ML20134H173

Investigation Rept 2-90-014 on 910308.Noncompliance Noted. Major Areas Investigated:Allegations of Counterfeit or Refurbished Electric Relays Being Sold to Nuclear Plants

ML20134H173
Person / Time
Issue date:	03/08/1991
From:	Claxton G, Hayes B, Vorse J NRC OFFICE OF INSPECTION & ENFORCEMENT (IE REGION II), NRC OFFICE OF INVESTIGATIONS (OI)
To:
Shared Package
ML20134F836	List: ML20134F833 ML20134H119 ML20134H137 ML20134H173 ML20134H187 ML20134H194 ML20134H209 ML20134H224 ML20134H269 ML20134H279 ML20134H298 ML20134H327 ML20134H334 ML20134H345 ML20134H384 ML20134H592 ML20134H601 ML20134H638 ML20134H680 ML20134J182 ML20134J191 ML20134J272 ML20134J281 ML20134J320 ML20134J334
References
FOIA-96-475 2-90-014, 2-90-14, NUDOCS 9702110188
Download: ML20134H173 (22)

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0 l CASE No. 2-90-014

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! United States  !, i !

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l Report of Investigation i

i l Stokley Enterprises /Spectronics:

i Possible Counterfeit Relays Supplied by Vendor l Office of Investigations Reported by 01:

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Title:

STOKLEY ENTERPRISES /SPECTRONICS:

POSSIBLE COUNTERFEIT RELAYS SUPPLIED BY VENDOR ,

Vendor: Case Number: 2-90-014 Spectronics, Inc. Report Date: March 8,1991 1

1201 Montlimar Drive #650 Mobile, Alabama 36609-1718 Control Office: 01:RII Stokley Enterprises, Inc. Status: CLOSED 880 Avenue J Norfolk, Virginia 23518 Reported by: Reviewed by:

?kt h 4 dW Gary H. Craxton, Infestigator /Jees Y./fDrse, )irector Office of Investigations 4ffice of Investigations Field Office, Region II Field Office, Region II 4 .

Appro by: 1 I

en B. Haygt/ i ctor

> Office of D(v st ations Participating Personnel:

E. L. Williamson, Sr. Investigator. 01:RII Craig T. Tate, Investigator. 01:RII Kamalakar R. Naidu, Sr. Reactor Engineer, NRR/RVIB P

WARNING The attached document / report has not been reviewed pursuant to 10 CFR 6 2.790(a) exemptions nor has any exempt material been deleted. Do not disseminate or discuss its contents outside NRC.

Treat as "0FFICIAL USE ONLY."

Copy of l

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! SYN 0PSIS ,

I On June 26, 1990, the U.S. Nuclear Regulatory Commission (NRC), Office of l Nuclear Reactor Regulation (NRR), requested that the Office of Investigations j investigate allegations of counterfeit or refurbished electric relays being

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sold to nuclear plants.

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! Subsequent investigation revealed that Spectronics, Inc., an electronics I distributor in Mobile, Alabama, caused 22 relays to be drop shipped from i Stokley Enterprises, Inc., to the Shearon Harris Nuclear Plant, New Hill, 8

North Carolina. Initial inspection by NRC personnel and subsequent examination by we manufacturer revealed the relays were not new but were j refurbished from old relays. Investigation was conducted at Spectronics in an j effort to detemine the scope of distribution of the refurbished relays. As a

!. result, business records were obtained which revealed possible fraudulent sales to other nuclear customers as well as military contractors.

Investigation further revealed that Spectronics shipped 30 relays to another vendor which, in turn, shipped 28 of the relays to Watts Bar Nuclear Plant (WBNP), Spring City. Tennessee. Four of the 28 relays shipped to WBNP were found to be altered and bearing identification labels produced by an unauthorized manufacturer.

It was further learned that Spectronics shipped three relays, in October 1989, to the Sequoyah Nuclear Plant (SNP), Soddy-Daisy, Tennessee. Examination i' revealed the relays were not new as required by the contract but were

. refurbished. It was learned that Spectronics obtained the relays from The Martin Company, Inc., a company in Norfolk, Virginia, which deals primarily in surplus electronic components purchased from the U.S. Navy.

