Saturday, April 19, 2014
In 2001, a small Maine company called Lealagi Inc. hired an Arlington, Va., lobbyist to help it tap into the billions of dollars the U.S. government was spending on missile defense projects.
Over the next six years, Lealagi spent at least $350,000 to lobby lawmakers and federal officials. During the same period, the company collected $9.3 million through contracts with the Army, records show.
But Lealagi didn't contribute anything to national defense. The products it sold to the Army largely consisted of old missile parts that the government had already paid for.
Instead, Lealagi was used by a Kennebunkport man to skim millions of taxpayer dollars from the defense budget. It was the primary company in a shell game that has led to the convictions of four people from Maine, Virginia and Alabama and exposed flaws in the nation's oversight of defense contracts.
That system has long been ripe for corruption because of the cozy relationships between contractors, lobbyists, government employees and politicians, government watchdogs say.
''In this procurement system, you have temptation and opportunity. Unless you have some way to reduce both and increase oversight, then you are going to have the same problems,'' said Tom Schatz, president of Citizens Against Government Waste in Washington.
''The Pentagon has always been good at protecting the country,'' Schatz said, ''but not necessarily at protecting our tax dollars.''
The man behind Lealagi was Maurice ''Moe'' Subilia Jr., a Kennebunkport resident and the longtime president of Fiber Materials Inc., a Biddeford-based defense contractor.
Subilia, 64, pleaded guilty last month in federal court in Portland to charges of conspiracy, bribery and money laundering.
As part of his plea, Subilia admitted to using Lealagi and another company called Sage Technologies LLC to bribe Army officials, rig contracts and funnel federal dollars to himself and family members from 2000 to early 2007.
Subilia apparently committed the crimes behind the backs of other leaders at Fiber Materials. No one else at the company has been accused of wrongdoing. Subilia resigned in the spring of 2007, two days after federal agents arrived in Maine to search his home.
Court documents, state and federal public records, and interviews with people close to the case tell a story of a man deeply entrenched in the defense industry and Maine politics, who used his stature to carry out the scheme.
Among those stung by the case are members of Maine's congressional delegation, a former Maine congressman and the U.S. ambassador to Costa Rica.
Republican Sens. Olympia Snowe and Susan Collins knew Subilia, trusted him as president of Fiber Materials and received campaign contributions from Subilia and his family members.
Snowe and Collins, along with Democratic Maine U.S. Reps. Tom Allen and Mike Michaud, sponsored defense budget earmarks for Fiber Materials and a company started by Subilia and a son-in-law in 2003, called Vicus Technologies.
Angered by the misdeeds of one of their home-state contractors, delegation members are calling for more oversight.
''Like many other elected officials in Maine, I know Moe Subilia because his companies employed more than 150 people in York and Washington counties, bringing jobs into some of the most economically depressed regions east of the Mississippi,'' Snowe said in an e-mailed response to questions from the Portland Press Herald/Maine Sunday Telegram.
''I'm absolutely outraged by his attempts to defraud and cheat American taxpayers for his own personal gain,'' she said.
Ambassador Peter Cianchette was also upset and baffled by the revelations. A former Republican candidate for governor, Cianchette trusted Subilia as a political supporter and business partner.
Subilia family members and companies they owned gave more than $11,000 to Cian-chette's two bids for governor. One of Subilia's daughters coordinated his short-lived campaign in the summer of 2005. Subilia also hired Cianchette as a business consultant to Vicus Technologies between 2003 and 2007.
''I was as surprised as anyone, and completely disappointed to learn about these charges against Moe Subilia, and his subsequent guilty plea,'' Cian-chette said in a telephone interview from Costa Rica.
Subilia declined to be interviewed, but his attorney issued a statement on his behalf.
''Moe Subilia takes full responsibility and realizes that there will be serious consequences,'' said Toby Dilworth, a former federal prosecutor who practices with McCloskey, Mina, Cunniff & Dilworth in Portland.
