Home » Former Tools and Metals President Sentenced to 87 Months in Jail
Former Tools and Metals President Sentenced to 87 Months in Jail
March 29, 2006
to 87 months in jail and ordered to pay $20 million in restitution March 27, 2006, after pleading guilty to conspiracy to defraud the U.S. government with false and fraudulent claims.
overcharging Lockheed Martin Aerospace at least $18 million for MRO supplies it used in Department of Defense contracts at three plants. The charges began a downward spiral for the distributor, based in Fort Worth, TX, that culminated in Chapter 7 bankruptcy in September and a civil suit against Loftis and other former board members by TMI's new owners, JHW Greentree Capital LP. (Read a detailed account of the charges and the civil lawsuit in href="/stories/TMI3524.html" target=_blank>this December 2005 MDM article.)
JHW bought TMI just six months before the probe into the fraud began.
Lockheed accounted for up to 90 percent of TMI's annual revenues, according to civil suit documents.
TMI entered into a sole-source agreement with Lockheed in 1998. TMI provided tens of thousands of specialized industrial cutting tools under the sole-source contract to three Lockheed plants for the manufacture of Department of Defense airplanes, including the F-16 and the F-22. Loftis and TMI started overcharging Lockheed for the tools, and covered up the fraud by creating fake invoices for the items.
Under TMI's contract with Lockheed, the company would charge Lockheed 15 percent above acquisition cost for first-time sales of a product, and 20 percent above acquisition cost for subsequent sales. But Loftis and others at TMI directed buyers and customer service representatives to present a higher acquisition cost to Lockheed than TMI actually paid in order to boost TMI's profits.
So TMI could pass muster in Lockheed's twice-a-year audits, Loftis took supplier invoices, scanned them into TMI computers, and changed them, increasing the price paid by TMI for the tools. They were then run through a copy machine to make them look more authentic. Lockheed examined the invoices to confirm that its purchase prices were consistent with TMI's acquisition cost plus the agreed-upon markup of 15 percent to 20 percent. Loftis later had the false invoices destroyed and the evidence removed from TMI computers.