In each of the three cases, the vice president of Spectronics, Inc., took the customer's orders by interstate telephone call. Investigation revealed that in each case, the customers were supplied with refurbished relays and later received invoices for payment from Spectronics. The two surplus dealers who supplied the relays to Spectronics said the vice president knew he was purchasing refurbished surplus relays.

Infomation provided by the NRR Vendor Inspection Branch (VIB) revealed there were no NRC regulatory violations regarding the sale of refurbished relays since they were purchased as commercial grade. Corporate counsel for Potter and Brumfield (P&B) stated the labels which were attached to the relays, although unauthorized, were not protected by patent and, therefore, P&B could not claim protection under applicable criminal statutes. However, during the course of this investigation, substantial evidence of violations of other Federal statutes was discovered, some of which were within the jurisdiction of the U.S. Navy. Appropriate information was provided to the Naval Investigative Service and representatives from the U.S. Attorney's Office, Eastern District of Virginia, Norfolk, Virginia.

Case No. 2-90-014 1

ACCOUNTABILITY a

The following portions of this Report of Investigation (Case No. 2-90-014)

' -will not be included in the material placed in the Public Document Room. They consist of pages 3 through 20.

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TABLE OF CONTENTS l Page SYNOPSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ACCOUNTABILITY. . . . . . . . . . . . . . . . ... . . . . . . . . . . . 3 APPLICABLE REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7 L I ST O F I NTE RV I EWEES . . . . . . . . . . . . . . . . . . . . . . . . . . 9 i

DETAILS OF INVESTIGATION. . . . . . . . . . . . . . . . . . . . . . . . 11 j Purpose of Investigation . . . . . . . . . . . . . . . . . . . . . 11 Ba c k g rou nd . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Investigative Activity . . . . . . . . . . . . . . . . . . . . . . 11 Coordination with NRC Staff. . . . . . . . . . . . . . . . . . . . 12 Allegation No.1 (Use of interstate wire transmission (telephone) for fraudulently obtaining money). . . . . . . . . . . . . . . . 12 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 12  ;

Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 14 Allegation No. 2 (Use of U.S. Mail to obtain money by f raudul ent means ) . . . . . . . . . . . . . . . . . . . . . . . . 14 S u mma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 15

. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 15 Allegation No. 3 (Fraud against the U.S. Government - false statement and false claim) . . . . . . . . . . . . . . . . . . . 15 l S u mma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 16 SUPPLEMENTAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 17 LIST OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Case No. 2-90-014 5

i 2 APPLICABLE REGULATIONS k

l 10 CFR 50 Appendix A I

10 CFR 50 Appendix B i

10 CFR Part 21 h Allegation No. 1: Use of interstate wire transmission (telephone) for fraudulently obtaining money.

18 U.S.C. 1343: Fraud by wire, radio, or television l Whoever, having devised or intending to devise any scheme or artifice to

defraud, or for obtaining money...by means of false or fraudulent j pretenses...causes to be transmitted by means of wire... communication in i interstate... commerce any writings, signs, signals, pictures, or sounds

for the purpose of executing such scheme...shall be fined not more than

$1,000 or imprisoned not more than five years, or both.

j Allegation No. 2: Use of U.S. Mail to obtain money by fraudulent means.

l 18 U.S.C. 1341: Frauds and swindles Whoever, having devised or intending to devise any scheme or artifice to i defraud, or for obtaining money...by means of false or fraudulent

. pretenses, representations...for the purpose of executing such scheme or 2

artifice... places in any post office or authorized depository for mail

, matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or

! thing...shall be fined not more than $1,000 or imprisoned not more than five years, or both.

4 Allegation No. 3: Fraud against the U.S. Government - false statement and false claim.

18 U.S.C. 1001: Statements or entries generally f

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictittens or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both.

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LIST OF INTERVIEWEES EXHIBIT BOYD, Harold D., Purchasing Manager, Nutherm International, Inc. . . .

