9 Navy officers, including an admiral, indicted in ‘Fat Leonard’ bribery scandal

Nine more Navy officers, including an admiral who was the director of naval intelligence operations before retiring, were indicted Tuesday on conspiracy, bribery, obstruction of justice and other charges in the ongoing “Fat Leonard” bribery scandal.

An indictment unsealed in federal court in San Diego accused the group of current and retired officers of receiving a stream of gifts beginning in 2006 from Leonard Glenn Francis, who was known as “Fat Leonard” because of his size. In return Francis, who owned the ship servicing company Glenn Defense Marine Asia, got access to classified information such as ship schedules and to the services of the officers who used their position to steer Navy business to his company.

Among the indicted was Rear Adm. Bruce Loveless, who was once the Navy’s director of intelligence operations. Loveless retired in October but had been under investigation for his role in the scandal for several years, at one time losing his access to classified material while the probe continued.

Also named in the indictment was Navy Capt. David Newland, former chief of staff to the commander of the Seventh Fleet, the service’s largest fleet and the center of the bribery scheme.

Others indicted from the Navy were Capt. Donald Hornbeck, Capt. James Dolan, Capt. David Lausman, Lt. Cmdr. Stephen Shedd, Cmdr. Mario Herrera and Chief Warrant Officer Robert Gorsuch. Also named in the indictment was Marine Col. Enrico DeGuzman.

Federal agents arrested Loveless Tuesday morning at a penthouse apartment in Coronado he is renting. It has a sweeping view of the ocean he once sailed upon.

Just after 2:40 p.m., he appeared in a small federal courtroom in downtown San Diego clad in the same white jail-issue overalls donned by accused drug runners, human smugglers and other defendants charged with federal crimes.

A pair of ankle shackles jingled slightly as he shuffled to a seat in the courtroom.

U.S. Magistrate Judge Mitchell Dembin entered a not guilty plea on his behalf. He also ordered that Loveless could be released on his own recognizance and not have to post a bond. Loveless said little during the brief hearing.

Assistant U.S. Attorney Patrick Hovakimian said Loveless should be required to post a $50,000 bond. The prosecutor said the retired admiral had shown a “callous disregard” for the authority the government had conferred upon him, saying he had “participated in wild sex parties” while assigned to the Seventh Fleet — all paid for by Francis.

“This defendant abrogated his official duties over and over again,” Hovakimian said.

The judge also allowed DeGuzman to be released on his own recognizance without having to put up money for a bond. The Marine colonel appeared in court on Tuesday as well, but he was not in custody, having flown in for the appearance from his home in Hawaii.

Related: How ‘Fat Leonard’ fleeced the fleet »

Federal agents fanned out across the country Tuesday arresting others named in the indictment, Hovakimian said. Navy Capt. Hornbeck lives in the United Kingdom and arrangements were being worked out to get him to appear in court in San Diego.

Two defendants, Shedd and Herrera, are both on active duty. The others indicted are retired, according to the U.S. Attorney’s Office.

The indictment also names several other people with Navy ties who have been charged in related “Fat Leonard” cases. They are Edmond Aruffo, a former Navy officer who went to work for Francis and was a key liaison for him in recruiting people into the bribery ring; Cmdr. Jose Sanchez, who has pleaded guilty to his role and is awaiting sentencing; Capt. Daniel Dusek, who pleaded guilty and was sentenced last year to four years in prison; and retired Capt. Michael Brooks, who pleaded guilty and is awaiting sentencing.

The indictment also references someone in the Royal Australian Navy, identified only as “AG,” as a member of the conspiracy.

Francis has pleaded guilty to orchestrating the scheme that overbilled the Navy by at least $20 million. For more than a decade, the Singapore-based contractor bribed Navy officials in the giant Seventh Fleet to use their influence to steer ships to ports that his company controlled. Once they were there, he systematically overbilled the service for fuel, water, transport and many other services.

The indictment contains what is now a familiar litany of misdeeds — lavish meals, the services of prostitutes and gifts all paid for by Francis. One meal in February 2006 that Francis paid for in Hong Kong cost $20,435.

Another incident a year later involved Francis paying for a stay — and prostitutes — at the MacArthur Suite of the Manila Hotel in the Philippines. “During the party, historical memorabilia related to General Douglas MacArthur were used by the participants in sexual acts,” the indictment said.

The defendants also referred to themselves as “the Cool Kids,” “the Band of Brothers,” “the Brotherhood” and “The Lion King’s Harem,” the indictment said. Francis, who was well known for his girth and outsized personality, was called “the Lion Man” by Sanchez and others.

The indictment describes the benefits Francis showered on them — from $2,000 boxes of Cuban cigars to a $30,000 stay at a Park Avenue hotel in New York to a multi-day stay in the Presidential Suite at a Manila hotel in May 2008.

Loveless, Hornbeck, Dolan, Lausman and Shedd drained the hotel of all its Dom Perignon champagne during a “raging multi-day party, with a rotating carousel of prostitutes,” according to the indictment.

Through it all, the defendants maneuvered ships to ports favored by Francis, where it was easier for him to overbill the Navy, and helped him secure lucrative military contracts. They bad-mouthed Glenn Defense Marine Asia competitors to give Francis an advantage with the U.S. government.

They also helped the years-long conspiracy along by recruiting new members into the group, after cautious vetting “for their perceived discretion as well as their ability to perform official acts” to benefit GDMA, according to the indictment.

The indictment said some of the defendants lied about their relationship with Francis, deleted email accounts that carried incriminating messages about the bribery scheme, and destroyed a hard drive from the George Washington aircraft carrier in an effort to impede the probe and cover up their actions.

Loveless is the second admiral who has been charged in the case, following retired Rear Adm. Robert Gilbeau, who pleaded guilty in June to a charge of lying to federal investigators.

The latest indictment represents a new level of investigation in the “Fat Leonard” scandal, now in its fourth year, by charging a network of officers for working together in a wide-ranging conspiracy.

In addition to federal criminal charges such as bribery and honest services wire fraud, the officers are accused of breaking official Navy rules they are sworn to abide by as officers, such as handling classified information and acting with good virtue and honor.

The scandal has now ensnared 25 people, including 20 Navy officers and enlisted men as well as employees of Francis’ company.

Twitter: @gregmoran

greg.moran@sduniontribune.com

UPDATES:

5:30 p.m.: This article was updated with additional details.

This article was originally published at 1 p.m.