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November 14, 2022Louisville, KY, United StatesCounter Proliferation Investigation Unit

3 arrested in illegal scheme to export, defraud military

LOUISVILLE, Ky. — Three individuals were arrested following a joint investigation by Homeland Security Investigations (HSI) offices in Louisville, San Diego and San Francisco after a federal indictment was unsealed in the U.S. District Court in the Western District of Kentucky.

According to court documents, Phil Pascoe, 60, of Floyds Knobs, Indiana; Monica Pascoe, 45, of Floyds Knobs, Indiana; Scott Tubbs, 59, of Georgetown, Kentucky; and Quadrant Magnetics LLC were charged with wire fraud, violations of the Arms Export Control Act and smuggling of goods for their roles in an illegal scheme to send export-controlled defense-related technical data to China and to unlawfully supply the U.S. Department of Defense with Chinese-origin rare earth magnets for aviation systems and military items.

“The HSI Counter-Proliferation Investigations Program is responsible for the enforcement of U.S. import and export laws involving military and defense-related products and sensitive dual-use technology,” said acting Special Agent in Charge Nick Nelson, HSI Nashville. “The indictment is a credit to the collaboration of multiple law enforcement partners, including our special agents in HSI San Diego, San Francisco and Louisville, Kentucky, as well as the complex investigative work involved in protecting the attempted theft of our nation’s military assets and sensitive controlled technology.”

The indictment alleges that between January 2012 and December 2018, the defendants conspired to send approximately 70 drawings containing export-controlled technical data to a company located in China without a license from the U.S. government in violation of the Arms Export Control Act and the International Traffic in Arms Regulations. The technical data drawings were the property of two U.S. companies and related to end-use items for aviation, submarine, radar, tank, mortars, missiles, infrared and thermal imaging targeting systems, and fire control systems for DOD.

The indictment further alleges that Quadrant Magnetics imported rare earth magnets that were smelted and magnetized by a company in China. Quadrant then sold these magnets to two U.S. companies that included them in components sold to the DOD for use in F-16 Fighting Falcon and F/A-18 Hornet aircraft, as well as other defense assets in violation of the Defense Acquisition Regulations System. Under the DFARS specialty metal clause, rare earth magnets sold to the DOD must be produced and magnetized in the United States or an approved country. China is not an approved country.

Arraignments will be scheduled before a U.S. Magistrate Judge in the U.S. District Court for the Western District of Kentucky. If convicted, Phil Pascoe, Monica Pascoe and Scott Tubbs face statutory maximum penalties of up to 20 years in prison for each count of wire fraud; 20 years in prison for each count of exporting technical data without a license; and 10 years in prison for smuggling goods from the United States. Monica Pascoe and her codefendants face a penalty of up to five years for conspiracy to defraud the United States. A federal district court judge will determine their sentences after considering the U.S. Federal Sentencing Guidelines and other statutory factors.

Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division, U.S. Attorney Michael A. Bennett for the Western District of Kentucky, Assistant Director Alan E. Kohler Jr. of the FBI Counterintelligence Division and Special Agent in Charge Jodi Cohen of the FBI Louisville Field Office made the announcement.

The Defense Criminal Investigative Service, FBI, IRS-Criminal Investigation, the Naval Criminal Investigative Service, and the Department of Energy’s Office of Inspector General are also investigating the case.

Assistant U.S. Attorneys Joshua Judd and Christopher Tieke for the Western District of Kentucky and Trial Attorneys David Recker and Liz Abraham with the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

An indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.