Updated at: 07/18/2014 5:52 PM
An Oregon defense contractor has pleaded guilty to selling $10 million worth of phony parts for attack helicopters and military vehicles to the U.S. government, including a locknut that secures the rotor on the Kiowa attack helicopter.
According to court records, the company Kustom Products Inc., a longtime seller of truck and RV parts based in Coos Bay; owner Harold Ray Bettencourt II, and four employees pleaded guilty Friday in U.S. District Court in Portland to conspiracy to defraud the United States.
"These crooks took deliberate actions to supply defective equipment to our military, putting our service men and women in harm's way during a time of war," Kenneth Hines, special agent in charge of Internal Revenue Service Criminal Investigation, said in a statement. "Then, they spun a web of complex lies to cover it all up."
Bettencourt, his sons Harold "Bo" Bettencourt III, Nicholas Ryan Bettencourt and Peter Tracy Bettencourt, and office manager Margo Antoinette Densmore remained free pending sentencing scheduled for two days starting Dec. 10.
At that time, a full description of the crimes will be presented, federal prosecutor Scott Asphaug said.
Authorities said the company lied to the Defense Department to secure 750 contracts worth $10 million from 2006 through 2010. They were able to undercut bids from other companies by substituting phony parts for genuine parts, and produced phony records to cover up the substitution, the government said.
The case was based on emails and purchasing records seized by investigators, Asphaug said.
Defense attorneys did not immediately respond to telephone calls and emails asking for comment.
The investigation was triggered in 2008 when mechanics for the Kentucky Army National Guard found that eight locknuts that were supposed to secure the main rotor assembly on an OH-58 A/C Kiowa attack helicopter did not meet specifications, according to court documents. The defective locknuts were found as far away as Kuwait.
In an affidavit, James McMaken, a special agent with the Defense Department Inspector general and Defense Criminal Investigative Service, wrote: "The military field terminology for this locknut is the 'Jesus nut,' which is a colloquialism for the main rotor retaining nut that holds the main rotor to the mast of some helicopters. The failure of this part can be catastrophic, resulting in possible death or serious injury to military personnel."
According to court documents, the Bettencourts sold the phony parts for between 22 percent and 3,754 percent more than they paid for them.
As part of their guilty pleas, the defendants agreed to forfeit $365,503.26 seized from 20 bank accounts, eight vehicles, a boat, two boat trailers, two jet skis, and three all-terrain vehicles, which were derived from proceeds of the fraud.
Purchasing agent Josh Kemp, who was a cooperating witness in the case, was scheduled to appear in court July 24 to plead guilty to the same charge, Asphaug said.
Harold Bettencourt's ex-wife, Kathy Sue Bettencourt, has gone into a diversion program, Asphaug said. If she successfully completes it, there will be no criminal charges.
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