Agents Fight Military Fraud From Base in Laguna Niguel

From a remote hilltop in Laguna Niguel, a cadre of special agents is waging a war on military fraud ranging from missing silver bars to faulty parts for use on B-52 bombers.

The agents, employed by the Pentagon’s Defense Criminal Investigative Service, watch over the millions of dollars spent every day by the agency in Southern California. About 30 agents working in the Los Angeles region are responsible for detecting fraud in the 76,000 defense contracts issued to 5,000 Southland contractors.

Companies caught overcharging or cheating the government not only face criminal penalties, but civil suits, administrative action and suspension or loss of eligibility for future contracts.

‘Playing Hardball’

Defense Department officials say these sanctions make an impression on the thousands of California companies that won $28.4 billion worth of defense contracts in fiscal 1984. California leads the nation in defense work, far ahead of second-ranked New York, which garnered $9.5 billion worth of contracts in 1984.

“We are playing hardball with the major contractors,” said Rodney Hansen, a former Internal Revenue Service agent who heads the DCIS’ Los Angeles-area field office in Laguna Niguel. To handle a growing volume of cases, the unit has increased its nationwide staff to 240 agents from only 23 in 1982.

In addition to the Laguna Niguel office, the service’s western region has offices in El Segundo, San Diego, Phoenix and Albuquerque. Hansen said his agents have 21 active cases involving major companies.

The service’s efforts were partly responsible for the Dec. 2 indictment of four present and former General Dynamics executives, including NASA Administrator James M. Beggs.

4 Executives Charged

An 18-month government investigation led a federal grand jury to charge the four executives with conspiring to cheat the Defense Department out of $3.2 million spent on the abandoned Sgt. York mobile anti-aircraft gun. Beggs, who is on a leave of absence from the space agency, and the others pleaded not guilty last week. DCIS agents also collected evidence leading to the recent prosecution and conviction of executives at two small Orange County defense contractors.

In September, Donald Bigalke, president of District International Supply Co. in Costa Mesa, was sentenced to 1 1/2 years in federal prison for substituting poor-quality metal in parts destined for use in aircraft exhaust manifolds, jet engines and welded tank cars.

“They provided inferior steel on a B-52 bomber that would have failed catastrophically at a certain altitude,” Hansen said. “It’s not only fraud, it’s greed to the point that they abandoned any concern for the user’s safety.”

Bigalke’s son, Timothy, was sentenced to six months in prison. U.S. District Judge Richard A. Gabois also ordered the pair to repay $236,900 to the government.

In another Orange County case, Thomas Snooks, president of SETAC, was sentenced to five years’ probation and ordered to perform 2,500 hours of community service after pleading guilty to charges of mail fraud and submitting false claims to the government.

19-Count Indictment

The original 19-count indictment charged SETAC and Snooks with defrauding the government of about $300,000 by submitting false charges. The company, which is in the process of being acquired, was fined $22,000.

When the agents believe that they have a case against a defense contractor, they take it to the U.S. attorney’s office in Los Angeles.

“In a short period of time, they have put together a superb investigative staff,” said U.S. Atty. Robert Bonner in Los Angeles. Bonner said service agents work closely with his office’s fraud unit to prepare cases for prosecution. “These cases, by definition, usually involve matters more complex and difficult than our routine criminal cases,” he said.

In addition to uncovering false or inflated billings on defense contracts, service agents search for illegal product substitutions or false certifications. Other areas of concern are bribery and kickbacks, ranging from gifts of theater tickets or television sets to expensive automobiles and thousands of dollars in cash.

‘Not Difficult to Hide’

“Because of the massive amount of paper work, it’s not difficult to hide expenditures or mischarges,” Hansen said.

Tips often come in from employees and others who place about 600 calls each month to the toll-free Defense Hot-Line in Washington. Other times, companies themselves request the agency to help in uncovering fraud, Hansen said, adding that he is “encouraged by the amount of cooperation we are getting from the companies.”

In one instance, Hansen said, a disgruntled employee of a Southland firm called the service about a contract the company had received to analyze the quality of some silver bars belonging to the government. The employee said company officials had sold the government’s silver when commodity prices rose and planned to buy it back when prices fell. The plan apparently was to reap a profit from the transaction without the government ever knowing that the silver had left the company’s vaults.

Surprise Visit

One day, Hansen said, his agents made a surprise visit to the company president and asked him to produce the silver. It was gone. That case is about to be settled before it reaches court.

“It was not a real big case, but it was a case of blatant fraud,” said Hansen, who refused to disclose the company’s name.

Another company, Aerotech Inc. of Canoga Park, had a government contract for $1.2 million worth of rubber washers and other rubber products.

Hansen said company officials sent the government an invoice indicating that a delivery of rubber products was made. But after a check for $1.2 million was issued to Aerotech, investigators found that the invoice was bogus and the products never arrived, Hansen said.

Last February, a federal judge issued an arrest warrant for Aerotech President Richard Silver. Hansen said that the company has gone out of business and that Silver cannot be found.