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Bolt Maker, Two Former Employees Plead Guilty In Inspection Fraud Case

May 12, 1990

SEATTLE (AP) _ The world’s largest maker of aircraft bolts and fasteners pleaded guilty Friday to charges it schemed to falsify test reports on parts, including those for Boeing jetliners and military aircraft.

VSI Corp. agreed to pay $18 million in penalties and costs, and two former employees pleaded guilty to one count each of conspiracy in the case, part of a continuing investigation of the aerospace industry.

The case recovered the most money of any action stemming from information received under the federal whistleblower law, said U.S. Attorney Mike McKay.

Under the law, three former VSI employees who complained about the phony tests will be entitled to share at least $2.1 million, McKay said.

″For at least 14 years, VSI intentionally deceived its customers, including the U.S. government,″ McKay told a news conference. ″VSI did this to cut corners and line its pockets.″

Parts manufactured by VSI are used throughout the civilian and military aircraft industry; about half its products are sold to the government or defense contractors.

Falsified reports covered millions of fasteners, including some bought for the B-2, B-1 and B-52 bombers, C-5B transport plane and F-18, F-15 and F-16 fighters, McKay said.

The fasterners are used on virtually every Boeing product, including civilian airliners, said Boeing spokesman Paul Binder.

No accidents have been traced to faulty fasteners, said Assistant U.S. Attorney Bruce Carter, who prosecuted the case.

Boeing said it has inspected and tested the fasteners, and retested certain lots of materials. It said the company’s products met all Boeing specifications and requirements and use of them ″has not compromised the integrity of Boeing products.″

VSI pleaded guilty before U.S. District Judge Barbara Rothstein to three counts of mail fraud and one count of conspiracy. The pleas were entered by company Vice President Donald S. Parker.

James E. Ryan, a former quality assurance manager at VSI’s Voi-Shan plant in Chatsworth, Calif., and Aram Marderian, a former metallurgical laboratory supervisor for Voi-Shan, each pleaded guilty to one count of conspiracy.

Rothstein set sentencing for Aug. 17. Ryan and Marderian, who’ve agreed to cooperate in further investigations, each face up to five years in prison and as much as $250,000 in fines.

As part of a plea bargain, VSI agreed to pay a $2.5 million fine and an estimated $1 million for the cost of the investigation.

To resolve a separate civil whistleblower case, VSI will pay an additional $14.5 million. The three whistleblowers will share 15 percent to 25 percent of that, McKay said.

VSI, a subsidiary of Fairchild Industries Inc., and Ryan and Marderian were charged Wednesday.

The government alleged that from 1975 or earlier to February 1989, some required tests were omitted, test results were altered, parts were reworked in violation of specifications. The government also alleged that VSI gave falsified reports to Boeing, Northrop, McDonnell Douglas, Lockheed, General Electric, Pratt & Whitney, the Defense Department and other customers.

The stamp of a fictitious ″Inspector 11″ was used to indicate some tests had been completed successfully, the complaint said.

Some bolts that failed tests were delivered with documents indicating they met specifications, and other required tests weren’t performed, the complaint said. In other instances, tests were performed on fewer parts than required.

The mail fraud charges involved phony test results provided to aircraft manufacturers in Seattle, Wichita, Kan.; Fort Worth, Texas; and Los Angeles.

VSI will cooperate fully with the government and wants ″to put all this behind it,″ Parker said.

Parker said senior management at the company didn’t find out about the fraud until February 1989, when federal agents raided the Voi-Shan plant.

But Lawrence Finegold, an attorney for Ryan, said his client had been following an ″inherited practice″ that had gone on for years.

Carter said evidence in the case indicated ″quality control fraud really was a way of life″ at the Chatsworth plant.

The probe was triggered by a complaint from whistleblower Tom Runion shortly after he left his job in the metallurgical laboratory at the Chatsworth plant, Carter said.

Runion and two others are plaintiffs in the whistleblower lawsuit unsealed Friday in U.S. District Court in Los Angeles, Carter said.

Carter said inadequate Voi-Shan parts were found during aircraft assembly and were returned to the manufacturer, but said investigators do not know whether there were any safety threats.

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