''To say that he regrets his conduct would be an understatement, mostly because of the impact this has had on his family,'' Dilworth said.
''He will continue to cooperate with investigators. Unfortunately, in a high visibility case like this, it is easy to lose sight of Moe Subilia's redeeming virtues, but that is what the sentencing process is for.''
Subilia is scheduled to be sentenced on May 22. He faces a maximum of 40 years in prison.
The two Army officials with whom Subilia conspired, plus a defense contractor from Virginia who played a small role in the overall scheme, already have pleaded guilty and await sentencing in federal court in Alabama.
The investigation, however, remains open. Two of Subilia's relatives have been identified in court documents as targets of the criminal investigation: Paul Hurlburt of Kennebunk, the son-in-law who was president of Vicus Technologies; and Robert Subilia of Wells, one of Maurice Subilia's brothers.
Attorneys for the two men declined to comment for this story. Two of the prosecutors working on the investigation, Richard Murphy, assistant U.S. attorney for Maine, and Michael Whisonant, assistant U.S. attorney for the Northern District of Alabama, would not discuss whether charges are pending against other individuals.
There's also a pending civil lawsuit filed by Fiber Materials against Subilia, Lealagi Inc., Vicus Technologies and 16 other Subilia family members, business partners and companies.
The suit seeks unspecified damages. It alleges that Subilia illegally used assets, trade secrets and a few select employees from Fiber Materials to develop and run his side projects, including the companies used in the criminal conspiracy.
THE MAINE-ALABAMA CONNECTION
The scheme to defraud the government began in 2000, when Subilia made a secret deal with two Army engineers, prosecutors wrote in court records outlining the details of the case.
By that time, Subilia was a well-established contractor, and Fiber Materials routinely was awarded contracts from the Army's Space and Missile Defense Command outside Huntsville, Ala.
The son of an engineer who worked on the Apollo space program, Subilia was only in his mid-30s when he became president of Fiber Materials in 1976. The company was one of only a few firms capable of producing the heat shrouds, nose tips and other parts for missiles designed to exit and re-enter the atmosphere.
Those were the kinds of parts Michael Cantrell needed at the Army missile command. Cantrell was a mid-level engineer there, and throughout the 1990s, he relied on Fiber Materials as a key contractor for his research and development projects. His goal was to improve the military's ability to knock down enemy missiles in the air.
In 2000, Cantrell was about to be promoted to direct a division at the Huntsville facility. His deputy at the division was another engineer named Douglas Ennis.
Subilia, Cantrell and Ennis plotted to skim some of the money earmarked each year by Congress for missile command projects that Cantrell oversaw. Earmarks are funding authorizations that are not included in the president's original budget. They are often added by members of congressional committees before spending bills are signed into law.
''Subilia, Ennis and Cantrell agreed to a scheme by which some of the congressional 'add' funding earmarked for (defense command) projects would be steered to Subilia's companies, primarily Lealagi,'' Murphy and Whisonant wrote in the prosecution version of the case against Subilia.
Collins said she was not among the lawmakers who sponsored earmarks for those projects, and a spokesman for Snowe said that to the best of the senator's knowledge, she also was not involved in securing that funding.
It isn't clear which members of Congress were the main sponsors of Cantrell's projects. Rules passed in the House and the Senate in the past few years -- requiring disclosures that identify earmark sponsors and recipients -- were not in effect during the time of the conspiracy.
KEEPING THE EARMARKS COMING
In order to make their scheme work, Subilia and Cantrell had to keep the money flowing from Congress to Cantrell's projects.
That's where the lobbying firm came in. Subilia, through Lealagi, hired Congressional Strategies LLC of Arlington, Va.
Lealagi paid the firm at least $350,000 from 2001 to 2006 to lobby members of Congress and officials at the Defense Department, according to federal records compiled by the Center for Responsive Politics, a research group that tracks money in politics.