12 EARL, Morris A., President, Spectronics, Inc.. . . . . . . . . . . . . 29 HANNAH, Frances, Senior Purchasing Agent, TVA. . . . . . . . . . . . . 18 HOTTE, Mary E., employee, Stokley Enterprises, Inc.. . . . . . . . . . 10 MARTIN. Michael A., President, The Martin Company, Inc.. . . . . . . . 14 ROBERTS, Arthur J., former Engineer, Carolina Power and Light Company (CP&L) . . . . . . . . . . . . . . . . . . . . . 6 STOKLEY, William M., President, Stokley Enterprises. Inc.. . . . . . . 9 THOMPSON, Gary S., Senior Procurement Specialist, CP&L . . . . . . . . 30 TOLBERT, Eugene P., Vice President, Spectronics, Inc.. . . . . . . . . 3 l

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} SYNOPSIS On June 26, 1990, the U.S. Nuclear Regulatory Comission (NRC), Office of Nuclear Reactor Regulation (NRR), requested that the Office of Investigations d investigate allegations of counterfeit or refurbished electric relays being sold to nuclear plants.

Subsequent investigation revealed that Spectronics, Inc., an electronics ,

distributor in Mobile, Alabama, caused 22 relays to be drop shipped from l

! Stokley Enterprises, Inc., to the Shearon Harris Nuclear Plant New Hill,  !

North Carolina. Initial inspection by NRC personnel and subsequent examination by one manufacturer revealed the relays were not new but were refurbished from old relays. Investigation was conducted at Spectronics in an effort to determine the scope of distribution of the refurbished relays. As a l result, business records were obtained which revealed possible fraudulent sales to other nuclear customers as well as military contractors.

I Investigation further revealed that Spectronics shipped 30 relays to another .

vendor which, in turn, shipped 28 of the relays to Watts Bar Nuclear Plant l (WBNP). Spring City Tennessee. Four of the 28 relays shipped to WBNP were found to be altered and bearing identification labels produced by an unauthorized manufacturer.

It was further learned that Spectronics shipped three relays, in October 1989, to the Sequoyah Nuclear Plant (SNP), Soddy-Daisy, Tennessee. Examination

revealed the relays were not new as required by the contract but were l

. refurbished. It was learned that Spectronics obtained the relays from The Martin Company, Inc., a company in Norfolk, Virginia, which deals primarily in surplus electronic components purchased from the U.S. Navy.

In each of the three cases, the vice president of Spectronics, Inc., took the customer's orders by interstate telephone call. Investigation revealed that i in each case, the customers were supplied with refurbished relays and later received invoices for payment from Spectronics. The two surplus dealers who j supplied the relays to Spectronics said the vice president knew he was purchasing refurbished surplus relays.

l Information provided by the NRR Vendor Inspection Branch (VIB) revealed there j were no NRC regulatory violations regarding the sale of refurbished relays since they were purchased as comercial grade. Corporate counsel for Potter

- and Brumfic1d (P&B) stated the labels which were attached to the relays, although unauthorized, were not protected by patent and, therefore, P&B could not claim protection under applicable criminal statutes. However, during the course 6f this investigation, substantial evidence of violations of other Federal statutes was discovered, some of which were within the jurisdiction of the U.S. Navy. Appropriate information was provided to the Naval Investigative Service and representatives from the U.S. Attorney's Office, i

Eastern District of Virginia, Norfolk, Virginia.

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1 Case No. 2-90-014 2

l ACCOUNTABILITY The following portions of this Report of Investigation (Case No. 2-90-014) will not be included in the material placed in the Public Document Room. They consist of pages 3 through 20.

