection with a contract to provide combat helmets to the U.S. Army, the Department of Justice announced today.  ArmorSource, a Delaware Limited Liability Company headquartered in Hebron, Ohio, designs, develops and manufactures ballistic helmets for military and law enforcement personnel worldwide.

In 2006, the Army contracted with ArmorSource to manufacture the Advanced Combat Helmet or ACH for use by soldiers in combat.  ACH helmets are made of Kevlar, an armored material, and are worn to provide ballistic protection for the soldier.  The United States alleged that from 2006 to 2009, ArmorSource delivered ACH helmets to the Army that were manufactured and tested using methods that did not conform to contract requirements and that failed to meet contract performance standards.  In May 2010, the Army began recalling the helmets after several lots failed ballistic safety tests.    

“The U.S. government relies on contractors to manufacture equipment that is critical to the safety of our men and women in uniform, and equipment that fails to meet performance standards not only cheats taxpayers, but can put lives at risk,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Today’s settlement demonstrates our commitment to ensuring our military receives products that meet its requirements and for which it has paid.”

“Today’s settlement in this important case is a reminder to all government contractors that they must deliver on their promises, especially when the safety and security of our troops is on the line,” said Special Agent in Charge Monte A. Cason of the Department of Justice Office of the Inspector General’s Dallas Field Office.

“Not conforming to contract requirements, failing to meet performance standards, and failing to pass ballistic safety tests for the helmets that protect the very heads and lives of our young men and women who serve this nation is incredibly unconscionable,” said Director Frank Robey of the U.S. Army Criminal Investigation Commands Major Procurement.  “Thanks to the efforts of our special agents and our other law enforcement partners, today’s settlement is possible.”

ArmorSource subcontracted the manufacturing to Federal Prison Industries, Inc., which operates under the trade name UNICOR.  This settlement resolves a lawsuit filed by whistleblowers Melessa Ponzio and Sharon Clubb, FPI employees, under the qui tam or whistleblower provisions of the False Claims Act.  The Act permits private individuals to sue on behalf of the government those who falsely claim federal funds and to receive a share of any recovery.  Ms. Ponzio and Ms. Clubb will receive $450,000.

This settlement was the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Eastern District of Texas. The investigation was conducted by the Department of Justice Office of the Inspector General, the Department of Defense Office of Inspector General’s Defense Criminal Investigative Service and the U.S. Army Criminal Investigation Command, Major Procurement Fraud Unit. 

The case is captioned U.S. ex rel. Ponzio, et al. v. Rabintex Industries Ltd., et al., Case No. 1:10-CV-588 (E.D. Tex.).  The claims resolved by the settlement are allegations only; there has been no determination of liability.  

FBI: Former DuPont Employee Sentenced In Foreign Conspiracy To Steal Trade Secrets

The FBI website released the above photo and a report on an industrial espionage case:

A second former DuPont employee—Edward Schulz—was recently sentenced for his role in a conspiracy led by a South Korean company to steal trade secrets related to Kevlar, a trademarked product developed and sold by DuPont.

Kevlar, an incredibly strong synthetic fiber developed by the U.S.-based DuPont 50 years ago, is used around the world in body armor, fiber optic cables, automotive and industrial products, and a variety of other applications. Soon after its development, DuPont trademarked Kevlar, mass-produced it, and put it on the market. But none of this was easy—the company had expended untold resources on Kevlar’s research and development, ground-breaking manufacturing processes, and innovative business plans (collectively known as “trade secrets”) before the product became a success.

DuPont’s hard work and ingenuity paid off. But there are companies who believe that their road to success can be paved with someone else’s hard work and ingenuity. That was the case with executives from a South Korean company called Kolon Industries who, interested in developing their own Kevlar-like product to compete with DuPont, put a plan in motion to steal proprietary information related to Kevlar—primarily by going after former DuPont employees who might be in a position to have such information.

Stealing another company’s trade secrets is a federal crime, and, after an FBI investigation by our Richmond Field Office (DuPont has a large plant within FBI Richmond’s jurisdiction), Kolon Industries and five of its executives were indicted on theft of trade secrets charges. The company pled guilty to the charges in April of this year and was ordered to pay $85 million in criminal fines and $275 million in restitution. And we made extradition requests for the five indicted executives, who no longer work for Kolon.

Edward Schulz—who worked for DuPont for just over 30 years before he left around 2000—was responsible for technical research and development relating to Kevlar. Despite a signed agreement barring him from disclosing DuPont’s secret or confidential information during or after employment, he held on to numerous DuPont documents when he left the company. So when Kolon came calling and Schulz accepted their offer of a consulting job, they soon began questioning him about Kevlar, and he willingly turned over some of the proprietary information he had in his possession.

Another long-time former DuPont employee—engineer and salesman Michael David Mitchell—was also caught up in the conspiracy and was charged with and pled guilty to theft of trade secrets several years ago. Mitchell, fired by DuPont for performance reasons in 2007, had signed the same non-disclosure agreement as Schulz, but he also held on to some proprietary information when he left. While looking for another job, he met with Kolon representatives and eventually was hired by them as a consultant.

Mitchell shared with Kolon some of the proprietary information he had, but when Kolon representatives began asking him extremely technical questions on Kevlar, he reached out to former and current DuPont employees for answers. Word of his activities, however, got back to DuPont management, who reached out to the FBI with their concerns.

Eventually, Mitchell agreed to cooperate with law enforcement and made numerous recorded phone calls and exchanged e-mails with Kolon representatives. He also hosted a face-to-face meeting with representatives in a Richmond hotel, which was audiotaped and videotaped by the Bureau.

This case would have been nearly impossible to make without the assistance of DuPont. In addition to the company coming to us initially about the attempts to steal their trade secrets, DuPont worked with us to understand and organize more than a million pages of Kevlar-related documents and hundreds of hours of audio recordings, which enabled the case to move forward quickly. And the FBI and the Department of Justice worked to ensure that DuPont’s proprietary information—much of which was used as evidence—wasn’t disclosed publicly.

As a result of its experience, DuPont enhanced efforts to protect its proprietary information. Other American companies, if they haven’t already done so, need to follow suit—the desire to steal U.S. business trade secrets continues unabated.