Prosecutors have said little in court documents about Subilia's lobbying activities, except to note that his efforts were successful.
Congressional Strategies is run by Grayson Winterling and James Littig. The firm specializes in the defense industry, and in 2001 it represented 17 companies, including General Atomics and Autometric Inc., a subsidiary of Boeing Co.
Winterling, the lobbyist whose name appeared on all the Lealagi disclosures, was a former Army officer who served in Korea and Vietnam. From 1988 to 1995, he was staff director for Sen. John Warner, R-Va. Warner was chairman of the Senate Armed Services Committee for most of the 2000s.
Winterling declined to comment about his lobbying efforts on behalf of Subilia's companies. Neither he nor Littig has been accused of wrongdoing in connection with the Subilia case.
The lobbying activity represented a revival for Lealagi, which had been incorporated in Maine in 1987 by Subilia and his wife as a real estate development company. The firm's name was drawn from the first few letters of their three daughters' names: Leah, Laura and Gina.
Lealagi stopped filing annual reports with the state of Maine in 1995. It resumed filing reports in June of 2001 -- two months before its first lobbying disclosure was filed in Washington.
As money flowed from Congress to Cantrell and his missile projects, he steered some of it to two firms: Innovative Business Solutions Inc., of Glen Allen, Va., and Maximum Technology Corp. of Huntsville. Then Cantrell made sure Subilia's companies -- Lealagi and Sage Technologies -- were designated as subcontractors for those firms, as a way to distance the missile command from Subilia's shell companies.
Business was good, court records show. From 2001 to early 2007, nearly $9.3 million was deposited into Lealagi's corporate bank account through those subcontracts. Another $1.3 million was funneled to Sage Technologies.
But while the money flowed to Subilia, the items and services provided by Lealagi and Sage Technologies were mostly worthless to the military. Many of the products, prosecutors said, were ''previously used display items from prior government-funded projects.''
Sometimes, parts made multiple round trips between Maine and Huntsville, meaning Subilia's companies were paid more than once for the same useless parts.
The civil lawsuit against Subilia alleges that he used his side companies to obtain some of the parts -- such as heat shrouds and carbon materials used in missile nose tips -- from Fiber Materials at prices that Subilia himself would set.
Dennis Darling, president of Innovative Business Solutions, actively joined the conspiracy in the fall of 2005. According to court records, that's when he also agreed to give kickbacks to Cantrell in exchange for contracts.
Executives at Maximum Technology Corp. have not been charged and were apparently unaware of the misconduct.
Cantrell's attorney did not respond to requests for an interview. He told The New York Times last year that he had managed to carve out an unusual level of independence at missile command. Part of that independence, Cantrell said, came in the form of protection from members of Congress.
Cantrell said Sens. Trent Lott, R-Miss., and Ted Stevens, R-Alaska, had intervened on his behalf when his superiors questioned his projects. That protection apparently emboldened Cantrell in his scheme with Subilia.
''We just paid for meaningless work,'' Cantrell told the Times. ''And there was so little oversight that no one noticed.''
MONEY LAUNDERED OVERSEAS
During the time of the conspiracy, Lealagi and Sage Technologies wired roughly $5.7 million to overseas bank accounts.
A small percentage of the money sent overseas went to legitimate commercial transactions, court records say. Another percentage was paid as a currency conversion fee. The rest came back to Subilia with help from a foreign friend, either as cash or through a checking account, prosecutors said in court documents.
The friend, a citizen of India, set up a checking account at Key Bank in Kennebunk in July 2000, according to the plea agreement signed by Cantrell.
''Subilia told Cantrell that without a Social Security number the bank would have a difficult time tracking the owner of the account, which, in addition could not be tied to Subilia or Cantrell,'' Murphy and Whisonant wrote in the prosecution's version of the case against Subilia. ''Once the account was opened, the checks were signed in blank by that 'friend' and left with Subilia.''
