New York Man Who Supplied Falsely Remarked Computer Chips Used in U.S. Military Helicopters is Sentenced

Deirdre M. Daly, United States Attorney for the District of Connecticut, announced that JEFFREY KRANTZ, 50, of New York, N.Y., was sentenced today by U.S. District Judge Michael P. Shea in Hartford to three years of probation and ordered to pay a $100,000 fine for supplying customers with falsely remarked microprocessor chips, many of which were used in U.S. Military and commercial helicopters.

“We are committed to prosecuting individuals who distribute unapproved microprocessor chips and other electronic components for use by the U.S. Military,” said U.S. Attorney Daly.  “This crime poses a potential threat to the safety of the men and women of our armed services.  We thank the Defense Criminal Investigative Service and the U.S. Department of Transportation, Office of Inspector General, for their diligent work on this complex investigation.”

“Today's sentence is another necessary step along the path to protect the integrity of the Department of Defense's supply chain,” said Craig W. Rupert, Special Agent in Charge, Defense Criminal Investigative Service (DCIS), Northeast Field Office.  “Distributors who opt for financial gain by introducing inferior products into mission critical equipment create an environment ripe for product failures.  Such disregard puts the warfighter at an unnecessary risk, ultimately impacting the mission readiness of our military that the nation depends on.  DCIS shields America’s investment in national defense by continuing to engage with our partner law enforcement agencies and prosecutors to bring to justice all who disrupt the reliability of our military's critical infrastructure.”

“The sentencing today of Jeffrey Krantz for supplying customers with falsely remarked microprocessor chips sends a clear signal that strong penalties await those that would seek to perpetrate fraud in the aerospace manufacturing industry,” said Todd Damiani, regional Special Agent-in-Charge of the U.S. Department of Transportation Office of Inspector General.  “The DOT-OIG will work with our law enforcement and prosecutorial colleagues, to continue our dedicated efforts to uncover schemes involving suspect unapproved parts (“SUPs”), prevent SUPs’ use, and punish those who seek to compromise the integrity of DOT’s safety programs.”

According to court documents and statements made in court, KRANTZ was the CEO and an owner of Harry Krantz, LLC, a New York-based company that bought and sold, among other things, obsolete electronic parts for use by the U.S. Military and commercial buyers.  In 2005, KRANTZ entered into a business relationship with Jeffrey Warga, the president and owner of Rhode Island-based Bay Components, LLC, to sell military microprocessor chips to Bay Components, which would in turn sell them to a Connecticut company.  KRANTZ knew that the Connecticut company wanted new and original chips, not falsely remarked chips.

Between 2005 and 2008, KRANTZ purchased and sold, and caused to be purchased and sold, over a thousand chips to Bay Components, which, in turn sold them to the Connecticut company.  The chips were marked with certain information, including a certain manufacturer’s name and trademark, a date code, and a military part number.  In approximately December 2005, the first shipments of about 330 chips that KRANTZ had sold to Bay Components were rejected by the Connecticut company for being the wrong part because the chip contained the wrong die inside.  In 2006, KRANTZ replaced those chips with at least some of the replacement chips bearing the date code 9832.  Between 2006 and 2008, KRANTZ sold and caused to be sold at least 900 chips with date code 9832 to Bay Components, the majority of which were sold to the Connecticut company.  KRANTZ knew that the chips had originated from a parts supplier in China, and there was a high probability that the chips were falsely remarked not the original chips of the certain manufacturer as represented by the markings on the chip.  He also avoided engaging in common practices in the industry, including those which Harry Krantz LLC routinely engaged in for other military parts, to avoid confirming that the chips were likely remarked.

The investigation revealed that many of the chips were used in the assembly of U.S. Military and commercial helicopters.  The chips have been examined and determined not to be the root cause of any mechanical problems experienced by the helicopters to date.

On July 28, 2015, KRANTZ waived his right to indictment and pleaded guilty to one count of wire fraud.  In pleading guilty, KRANTZ also agreed to pay restitution in the amount of $402,650.  Judge Shea will issue a restitution order after further court proceedings.

As part of his guilty plea, KRANTZ also agreed not to be directly or indirectly involved in the buying or selling of electronic parts, for a period of two years.  He also has given up all control either directly or indirectly over Harry Krantz LLC, and all beneficial and/or financial interest, including ownership interest, in Harry Krantz, LLC, and will not reacquire such an interest.

On December 12, 2014, Warga pleaded guilty to one count of conspiracy to commit wire fraud.  He awaits sentencing.

This ongoing investigation is being conducted by the Defense Criminal Investigative Service and the U.S. Department of Transportation, Office of Inspector General.  The case is being prosecuted by Assistant U.S. Attorney Douglas P. Morabito.