Defense Scam Alleged in San Diego

SAN DIEGO (CN) - Two defense contractors were charged Thursday with conspiring with Navy officials to commit bribery, wire fraud and money laundering, and six felony counts of bribery, the U.S. Attorney's Office said.

Charged were Robert Ehnow, the owner of L&N Industrial Tool & Supply, of Poway; Joanne Loehr, owner of Centerline Industrial, also of Poway; and Centerline itself.

The defendants pleaded not guilty at their arraignment Thursday afternoon.

According to the U.S. attorney's statement: "The indictment alleges that as part of the conspiracy, defense contractors provided Navy officials with over $1 million in personal benefits, including cash, checks, retail gift cards, flat screen television sets, luxury massage chairs, home furniture and appliances, bicycles costing thousands of dollars, model airplanes, and home remodeling services. In return, the Navy officials placed millions of dollars in government orders with the defense contractors.

"According to the indictment, Ehnow (the owner of L&N) and Loehr (the owner of Centerline) conspired with their sales managers, with Navy officials who have already pled guilty, and with others, to engage in this wide-ranging conspiracy. The defense contractors prepared and submitted fraudulent invoices to the Department of Defense, making it appear that they were billing the Department for goods and services within the scope of legitimate government contracts. In fact, the Defense Department was unknowingly paying for, among other things, the cost of bribes provided to the Navy officials. Compounding the cost of the fraud, the defense contractors also routinely charged a markup on the fraudulent invoices.

"In some cases, L&N would engage in money laundering by using its government contract to fraudulently bill the Navy for items that were never supplied; and would then, at the request of Navy co-conspirators, pass along the criminal proceeds to Centerline, keeping a portion for itself as compensation for serving as a conduit for the criminal proceeds.

"During the course of the conspiracy, the Department of Defense paid L&N over $3 million. Centerline obtained over $1 million in payments from Defense Department during the conspiracy. A third defense contractor, X&D Supply, Inc. ('X&D'), located in Carlsbad, California, was paid over $2 million during the conspiracy.

"L&N, also known as Mardoc Corporation, filed for Chapter 7 bankruptcy in June 2011. Centerline remains in business."

Four Navy officials pleaded guilty to their roles in the fraud in March this year, prosecutors said. They admitted getting more than $1 million in bribes, which were fraudulently charged to and paid by the Department of Defense.

Three other defendants also pleaded guilty in March; they were owners or employees of defense contractors that sold goods or services to Navy Air Station North Island.

Ehnow, 46, of Coronado, and Loehr, 52, of La Jolla, both face 80 years or more in prison if convicted of all charges.

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