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Navy employees, contractors plead guilty to fraud

Four Navy employees and three defense contractors pleaded guilty to participating in a wide-ranging corruption scheme in which the contractors won millions of dollars in military orders after offering officials massage chairs, bicycles, flat screen TVs and other bribes, federal officials announced Wednesday.

The civilian employees who worked for a Navy aircraft maintenance program accepted a total of more than $1 million in bribes, U.S. Attorney Laura Duffy said.

It was unclear if the scheme put national security or military operations at risk.

Assistant U. S. Attorney Robert S. Huie said the Navy employees worked for a program tasked with ensuring aircraft were combat ready at the Naval Air Station North Island in Coronado, near San Diego.

"Corruption of this nature strikes at the heart of our national security and erodes public confidence," said Chris Hendrickson, the special agent in charge of the Defense Criminal Investigative Service Western Field Office.

The four Navy employees -- Donald Vangundy, Kiet Luc, David Lindsay and Brian Delaney -- worked for the Navy's Fleet Readiness Center and were assigned to maintaining the Navy's Grumman E-2 Hawkeye, an early warning aircraft, and the C-2 Greyhound, a derivative of the E-2 that has a widened fuselage with a rear loading ramp.

Officials said the Defense Department paid more than $5.5 million in connection with fraudulent invoices submitted by the three defense contractors -- Michael Graven, John Newman and Paul Grubiss -- all from Southern California.

Vangundy, 54, acknowledged in a plea agreement that he accepted more than $400,000 in cash and goods, including $78,000 in items from hobby shops and $38,000 from bicycle repair shops, along with gift cards from chains such as Best Buy, Apple and Lowe's Home Improvement.

Other goods included car repairs, a toolbox and a bicycle fork for one of his friends.

Delaney, 55, acknowledged taking a massage chair worth $3,700, medical kits worth $1,900, three televisions, and $50,000 in labor and materials to remodel his home, according to his plea agreement.

Prosecutors said the Navy paid at least $2.26 million in connection with the fraud to X&D Supply Inc., a Carlsbad company owned by Graven, and at least $3.3 million to a defense contractor identified only as "Company A" in Poway, where Newman worked as a sales manager and was the former owner.

The Navy paid about $1 million to a defense contractor identified only as "Company B," also located in Poway, where Grubiss was a sales manager, prosecutors say.

Also implicated in the scheme was Jesse Denome, owner of San Diego-based JD Machine Tech Inc.

Denome pleaded guilty in January when he acknowledged that from June 2004 to September 2005 he gave a Navy official a bicycle worth nearly $2,500 and a model airplane engine worth $449, and made $18,000 in payments on the official's personal credit card.

In exchange, prosecutors say, the official placed over 100 orders from the company for the Navy's aircraft program.

Vangundy and Luc also pleaded guilty to filing false tax returns tied to the scheme.

Graven also pleaded guilty to assisting in the filing of a false tax return by his business, X&D, for knowingly taking improper tax deductions for the bribes paid to the Navy employees, prosecutors say.

The seven defendants could face up to 20 years each in prison. Sentencing is set for July 2. Denome could face up to eight year in prison and is scheduled to be sentenced in August.

Prosecutors said they got an anonymous tip in 2009 from a citizen who called a hotline set up for people to report abuse of government contracts. The investigation was ongoing.

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