Ore. defense contractor Kustom Products Inc. target of helicopter parts probe

  • Mon Oct 18th, 2010 10:01pm
  • News

By Jeff Barnard Associated Press

GRANTS PASS, Ore. — Federal agents allege they have evidence an Oregon defense contractor sold phony replacement parts to the military that could cause attack helicopters to crash.

In affidavits filed in federal court in Eugene, U.S. Department of Defense investigators said they have evidence Coos Bay-based Kustom Products Inc. and related companies owned by Harold Bettencourt II provided more than 1,000 locknuts meant for tanks and trucks, in place of more expensive and differently designed locknuts that secure the rotors on Kiowa attack helicopters.

“The military field terminology for this locknut is the ‘Jesus nut,’ which is a colloquialism for the main rotor retaining nut that holds the main rotor to the mast of some helicopters,” said the affidavit signed by James McMaken, a special agent with the Defense Department Inspector General and Defense Criminal Investigative Service. “The failure of this part can be catastrophic, resulting in possible death or serious injury to military personnel.”

No criminal charges have been filed.

Nick Bettencourt, a son of Harold Bettencourt and a Kustom Products employee, said they had no comment on the investigation.

But investigators said in court records that when confronted with the fake part, an employee claimed the parts must have been placed in the wrong bin, causing the wrong parts to be shipped.

Federal agents searched the businesses and the homes of principals late last month, seizing business records, cars, computers, bank records, the contents of safe deposit boxes and other materials, according to court records.

Gerri Badden, spokeswoman for the U.S. attorney’s office in Portland, said she could not comment on a continuing criminal investigation.

The searches were reported Monday by The World newspaper in Coos Bay.

According to its website, Kustom Products builds custom trucks for hauling freight, promising higher power and better mileage with a variety of manufacturers’ engines on custom chassis.

The company has been a defense contractor since 2005, amassing 1,078 contracts worth $28.7 million for various military spare parts since 2005, according to the website www.governmentcontractswon.com.

In a probable cause statement, investigators allege Kustom Products and subsidiary Southern Oregon Sterling Parts and Service Inc. had been systematically defrauding the government since 2005 by substituting cheaper parts that did not meet strict specifications set by the government, and selling them for genuine parts.

According to the affidavit, investigators found evidence of 13 other fraudulent contracts involving generators/alternators, filters and safety relief valves for various military vehicles.

Harold Bettencourt told investigators he believed at the time that contractors could provide a comparable part, rather than an exact part, the affidavit said.

The investigation was triggered when mechanics for the Kentucky Army National Guard found that eight locknuts that were supposed to secure the main rotor assembly on an OH-58 A/C Kiowa attack helicopter did not meet specifications.

“This part is manufactured wrong. It has a flat surface where it goes into the latch instead of a radius,” according to the Aug. 28, 2008, report from the Kentucky Army National Guard. “Keep these nuts from being installed on aircraft, safety of flight issue.”

The affidavit said investigators had a Jan. 18, 2008, e-mail from Nick Bettencourt to Coloc Manufacturing in Canton, Texas, asking if it could quote a price for 950 locknuts, supplying a drawing giving specifications. Coloc faxed back a price quote for a specific locknut. Kustom Products won a purchase order Jan. 24, 2008, to supply 286 locknuts for $6,806.80, or $23.80 apiece. The contract noted only two approved sources for supply, neither of them Coloc.

The affidavit describes a total of 1,236 of the lock nuts bought by Kustom from Coloc and sold to the military.

The investigator wrote that Coloc told him it was never told the locknuts were for a helicopter, and assumed they were for tanks or heavy trucks based on statements from Harold Bettencourt.

After the Kentucky Army National Guard report, Kustom contacted Coloc asking it to modify the design to have a more beveled face, the affidavit said.

When the Defense Department asked Kustom to document where it had gotten the fake locknuts, it offered purchase orders showing they were bought from Southern Oregon Sterling, without disclosing that company was also owned by Harold Bettencourt, the affidavit said.