INDIANAPOLIS - United States Attorney Josh J. Minkler announced today that a federal grand jury has indicted Kevin Kuhnash, 57, and Jason Jimerson, 44, formerly the Chief Executive Officer and Chief Operating Officer of Lucent Polymers, Inc., an Evansville-based plastics manufacturer. The two men were arrested today by the FBI. The indictment alleges that they committed fraud when they orchestrated the sale of Lucent to another company but concealed critical defects in Lucent’s business, including fraud that Lucent was committing on its customers. Also today, the U.S. Securities and Exchange Commission announced that it also charged Kuhnash and Jimerson with fraud.
“Corporate officials who put deviousness over good faith degrade the integrity of our markets and impugn the reputation of American industry,” said Minkler. “This office will continue to prioritize the investigation and prosecution of corrupt corporate executives who enrich themselves through fraud and deception.”
The indictment alleged that a key aspect of Lucent’s business was its purported ability to design and manufacture custom plastics products that met customers’ exact specifications at very low prices. Lucent’s customers included manufacturers and suppliers of automobiles, automobile air bags, electrical boxes, ceiling fans, kitchen appliances, and heating and air conditioning units. Their specifications often included the plastic’s flame resistance, color, strength and durability, and certification by Underwriter’s Laboratories (“UL”).
According to the indictment, Lucent’s internal testing allegedly showed that its low-cost products often did not meet its customers’ specifications or UL certification standards. Nevertheless, Lucent employees allegedly created and submitted to customers false records stating that the internal testing confirmed that the products were within spec, when they were not. Even when customers complained, Lucent employees allegedly continued to conceal that they had altered the test results.
The indictment alleged that in 2013, Kuhnash and Jimerson, as CEO and CFO, were involved in trying to sell Lucent’s business to another company. Kuhnash and Jimerson allegedly both owned stock in Lucent and stood to, and allegedly did, receive hundreds of thousands of dollars’ worth of compensation when the sale was completed.
According to the indictment, in September of 2013, if not before, both Kuhnash and Jimerson were allegedly made aware that Lucent was routinely deceiving its customers regarding its products. As an example, the indictment referenced an email from a Lucent employee that both Kuhnash and Jimerson received that discussed data manipulation, changing UL-certified product formulations, and customer complaints. The indictment further alleged that, in discussing the email amongst themselves, Kuhnash and Jimerson stated that they would not let anyone see or have knowledge of the employee’s email.
The indictment alleged that neither did Kuhnash or Jimerson take any meaningful steps to stop the Lucent’s alleged fraud on its customers, nor did they disclose the existence of the fraud to the company that was acquiring Lucent’s business. Lucent was acquired shortly thereafter, and Kuhnash and Jimerson allegedly received the significant compensation for their Lucent stock. That compensation allegedly included stock in the company that bought Lucent.
Additionally, the indictment alleged that, even after the acquisition was completed, Kuhnash and Jimerson did not take meaningful steps to stop Lucent’s fraud on its customers and did not disclose the existence of the fraud, including to the acquiring company’s outside auditors.
According to the indictment, in 2015, the acquiring company was itself acquired by a larger, publicly traded company. Both men allegedly owned significant stock, and as a result of the second acquisition, both allegedly received hundreds of thousands of dollars. In total, the indictment alleges that Kuhnash and Jimerson personally received approximately $2 million from the two acquisitions of their stock.
The indictment further alleges that Lucent’s fraud on its customers was discovered by the publicly traded company a few months after acquiring Lucent’s business. On the day the publicly traded company disclosed the existence of Lucent’s fraud to investors, its stock dropped 25%.
Finally, the indictment alleges that Jimerson obstructed justice and made false statements to the FBI by stating he was not aware of Lucent’s fraud on its customers and did not receive the employee email, when he allegedly did.
According to Assistant United States Attorneys Nicholas J. Linder and Steve DeBrota, who are prosecuting the case for the government, the defendants face possible sentences of up to between five and twenty years of imprisonment for each count.
This case is being jointly investigated by the Internal Revenue Service-Criminal Investigation Division and the Federal Bureau of Investigation.
Gabriel Grchan, Special Agent in Charge of IRS Criminal Investigation said, “Business executives that cheat, lie, and steal stain the fabric of the American economy. These Lucent executives filled their pockets through fraud and numerous acts of deceit. As in this case and countless others our agents will find corruption and bring it to justice.”
“These individuals learned of significant fraudulent practices at the company they led and let it continue. Even during and after the sale of the company, they chose not to reveal the fraud in order to enrich themselves from the sale of their stock,” said Grant Mendenhall, Special Agent in Charge of the FBI’s Indianapolis Division. “This case is a result of the strong partnership and working relationship between the FBI, federal prosecutors, and the IRS-Criminal Investigations Division to combat a significant fraud scheme impacting private and publicly-traded companies.”
In October 2017, United States Attorney Josh J. Minkler announced a Strategic Plan designed to shape and strengthen the District’s response to its most significant public safety challenges. This prosecution demonstrates the Office’s firm commitment to prosecuting complex, large-scale fraud schemes, particularly those that exploit positions of trust. See United States Attorney’s Office, Southern District of Indiana Strategic Plan 5.1