Prosecutors say Subilia distributed the laundered money to family members, and as bribes to Cantrell and Ennis. Subilia admitted paying the Army officials roughly $1.2 million, with most of the money going to Cantrell.
During one meeting at Reagan National Airport, Subilia gave Cantrell and Ennis a briefcase stuffed with $75,000 cash.
Prosecutors have declined to comment on whether Subilia's Indian friend could be charged in the ongoing investigation.
Subilia had business connections in India since at least the 1980s, according to documents from a prior federal criminal case. In 1995, Subilia and Walter Lachman, Fiber Materials' chairman, were convicted of illegally exporting technology to India, which prosecutors said helped that country develop its nuclear weapons program.
Subilia and Lachman acknowledged at the time that they sold products to buyers in India. But they said they complied with export laws and even consulted with U.S. trade officials about the sales. Following a series of appeals, the convictions were finally upheld in 2004. They were sentenced to three years' probation and fines of $250,000.
During the time he was laundering taxpayers' money, Subilia, the companies under his control and close family members donated at least $60,000 to political campaigns and state and national Republican committees.
Recipients included Maine delegates Allen, Snowe and Collins; Rep. Bill Young, D-Fla.; Alabama Republican Sens. Jeff Sessions and Richard Shelby; and President George W. Bush, according to state and federal records.
Collins received most of the Subilia-connected money, at least $8,400 from 2000 to 2007, records show.
Snowe received $6,000, and Allen received $4,000.
John Gentzel, spokesman for Snowe, said the senator has decided to forfeit a $1,000 donation her campaign received in 2005 from Paul Hurlburt -- the Subilia son-in-law targeted in the ongoing criminal probe.
''Given the circumstances that have subsequently arisen, it seems appropriate to donate to charity the contribution we received in 2005,'' Gentzel said. ''The other contribution is from nine years ago.''
Collins said she would not forfeit Subilia's donations now because they were raised and spent more than six years ago. She said she last toured Fiber Materials with Subilia in 2001.
''It is important to note his actions should not reflect poorly on the company and its dedicated workers who continue to produce advanced composite materials that the Department of Defense needs and wants,'' Collins said in an e-mail.
Allen, who stepped down from the House to run for the Senate and was defeated by Collins in that race, said he has no ability to forfeit any old donations because he is no longer in Congress and has no campaign accounts.
Like Snowe and Collins, Allen said he did not help sponsor the earmarks that were ultimately exploited by Subilia, and he does not recall being lobbied by Grayson Winterling. Allen said he met Subilia a few times in the late 1990s or early 2000s, and he also toured the Fiber Materials plant.
''It's very upsetting,'' Allen said of the conspiracy. ''My experience with Maine's defense contractors is that they are very hard-working, they make tremendous products and they are completely aboveboard. This is an embarrassing exception to that rule.''
At the state level, the biggest recipient of the Subilia family's largesse was Peter Cianchette, who was nominated to the nation's top diplomatic post in Costa Rica last year by President Bush.
The Subilia family spent more than $11,000 in support of Cianchette's two gubernatorial campaigns. In 2002, Cianchette lost a tight election to Democrat John Baldacci. Then in 2005, Cianchette announced his candidacy for the 2006 race but dropped out after two months, citing his concern about the time commitment.
One of Subilia's daughters, Laura Bell of Wells, was the volunteer coordinator of that second campaign. Of the $17,600 Cianchette raised before dropping out in early October 2005, $7,500 came from Subilia family members and their businesses. All of the donations were refunded.
In a telephone interview, Cianchette recalled meeting Subilia and several family members during campaign events in 2002 in York County. He said Laura Bell became a good friend and political supporter.
Cianchette then got involved in a new business pitched by Subilia: another high-technology company with the potential to grow and bring good jobs to Maine.
In the midst of his bribery scheme, Subilia incorporated Vicus Technologies with son-in-law Paul Hurlburt in the spring of 2003.
