Wyo Business Council recruit pays $5.6M federal fraud settlement

Daniel Bendtsen, WyoFile.com via Wyoming News Exchange
Posted 5/26/21

Wyoming Business Council recruit Tungsten Heavy Powder — a California defense contractor with Laramie-based manufacturing — has agreed to pay the federal government $5.6 million to settle fraud allegations from the Department of Justice.

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Wyo Business Council recruit pays $5.6M federal fraud settlement


Wyoming Business Council recruit Tungsten Heavy Powder — a California defense contractor with Laramie-based manufacturing — has agreed to pay the federal government $5.6 million to settle fraud allegations from the Department of Justice.

Federal prosecutors alleged the company violated the False Claims Act by having U.S.-funded parts for the Israeli military manufactured in China — a practice not allowed under federal law — while “falsely certifying that it sourced product materials in the United States,” according to a DOJ press release.

The business’s “illegal activities directly threatened the economic and national security and safety of U.S. military personnel by supplying misrepresented materials of unknown quality and integrity from un-vetted Chinese suppliers to be used in defense articles provided to the (Department of Defense),” the federal claim states.

Tungsten Heavy Powder, whose administrative office is in San Diego, has also produced parts for the U.S. military. It has had more than $7 million worth of U.S. government contracts since 2008, according to court documents.

Federal attorneys now allege the company has “engaged in deliberate schemes to defraud the U.S.” during that time, according to court documents.

In 2015, the Wyoming Business Council and the Laramie Chamber Business Alliance recruited THP, which previously had no domestic manufacturing capabilities, to establish a manufacturing plant in Wyoming.

The Wyoming Business Council provided a $3 million state grant for THP to build a factory in Laramie.

The State Loan and Investment Board, which consists of Wyoming’s five statewide elected officials, approved the grant in December 2015.

THP’s leadership established a second company, Tungsten Parts Wyoming, to run the Laramie factory, where manufacturing began in 2017.

Tungsten Parts Wyoming employed 32 people in 2017, and has tripled in size since 2019, according to a statement provided on behalf of the company by attorney Megan Overmann Goetz. The plant produces tungsten parts — including balls, cubes, buffers, warheads and penetrators — that are used in armor-piercing munitions and other military applications. The company’s customers include major aerospace and defense companies, including Lockheed Martin, BAE Systems and Northrup Grumman. The company claimed in court documents last week that it’s now the “largest commercially independent employer” in Wyoming and is installing equipment that will double the rate of production.

The company now has 140 employees in Wyoming and, despite the settlement, the business “continues to be an outstanding and viable Wyoming company and employer,” the statement said. 

Despite that, the company is now struggling to maintain its reputation within the defense industry as THP’s competitors and other critics share “disparaging” information about the company, according to a court filing filed by the company. As a result of those efforts, there have been “customers terminating, adjusting or delaying their commercial relationship” with Tungsten Parts Wyoming, the company’s attorneys wrote in a Thursday filing.

Goetz’s statement stressed that THP is not “admitting any liability” in the settlement and said Tungsten Parts Wyoming has initiated “major management changes” since 2019. The recent settlement involves allegations predating those 2019 changes, the statement said. 

The DOJ allegations, originally made in a complaint filed under seal in October 2018, mirror those made by former Tungsten Parts Wyoming employees, who filed a federal lawsuit of their own in 2019 for wrongful termination, defamation and whistleblower retaliation.

Those employees alleged the company continued manufacturing in China during 2018 and 2019, well after the Laramie plant began operations.

That lawsuit also ended in a settlement last summer, when the company’s former owner and CEO, Joseph Serov, “resigned and retired,” according to a statement the company issued in August. Former employees had accused Serov of retaliating against them when they questioned the legality of Tungsten Parts Wyoming’s practices.

When Serov resigned, new CEO J.P. Batache said in a statement Serov had made “untrue” public statements about allegations in the lawsuit.

“Mr. Serov was going through an emotional period in his life, in addition to the emotions and stressors of the lawsuit itself, when he made the concerning remarks regarding the employees,” Batache said. In a January 2020 interview with the Laramie Boomerang, Serov had accused former employees of stealing company property, breach of contract and attempting to lead a “hostile takeover” of the company.

Serov remains a minority shareholder in Tungsten Parts Wyoming, Goetz said.

