CIV (202) 616-2765 TDD (202) 514-1888

U.S. SETTLES FALSE CLAIMS ACT CASE AGAINST EQUIPMENT & SUPPLY INC. AND ESI PRESIDENT, ANDREW A. ADAMS WASHINGTON, D.C. -- Equipment & Supply Inc. of Monroe, North Carolina, and the company's president and owner, Andrew A. Adams, will pay the United States a settlement valued up to $1.4 million to resolve allegations they sold aircraft parts and service equipment to the Department of Defense that failed to meet contract specifications, the Department of Justice announced today. Assistant Attorney General Frank Hunger, head of the Civil Division, said that under the settlement ESI will pay the government $750,000; withdraw its claim seeking $163,372.33 from the Navy in another contract dispute; pay a balloon interest payment at the treasury rate on today's settlement; and pay the government up to an additional $500,000--contingent upon ESI's gross sales in the next five years. The case was originally filed against ESI in U.S. District Court in Philadelphia, Pennsylvania, as a qui tam false claims lawsuit by a former ESI employee. The qui tam provisions of the False Claims Act permit a private citizen to file a suit on behalf of the federal government and collect a portion of the money if the government's action is successful. In May 1994 the government filed an amended complaint to intervene in the lawsuit and added Adams as a co-defendant. The government also alleged in its amended complaint that ESI paid illegal kickbacks over a period of more than 10 years to former Lockheed employee, Richard A. Pope, in violation of the AntiKickback Act in order to obtain preferential treatment in transactions involving a prime government contractor, LockheedGeorgia. Shortly after, ESI and Adams filed for bankruptcy under Chapter 11 in Charlotte, North Carolina. The federal bankruptcy court approved the settlement agreement on December 12, 1994. ESI manufactured and sold aviation parts to many federal agencies and commercial customers. The government alleged that, during the past 10 years, ESI fraudulently delivered more than 300 separate aircraft parts and service equipment that did not meet contract specification requirements and provided falsified test results to the government. In January 1994, ESI pleaded guilty in federal court in Charlotte to conspiracy and making false statements concerning ESI's delivery of critical parts used in the United States Army's UH-1 helicopter that ESI knew did not conform to government contract specifications. At the same time, the company pleaded guilty to altering cure dates to conceal the original manufacture date and age of rubber O-Rings in O-Ring replacement kits used on aircraft and selling the kits in the commercial aviation market. ESI also pleaded guilty to altering test certifications for a sling device used to cradle military aircraft engines on runways, tarmacs, or aboard aircraft carriers and conspiring to pay kickbacks to a former Lockheed employee. On November 22, 1994, Pope was convicted of 25 counts of conspiracy, kickbacks, and mail fraud involving his receipt of gratuities from ESI in U.S. District Court in Atlanta, Georgia.

The civil fraud case was investigated by the Defense Criminal Investigative Service's office at Chapel Hill, North Carolina, the Naval Criminal Investigative Service's office and the Army's Criminal Investigative Command's Fraud Field Office at Raleigh, NC, and the Air Force Office of Special Investigations, Detachment 115 at Smyrna, Georgia. Audit support was provided by the Defense Contract Audit Agency's Eastern Regional Office at Smyrna, Georgia. ##### 94-704