It was a research and development firm that specialized in ballistic missile technology. With Hurlburt as president, the company started out with a few employees at a research facility in Ocala, Fla., and the plan was to expand into Maine.
Vicus hired Congressional Strategies, the same lobbying firm that was working for Lealagi.
Subilia and Hurlburt also hired Cianchette as a consultant. His job was to help Vicus build political support for a proposed research facility in Eastport.
To Cianchette, it sounded like a great opportunity to generate jobs. He said he advised Hurlburt on how to set up meetings with officeholders, from the Eastport City Council to staffers for the congressional delegates from Maine and Florida.
Snowe, Collins, Allen and Michaud and Rep. Cliff Stearns, R-Fla., all sponsored earmarks for Vicus, and the company took in more than $8 million in defense contracts from 2003 to 2007.
The company expanded and hired three people for its Eastport facility. It also bought Elscott Manufacturing, an electronics company with about 65 employees in Gouldsboro and Ellsworth. Vicus apparently produced valuable items for the military and private clients. On one project, it teamed up with Lockheed Martin to develop electrical components for missiles.
It is unclear to what extent, if any, Vicus fit into Subilia's criminal activities. Vicus apparently ceased operations in the summer of 2007, a few months after Subilia and Hurlburt were made aware of their status as targets in the federal investigation. Elscott Manufacturing is still in operation.
Cianchette said he never had any reason to doubt the work of Hurlburt or Subilia. Cianchette last consulted for Vicus in early 2007. He declined to say how much money he earned.
''The project that I helped Vicus with, I believe was entirely legitimate, and the government received the value that it was expecting,'' he said.
Prosecutors have not disclosed how Subilia's scheme unraveled, yet court documents provide a few hints.
BAD APPLES, OR SYSTEM FAILURE?
The plea agreement that Dennis Darling signed with prosecutors last November suggests that Subilia and Cantrell disagreed over money in the months before federal agents formally launched the inquiry.
Darling was the Virginia contractor who also bribed the two Army officials in Huntsville, although his role in the conspiracy was much smaller than Subilia's.
''In mid-2006, Dennis Darling advised Cantrell that the percentage of cash that Cantrell was to receive had been modified by other parties in Maine. The last trip Dennis Darling made to Huntsville to deliver cash to Michael Cantrell was in March of 2007,'' prosecutors wrote in the plea agreement.
On April 3, 2007, agents from the FBI, Internal Revenue Service and Immigrations and Customs Enforcement arrived at the headquarters of Fiber Materials in Biddeford. They interviewed Subilia about his Huntsville connections, according to court documents.
Later that day, agents searched Subilia's home and made a copy of the hard drive of his laptop computer. On April 5, Subilia resigned as Fiber Materials' president.
That same day, Cantrell was fired from his job at missile command in Huntsville, and escorted from the building.
Larger questions continue to loom over the case, nearly a decade after Subilia and Cantrell made their secret agreement.
Did the conspiracy amount to a failure of the defense procurement system? Was it simply a case of some bad apples?
Rear Adm. Richard D. West of the Navy, a former deputy director of the Pentagon agency that oversaw the nation's entire missile defense program, said it was both.
West conceded that more oversight might have prevented Cantrell and Subilia from getting away with their plot for so long. There should have been more eyes on the contracts, he said.
But West also believes a fraud of this nature is inevitable within such a massive system, involving thousands of contractors and billions in government spending.
''I don't think that it is an indictment of the whole system,'' West said. ''Most people do it right. There is always bound to be somebody who thinks they can outwit the system and make a couple of bucks.''
A former Maine lawmaker said the blame in this case rests squarely with Subilia and Cantrell.
''The bottom line is that you had two corrupt people,'' said Jim Longley Jr., a Republican who served one term as representative for the 1st Congressional District in the mid-1990s. He knew both Subilia and Cantrell.