Wyoming Business Council officials told WyoFile that when Wyoming recruited THP, state officials were led to believe the business’s manufacturing in China would cease as it started manufacturing in Wyoming.

“We were very aware of their manufacturing operations in China,” said Ron Gullberg, WBC’s strategic partnerships director. “One of the reasons they wanted to relocate back to the U.S. was (Department of Defense) contracts. We were trying to grow and diversify Wyoming’s economy, and manufacturing is certainly a key element of that.”

The original $3 million state grant didn’t go directly to THP, according to Brandon Marshall, WBC’s business development director. Instead, that funding went to the city of Laramie, which built the building TPW moved its manufacturing facility into. Tungsten Parts Wyoming made lease payments before finally purchasing the building in 2019, the Laramie Boomerang reported.

That practice mirrors the way WBC issues all grants under the Business Ready Community Grant and Loan Program, which provides money only directly to governmental entities, Marshall said. That framework provides protection for public funding, he said.

“The community and state are insulated from bad actors or just someone who screws up and fails at business,” Marshall said. “We’re still protected. In this case, the building might be privately owned but the money is back in the local government’s hands.”

WBC conducted background checks and examined the company’s financial records during the recruitment process, Marshall said.

“There wasn’t anything to indicate that these guys were going to be in trouble in a few years,” Marshall said. “We do those checks. Is it perfect? Apparently not.”

During the recruiting process, THP told Wyoming officials that its Israeli contracts were a key reason to establish manufacturing stateside, Marshall said. THP now has to repay its 2016 contract with Israel. 

“The company was talking at the time too about bidding on Israeli defense forces’ contracts, which have exactly the same requirements, really just because of funding that the U.S. government pumps into the Israeli defense forces, so you have to have a U.S.-made product,” Marshall said.

Federal attorneys allege that 67% of Tungsten’s supply costs for the Israeli contract were for Chinese-made products.

The federal claim against THP was brought as part of a qui tam complaint, a legal maneuver that allows a private whistleblower, called a “relator” in the law, to receive a portion of the recovered damages.

In this case, relators include Gregory Caputo, a former general manager of THP who left the company in 2017. Despite Tungsten describing itself as a manufacturer as early as 2015, Caputo alleged the company did not have production capabilities until the Laramie operation began in 2017.

“Despite entering into contracts stipulating requirements for U.S. content and prohibiting procurement from China, THP essentially served as an intermediary broker for Chinese-made defense materials,” the lawsuit claims.

Caputo claimed that Serov went to great lengths during 2016 and 2017 to hide the fact the company was illegally manufacturing parts in China.

Serov falsified paperwork, lied to federal investigators inquiring about the company’s manufacturing practices, transferred tungsten parts from barrels with Chinese markings into barrels falsely indicating those parts were made in the U.S., and had employees translate the parts’ specifications and certifications from Chinese into English, Caputo claimed.

Another relator in the case is THP’s competitor, Global Tungsten & Powders Corporation.

The suit alleges that THP inflated supply costs to earn an additional $2.6 million in profit and the company has “caused the U.S. Government and defense contractors to forego providing contracts to legitimate U.S. businesses and instead provide contracts to a business that was essentially serving as a broker of defense articles manufactured in and shipped from China.”

Caputo and Global Tungsten & Powders Corporation will receive 17% of the overall $5.6 million settlement.

Tungsten Parts Wyoming’s statement said that “if THP is damaged, the entity that benefits is Global Tungsten, as it can bid higher prices and try and eliminate a major competitor.”

Last year, Tungsten Parts Wyoming received between $350,000 and $1 million in Paycheck Protection Program funding from the federal government as part of the CARES Act. 

The Small Business Administration has not revealed the precise dollar amount.

Despite the $5.6 million settlement, THP’s legal battles are ongoing. The plaintiffs’ attorneys have asked a federal judge to force THP to pay the plaintiffs $500,000 to cover legal fees.

Tungsten Parts Wyoming filed a lawsuit of its own Thursday in federal court against Global Tungsten & Powders Corporation and two former employees of the Laramie plant, claiming they’ve been anonymously mailing “damaging and confidential” information to TPW’s customers in recent months. TPW’s attorneys claim these effort violate anti-trust laws and “caused and continue to cause TPW Wyoming serious and irreparable financial and business-related harm.” 

WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.