Russellville Aluminum Firm Fights Federal Fraud Charges

The U.S. government is trying to collect $5.2 million from a Russellville metal manufacturer that did business with a Florida company that defrauded the government for millions of dollars in the early 1990s.

In a federal lawsuit scheduled for trial in April, the government said Taber Extrusions LP of Russellville, which produces specialty aluminum extrusions, provided fraudulent invoices to Precision Machining Inc. of Pensacola, Fla. PMI then used them to collect money for government construction projects that were never completed.

The federal government filed suit in April 2000 in U.S. District Court in Little Rock against Taber and its parent company, National Materials LP of Elk Grove Village, Ill., for violating the false claims act and conspiracy to defraud the government.

Taber said it never provided fraudulent invoices to PMI.

“We do believe the government is trying to make Taber the victim of somebody else’s crime,” said Kevin Crass of Friday Eldredge & Clark of Little Rock, an attorney for Taber.

“We believe the government went to sleep at the wheel and let it happen,” Crass said. “They had a government auditor on site at PMI, and what happened was one arm of the government wanted PMI to stay in business while the other arm of government saw that they were violating the rules.”

The government said in its court papers that Taber provided the phony invoices so it could receive future work from PMI.

PMI was forced into bankruptcy in 1996, and three of its top officers pleaded guilty to fraud in connection with the case.

But Taber said the company was a only a vendor that provided aluminum extrusions to PMI.

Although PMI received payments of more than $5 million from the federal government, it never delivered the projects, one of which was for aircraft landing mats and portable floating aluminum ribbon bridges.

“Taber did not earn one red cent from PMI’s fraud,” Taber said in its court papers. “The evidence is undisputed that Taber … never knew of that contractor’s fraud. For that matter, there is no evidence of a knowing false statement by either [Taber or National Materials].”

Taber said the government knew of the fraud but failed to act.

Taber’s History

As early as 1985, Taber Extrusions provided metal to PMI, which used that metal for completing various contracts with the federal government.

In 1989, the Navy awarded PMI a $8.47 million contract for 800 landing mats for improvised aircraft landing fields.

The contract was largely a materials purchase, with less than 20 percent of the value going to labor and subcontracts, according to a plea agreement by PMI’s former vice president, Donald Pendergrass.

Precision chose Taber to provide the extrusions and, in June 1989, forwarded an order worth $2.46 million to Taber for the extrusions.

In response, Taber forwarded PMI a “pro-forma” invoice for the parts.

“The pro-forma invoice is simply a confirmation that Taber will produce the extrusions for PMI. It is not an actual payable invoice, and no costs had been incurred by PMI,” Pendergrass plea agreement said.

But Pendergrass used the pro-forma invoice to make a claim to the government for $2.02 million, saying that amount was already owed to Taber.

“In fact, PMI did not receive their first Taber invoice for actual metal produced under this contract until July 20, 1990,” the agreement said. “By this date, PMI had submitted five requests for progress payments, each falsely representing that they owed money to Taber Metals.”

Before the government terminated the contract on Aug. 6, 1996, for non-performance, it had paid out nearly all of the money owed on the contract.

House of Cards

In 1993, PMI began experiencing financial difficulties.

On April 27, 1993, Pendergrass sent a letter to the credit department at Taber saying PMI was struggling.

Pendergrass recognized “a strong need for a viable vendor plan to keep PMI from becoming more indebted to our vendors.”

He mentioned an Aluminum Pontoon Bridge project from the Army and stated that PMI would “surely remember those who helped in crisis times.”

One way out of PMI’s financial troubles was winning a contract from the Army to build 216 portable floating aluminum ribbon bridges. On July 29, 1993, the ribbon bridge contract between the Army and PMI, worth $5.83 million, became effective.

As with the previous contract, PMI submitted a progress payment claim for $1.2 million on Aug. 3. 1993. Of that amount, more than $1 million represented a purchase order for aluminum bullets from Taber.

PMI told the government that it owed Taber the money.

“The $1 million purchase order, however, was another pro-forma invoice,” the plea agreement said. “PMI never actually placed an order or received any material from Taber Metals.”

But PMI used the money it received to pay off other projects because of its severe cash-flow problems, Taber said in its answer to the charges.

“[PMI] neither paid Taber for any metal nor delivered but a few ribbon bridges to the United States Army,” Taber said.

Taber Metals didn’t provide PMI with any aluminum based on these invoices, the company stated.

For the ribbon bridge contract, Taber issued three invoices to PMI between July 1993 and Aug. 10, 1994. Both Taber and PMI refer to the invoices provided to PMI as “pro-forma invoices,” but nowhere on the three invoices do the words “pro-forma” appear, the government said.

Had those words appeared, the government said, it would have rejected authorization for payment.

Both Pendergrass and representatives of Taber understood that PMI didn’t have to pay Taber the amount indicated on the pro-forma invoices.

“The consensus of opinion was that we’re not at risk by issuing this invoice for the metal, because if they don’t pay us, we don’t do anything, and if they do pay us, we get an order,” Rains said of the third pro-forma invoice to PMI.

The government said while PMI may not have paid Taber for its three invoices, PMI likely used the illegally obtained progress payment money to pay off old Taber debts.

PMI owed Taber more than $170,000 in 1993 for previous work, and Robert Rains, Taber’s vice president, said in a deposition for the case that he was “sweating bullets” over that debt because it was more than 120 days late.

The government charges that Rains knew the fake pro-forma invoice would be used to get money from the government when he ordered that it be issued in late July 1993.

On Sept. 15, 1993, the United States paid PMI, which in turned paid off its entire debt to Taber, the government said.

Taber said James Hinson, a government auditor for the Defense Contract Audit Agency, was aware “that PMI was violating government regulations in its progress payment requests.”

Hinson met with PMI representative during his audit and learned that PMI had not paid Taber after PMI received the first progress payment from the government.

Hinson noted that PMI was using the proceeds of the progress payment in a questionable manner.

“Also during the audit of PMI’s second progress payment request, Hinson felt pressured to recommend approval of the payment because if PMI could not fulfill a separate project for the government, for the manufacture of containers for the Hellfire missile, a strategic military program would have been derailed without PMI,” Taber said.

Hinson also said in his deposition that he certainly would not have approved a pro-forma invoice as a valid document.

“At no time was I aware nor did I believe that any of the Taber Metals invoices issued to PMI for the ribbon bridge contract were pro-forma in nature,” he said.

But despite the concerns of key government employees, the government repeatedly approved PMI’s requests for progress payments and ultimately paid a total of 11 progress payments to PMI for more than $5 million.

On May 6, 1994, PMI declared Chapter 11 bankruptcy and sent a letter three days later to its creditors, including Taber.

“Our future recovery and success depends on the ability to continue working in order to recover from Chapter 11,” Pendergrass wrote in the letter. “And we will not forget those vendors who have helped us in this crucial time of need.”

At the time of their bankruptcy, PMI owed the government $8.1 million in unliquidated progress payments.

It wasn’t until 1994 that auditors discovered that PMI never bought material from Taber. The auditors also referred the case to criminal investigators for possible fraud.

“Because of PMI’s insolvency, the government has not recovered any but a small fraction to the money paid out to PMI,” Taber said.

In 1998, Pendergrass pleaded guilty in U.S. District Court in Florida to two counts of contracting fraud for two contracts between PMI and the government. He will be released from prison in April after serving 42 months but still owes $4.97 million in restitution.