In 1997, shortly after he left Congress, Longley was hired as a consultant for the Army missile command in Huntsville. At the time, Cantrell was a senior manager there within the Atmospheric Interceptor Technology Program. Longley's job was to help integrate that program with six other missile defense programs run by the Army and Navy.
Longley took issue with the New York Times profile of Cantrell published last fall. He says the piece unfairly suggested that he helped protect Cantrell and emboldened him to conspire with Subilia. The report said Longley introduced Cantrell to politicians, helped persuade Army officials to leave Cantrell alone and improperly lobbied for certain missile defense programs.
Longley sharply denied those characterizations. He said he never introduced Cantrell to lawmakers, and he did not protect him. As for the lobbying accusations, Longley said all of his contacts for the work he did on missile defense were professional and appropriate. He was angry when he heard about the bribery scheme.
''Cantrell's actions, especially in the important position that he occupied, and as described publicly, are greatly disturbing,'' Longley said.
''He destroyed a promising effort to collectively harness essential technologies important to our future and, in my view, did enormous damage to the national security of the United States.''
Schatz, president of the watchdog group Citizens Against Government Waste, agreed that Cantrell and Subilia deserve most of the blame. Schatz also said it's unrealistic to eliminate corruption within such a vast system.
But he said the case illustrates some of the system failures that invite abuse and draw the ire of groups like his.
''What this shows is that you can have a situation where only two people really know what is going on, and that shouldn't happen,'' Schatz said. ''Why wasn't there someone else watching the contracts?
''This is one of the reasons why we are so concerned about all of the earmarks,'' he said. ''Earmarks are even more subject to these kind of results, because they are even harder to keep track of.''
OBAMA PROMISES REFORMS
Taxpayer watchdog groups were encouraged by President Obama's recent announcement that he intends to crack down on wasteful spending and fraud in government contracts.
At a media briefing March 4, Obama cited 140 ongoing investigations into contract fraud in Iraq, Kuwait and Afghanistan. He also noted a 2008 government study that showed budget overruns of $295 billion in 95 major defense projects.
''Far too often, the spending is plagued by massive cost overruns, outright fraud and the absence of oversight and accountability,'' Obama said. ''The days of giving defense contractors a blank check are over.''
Obama intends to cut back on the use of no-bid contracts, strengthen the role of auditors and limit outsourcing to private companies.
Collins, ranking member of the congressional committee that has investigated contract fraud in Iraq, said the Subilia case underscores the importance of a strong defense auditing agency.
''What makes a scheme such as this particularly troubling and difficult to detect is that both the federal government distributor of funds and the contractor acted together to commit the fraud,'' Collins said. ''This was a serious offense and clearly illegal under current laws.''
Collins said she and Sen. Joseph Lieberman, a Connecticut independent, are working with the U.S. Government Accountability Office to identify ways to strengthen the Defense Contract Audit Agency.
The agency is the Defense Department's top oversight unit, with about 3,500 auditors in offices worldwide. The GAO issued a scathing report last summer that highlighted widespread problems within the agency, including allegations of preferential treatment toward large contractors.
Snowe also said the oversight process for contracts needs to be strengthened.
The senator said one of those steps should be the enactment of a contracting reform bill that she authored, which was passed out of the small business committee in November.
The bill would impose criminal penalties against contractors that use one subcontractor when vying for a contract, and then switch to another once the contract has been awarded.
Also, the bill would develop training courses for government employees to learn about small business laws and regulations.
''We can and must continue to take additional legislative steps to prevent similar acts from happening,'' Snowe said.
Staff Writer Trevor Maxwell can be contacted at 791-6451 or at:
firstname.lastname@example.orgDuring one meeting at Reagan National Airport, Subilia gave Army engineers Michael Cantrell and Douglas Ennis a briefcase stuffed with $75,000 cash.The scheme to defraud the government began in 2000, when Subilia made a secret deal with two Army officials ...Subilia is scheduled to be sentenced on May 22. He faces a maximum of 40 years in prison.