Lawsuit says Wall Street executive overcharged on contracts

AP News
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Posted: Apr 09, 2015 10:04 PM
Lawsuit says Wall Street executive overcharged on contracts

WASHINGTON (AP) — Two former employees of a helicopter company owned by a prominent Wall Street financier allege that she exploited a connection with an Army colonel to charge the U.S. government inflated prices for rotorcraft.

In documents filed Thursday in U.S. District Court in Alabama, the whistleblowers said Lynn Tilton offered the officer, Norbert Vergez, a lucrative job long before he retired from military service as a way of inducing him to make contract decisions favorable to her company, MD Helicopters of Mesa, Arizona.

Attorneys for Tilton have disputed the allegations, calling them weak and implausible.

In a separate but related move, Vergez, who went to work for Tilton after hanging up his uniform, has agreed to plead guilty to false statement and conflict of interest charges. The plea deal with U.S. government attorneys follows a lengthy Justice Department investigation into his stewardship of an Army acquisition office in Alabama and subsequent hiring by the flamboyant and outspoken Tilton.

An arraignment and plea hearing for Vergez, 49, are scheduled for April 20 in Tuscaloosa, Alabama.

The civil suit filed by former MD Helicopter employees Philip Marsteller and Robert Swisher under the False Claims Act came two days after U.S. attorneys unveiled the plea agreement with Vergez. Their lawsuit, which expands on a complaint they first lodged nearly two years ago, paints a dark and more detailed picture than the one presented in the plea agreement Tuesday by the federal government.

That agreement indicated that Vergez's actions, while serious, were limited. He failed to disclose a $30,000 check from his future employer and a $4,000 Rolex wristwatch his wife received as a gift from a foreign company. Vergez also caused the terms of a contract with MD Helicopters to be adjusted in its favor and made a false statement to the Pentagon's inspector general.

The agreement does not mention by name Tilton, MD Helicopters, or Patriarch Partners, her private equity firm and holding company. Tilton and her companies have not been charged.

Marsteller and Swisher, by contrast, depict a prolonged and mutually beneficial business relationship between Tilton and Vergez that covered a period during which MD Helicopters was awarded tens of millions of dollars in helicopter contracts managed by Vergez's office. Tilton and Vergez talked and met frequently — over drinks in Arizona and dinner in Dallas, at Vergez's home in Huntsville, Alabama, and aboard Tilton's private jet, according to the whistleblowers.

MD Helicopters has described Marsteller and Swisher as "disgruntled former employees." Tilton's lawyers said the allegations that her dealings with Vergez were improper or nefarious are baseless. MD Helicopters "sold helicopters to the government at fair and reasonable prices based on proposals that were truthful," they said in a motion requesting that the court dismiss the case.

Tilton describes herself as the business world's "turnaround queen." She buys financially struggling companies and attempts to make them profitable. When she acquired MD Helicopters in 2005, it had fewer than three dozen employees and was on the brink of bankruptcy. Eight years later, it had nearly 500 employees, according to an interview Tilton gave in 2013 to Bloomberg's Businessweek. The about-face, she said, was due largely to "a lot of new business with the U.S. Army."

A lot of that new business came from the Army office Vergez commanded from early 2010 until he retired nearly three years later.

According to the lawsuit, Tilton first became impressed with Vergez after he informed her in March 2011 that an announcement would soon be made that MD Helicopters had won an Army contract potentially worth $186 million for helicopters to train Afghan air force pilots. The helicopters the Army would buy for the Afghans cost $2.3 million each. But MD Helicopters was selling that same model to commercial customers for $400,000 less, the lawsuit said.

"Tilton told her employees that Vergez 'got us this Afghan contract, he has great connections and he will drive our Army business,'" the lawsuit said.

From that point, it was known among a small group of MD employees that Tilton intended to hire Vergez when he retired from the army, according to Marsteller and Swisher.

MD Helicopters received what the lawsuit called a "highly unusual concession" in June 2012 when the company received a nearly $41 million contract to deliver helicopters to the Saudi Arabia National Guard. MD Helicopters was struggling financially at that point, according to the lawsuit, and Vergez used his influence to ensure the company was paid more quickly than normal so it could meet the terms of the contract.

The lawsuit said Marsteller and Swisher told their superiors that employing Vergez at MD Helicopters would be illegal. Vergez ultimately was hired to work for Patriarch, they said, although they said he was directly involved in MD Helicopters' day-to-day business.

Doubts about the hire also echoed in the office of the company's top lawyer, according to a wrongful termination lawsuit filed in Arizona state court by David Ruppert, former general counsel at MD Helicopters.

Ruppert, a Naval Academy graduate and a former Marine, said he expressed concern when he was asked about the possibility of the company hiring "a former United States military employee." The lawsuit, filed in late December, doesn't include names, but the circumstances and timing of events described in it make clear he is referring to Vergez.

Ruppert's lawsuit has been sealed by the court, but the Associated Press obtained a copy.

In August 2013, MD Helicopters and Patriarch Partners received notice that the Justice Department's investigation was underway. Ruppert was wrongfully accused by his employer of being an informant and assisting the government with its inquiry, according to the lawsuit. He was fired by MD Helicopters in early January 2014.

Vergez is no longer employed by any of Tilton's companies, a spokeswoman for Patriarch said.

"Col. Vergez has fully accepted responsibility for his conduct," said Lee Stein, his attorney. "This has been a difficult process and Col. Vergez is looking forward to putting it behind him."

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Follow Richard Lardner on Twitter at http://twitter.com/rplardner