Business manager sentenced to prison for crimes involving more than $2 million in Department of Defense contracts
COLUMBUS, Ohio – A California man was sentenced here today for crimes involving more than $2 million in Department of Defense contracts.
Timothy M. Kelly, 56, of Palos Verdes Estates, Calif., was sentenced to 30 months in prison for conspiring to commit wire fraud and for money laundering. Kelly served as the office manager for Emerson Company, which was owned by Daniel Emerson Norton, 52, formerly of Arlington, Va.
Norton was sentenced on Nov. 18 to 96 months in prison.
Norton and Kelly fraudulently secured approximately $2.2 million in contracts to provide critical parts to the U.S. Department of Defense, which they then filled with defective parts made in China, in violation of the Buy American Act. In total, Norton and Kelly supplied parts that did not meet military requirements for at least 130 contracts.
“The defendants’ actions put our military at risk, which is unfathomable,” IRS Criminal Investigation SAC Bryant Jackson said. “IRS Criminal Investigation followed the flow of money in this case in order to uncover the fraud, and we are proud to work with our law enforcement and military partners to investigate financial transactions that impact our country and our military.”
According to court documents, the Department of Defense (DOD) barred Emerson Company from doing business with the U.S. Government in 2011.
Between 2011 and 2013, Norton continued to recruit people who either already had companies or were willing to start companies to do his bidding on solicitations and contract with the military to provide parts for the U.S. military. When one of the companies was awarded a purchase order, Norton directed the company to send the purchase order to Emerson Company, which would buy and ship the part directly to DoD. Kelly would instruct the company to invoice DoD for the part.
Norton bought the parts from manufacturers in China, even though the contracts required a large number of the parts to be made in the United States.
Until 2012, Kelly primarily conducted spot inspections of parts upon their arrival. In late 2012, Norton took over the responsibility of inspecting a sample part before accepting it from the manufacturer and shipping it to the DoD.
The parts Norton and Kelly provided had dimensional defects, material substitutions, incorrect or missing markings, incorrect finishes, improper shapes or styles, mislabeled packaging or poor workmanship and thus failed to conform to the contract requirements. In some cases, contracts called for precise OEM parts and instead the defendants made defective imitation parts overseas.
They involved a variety of parts used on military weapon systems including aircraft, vessels, vehicles and Nuclear Reactor programs. Many of the parts were considered Critical Application items, which are essential to weapon system performance or operation, or the preservation of life or safety of operating personnel, as determined by military services.
As part of each man’s sentence, Norton and Kelley were ordered to pay $2.38 million in restitution, and forfeit more than $333,000 in the bank account in the name of Emerson Manufacturing Inc. and a $725,000 residence held by Emerson Manufacturing Company in Kihei, Hawaii.
Four other defendants were sentenced this year in a separate scheme to defraud the Department of Defense.
Janay McDonald Ruiz founded JanTech Inc. in 2012 and SoCal Components Place in 2013 with little or no experience, training or education in aircraft, vessel, weapons systems or maintenance. Ruiz’s sister, Raven McDonald, and friends Candace Villar and Niena Johnson, helped operate the companies and their five affiliate companies.
The defendants created and operated four additional companies under different aliases using the names and identities of others after their original companies were debarred in 2013. In one instance, Ruiz used the name and identity of an elderly victim who suffers from dementia. Ruiz opened bank accounts, credit cards and a company to continue to defraud the government.
In sum, the conspiring females created six different companies and entered into more than 1,000 contracts with the government valued more than $2.4 million. The defendants delivered noncompliant, incorrect, used, surplus, refurbished, aftermarket and antiquated parts to the government that were often obtained from unauthorized vendors selling items on the grey and black market. Many of the parts were identified as "Critical Safety Items." Ruiz used her ill-gotten gains to pay for an elaborate wedding in Beverly Hills that included a multi-tiered cake suspended from the ceiling, concert tickets, a Mercedes Benz and designer clothes and shoes.
Each of the four defendants pleaded guilty and has been sentenced to serve time in prison (ranging from 18 to 46 months in prison) and ordered to jointly pay $1.16 million in restitution.
David M. DeVillers, United States Attorney for the Southern District of Ohio; Leigh-Alistair Barzey, Special Agent in Charge, U.S. Department of Defense, Defense Criminal Investigative Services (DCIS), Central Field Office; and Bryant Jackson, Special Agent in Charge, Internal Revenue Service (IRS), Criminal Investigation announced the sentence imposed today by U.S. District Judge Michael H. Watson. Assistant United States Attorneys Jessica W. Knight and J. Michael Marous represented the United States in this case.
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