Defense Contractors Ripped Off Navy for $45 Million

SAN DIEGO, CA – A brazen scheme to defraud the United States Navy out of $45 million has landed two San Diego men in federal court. Jeffrey Harrington and Michael Mayer, the owners of multiple defense contracting firms, pleaded guilty this morning before U.S. Magistrate Judge Karen Crawford to conspiracy to commit wire fraud, filing false claims, and making false statements on their federal income tax returns. This wasn’t a case of simple overbilling; it was systematic deception, swapping approved military supplies with unauthorized – and far more expensive – items.

The pair, operating through companies including San Diego-based Veteran Logistics, Inc. (“VLI”), Industrial Xchange, Inc., and Boston Laser Technology, Inc., routinely sold supplies to the Department of Defense, the Department of Navy, the General Services Administration, and other federal agencies via “EMALL,” the Defense Logistics Agency’s (DLA) web-based procurement site. Each firm had contracts allowing up to $5 million in pre-approved sales. But, as court filings reveal, Harrington and Mayer didn’t play by the rules. They manipulated the EMALL system to substitute cheaper, unapproved products for the ones the military had ordered, then jacked up the prices.

The fraud was shockingly blatant. In one example, the defendants agreed to supply Maritime Expeditionary Security Group Two at Norfolk Naval Shipyard with over 10,000 “Post-It” writing paper pads. Instead, they shipped 50 electronic transceivers they weren’t authorized to sell, marking up the price by a staggering 134%. This wasn’t a one-off. They repeated this deceptive tactic dozens of times, across a wide range of military components. The scheme wasn’t just about profit; it also allegedly facilitated the concealment of sales of consumer electronics and other items potentially used to corrupt military officials.

The details are damning. VLI once agreed to supply the USS Ronald Reagan aircraft carrier with industrial plumber snakes, but instead sent 100 29” Toshiba TVs, 60 32” Toshiba TVs, and 160 TV tilt mounts. The cost to VLI: $39,558. The bill to the government: $66,807. Another scheme involved Navy Explosive Ordnance Disposal Group #2 (EODG-2) in Norfolk, Virginia. The defendants billed DLA $1,303,024 for bags, canvas organizers, and pouches, but delivered parachutes, altimeters, and skydiving gear purchased for only $924,252, pocketing a $378,772 profit.

Assistant U.S. Attorney Rebecca S. Kanter (619-546-7304) presented evidence showing the scheme generated approximately $45 million in fraudulent EMALL sales over 12,000 transactions between March 1, 2008, and January 31, 2015. A review of just 60 transactions between August 2009 and October 2013 revealed a 50% fraud loss – approximately $1,417,395 lost on $2,868,590 in sales. Three of the companies – VLI, Industrial Xchange, Inc., and Boston Laser Technology, Inc. – also pleaded guilty to conspiracy, as did two employees involved in the operation.

“Not only did the defendants inflict financial harm on the taxpayers by charging obscene mark-ups,” stated Acting United States Attorney Robinson, “but they also compromised the integrity of the military supply chain. This office is committed to pursuing and prosecuting those who exploit our nation’s defense systems for personal gain.” Sentencing dates have not yet been announced. The Grimy Times will continue to follow this case and report on any further developments.