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Intellectual Property Rights

Oregon defense contractor pleads guilty to multimillion dollar scam

PORTLAND, Ore. — A Coos Bay defense contractor, its owner and four employees pleaded guilty Friday to conspiracy to defraud the government of millions of dollars by providing counterfeit products at full price, following a multiagency investigation including U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).

Kustoms Products, Inc., owner Harold Ray Bettencourt II, 60, of Coos Bay; his sons, Bo Bettencourt, 34, Nicholas Ryan Bettencourt, 32, and Peter Tracy Bettencourt, 28, of North Bend; and company office manager, Margo Antoinette Densmore, 43, also of Coos Bay, will be sentenced along with the corporation in December for fraudulently obtaining some 750 Department of Defense (DOD) contracts with values in excess of $10 million.

According to court documents, the defendants supplied the DOD from 2006 to 2010 with counterfeit products, including some that were items essential to weapons systems performance or operation, or to preserve the life and safety of military personnel. Prosecutors say the defendants were well aware of the requirement to provide original parts sourced from approved vendors since DOD solicitations clearly stated the contractor was required to supply the "exact product" and to certify that fact by stating that the bid was "without exception." The solicitation made clear that submitting alternate products could result in criminal and civil penalties.

One of the most egregious examples includes the defendants' sourcing of defective aviation locknuts through a Texas firm that unknowingly produced the counterfeits. The locknuts were used to secure the blades to the main rotary assembly of the OH-58 Kiowa helicopter. In August 2008, the defective locknuts were detected throughout the military supply chain, which triggered the issuance of a
DOD-wide safety alert, a worldwide inspection of all aircraft and stockpiles. After DOD notified the company about the defective parts, they provided DOD officials with false information in an attempt to cover up the illegal acquisition by, in part, attributing the issue to the parts being pulled from the wrong storage bin. Given the opportunity to replace the defective parts, the defendants again sourced counterfeit parts from the same Texas company. The second batch of knock-offs were also detected in the supply chain.

"The actions of these defendants in putting their own greed before the safety of military personnel warrant serious repercussions," said U.S. Attorney Amanda Marshall. "We will bring the full extent of this criminal activity to the court's attention during the sentencing hearing."

"While our warfighters were in Iraq and Afghanistan putting their lives on the line and depending on the Bettencourts' counterfeit parts, the defendants were here ripping off taxpayers and enjoying the proceeds of their multimillion dollar scam," said Brad Bench, special agent in charge of HSI Seattle, which oversees Oregon investigations. "This conviction should make clear HSI and its investigative partners are committed to ensuring that those who violate the public's trust are held accountable for their actions."

As part of the plea, the defendants will forfeit all proceeds traceable to the fraud, including more than $365,000 in cash, eight vehicles, one boat, two boat trailers, two personal watercraft and three all-terrain vehicles.

The case was investigated by the DOD Office of Inspector General's Defense Criminal Investigative Service; the Army Criminal Investigative Division Major Procurement Fraud Unit; the FBI; the Internal Revenue Service-Criminal Investigation; and HSI. The case is being prosecuted by the U.S. Attorney's Office for the District of Oregon.