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Case No. 2-90-014 3 i

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I TABLE OF CONTENTS Page SYNOPSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ACCOUNTABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 APPLICABLE REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7 LIST OF INTERVIEWEES. . . ...................... 9 DETAILS OF INVESTIGATION. . . . . . . . . . . . . . . . . . . . . . . . 11 1 Purpose of Investigation . . . . . . . . . . . . . . . . . . . . . 11 i Ba c k g rou nd . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4

Investigative Activity . . . . . . . . . . . . . . . . . . . . . . 11 Coordination with NRC Staff. . . . . . . . . . . . . . . . . . . . 12

Allegation No.1 (Use of interstate wire transmission (telephone) for fraudulently obtaining money). . . . . . . . . . . . . . . . 12 Su mma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 14 Allegation No. 2 (Use of U.S. Mail to obtain money by j

fraudulent means). . . . . . . . . . . . . . . . . . . . . . . . 14 S uma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 15

. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 15

Allegation No. 3 (Fraud against the U.S. Government - false statement and false claim) . . . . . . . . . . . . . . . . . . . 15 S uma ry . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 16 i SUPPLEMENTAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 17 LIST OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 i

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APPLICABLE REGULATIONS i

10 CFR 50 Appendix A i

10 CFR 50 Appendix B

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10 CFR Part 21 l

i Allegation No. 1: Use of interstate wire transmission (telephone) for }

j fraudulently obtaining money.

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j 18 U.S.C. 1343: Fraud by wire, radio, or television Whoever, having devised or intending to devise any scheme or artifice to

! defraud, or for obtaining money...by means of false or fraudulent l pretenses...causes to be transmitted by means of wire... communication in

! interstate... commerce any writings, signs, signals, pictures, or sounds

! for the purpose of executing such scheme...shall be fined not more than

$1,000 or imprisoned not more than five years, or both.

Allegation No. 2: Use of U.S. Mail to obtain money by fraudulent means.

18 U.S.C. 1341: Frauds and swindles Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money...by means of false or fraudulent

. pretenses, representations...for the purpose of executing such scheme or ,

artifice... places in any post office or authorized depository for mail  !

matter, any matter or thing whatever to be sent or delivered by the l Postal Service, or takes or receives therefrom, any such matter or thing...shall be fined not more than $1,000 or imprisoned not more than five years, or both.

Allegation No. 3: Fraud against the U.S. Government - false statement and false claim.

l 18 U.S.C. 1001: Statements or entries generally i Whoever, in any matter within the , jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals I or covers up by any trick, scheme, or device a material fact, or makes 1 any false, fictitious or fraudulent statements or representations, or i makes or uses any false writing or document knowing the same to contain i any false, fictitious or fraudulent statement or entry, shall be fined i not more than $10,000 or imprisoned not more than five years, or both. l Case No. 2-90-014 7

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EXHIBIT BOYD, Harold D., Purchasing Manager, Nutherm International, Inc. . . . 12 EARL, Morris A., President. Spectronics, Inc.. . . . . . . . . . . . . 29 HANNAH, Frances Senior Purchasing Agent, TVA. . . . . . . . . . . . . 18 HOTTE, Mary E., employee, Stokley Enterprises Inc.. . . . . . . . . . 10 MARTIN, Michael A. , President, The Martin Company, Inc.. . . . . . . . 14 ROBERTS, Arthur J., former Engineer, Carolina Power and Light Company (CP&L) . . . . . . . . . . . . . . . . . . . . . 6 STOKLEi, William M., President, Stokley Enterprises, Inc.. . . . . . . 9 THOMPSON, Gary S., Senior Procurement Specialist, CP&L . . . . . . . . 30 TOLBERT, Eugene P., Vice President, Spectronics, Inc.. . . . . . . . . 3 I

Case No. 2-90 01% 9

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Case No. 2-90-014 10

i DETAILS OF INVESTIGATION i

} Purpose of Investicatior l This investigation was initiated to determine if refurbished or altered electrical relays bearing counterfeit labels were sold by Spectronics, Inc.,

or Stokley Enterprises, Inc., for eventual use in nuclear applications.

j Background On June 13, 1990, the U.S. Nuclear Regulatory Commission (NRC), Office of NuclearReactorRegulation(NRR),requestedOfficeofInvestigations(01) assistance (Exhibit 1) concerning the inspection of possible counterfeit products received at the Shearon Harris Nuclear Plant (SHNP), New Hill, North Caroline. It was learned that SHNP personnel had ordered 22 Potter and Brumfield (P&B) electrical relays from Spectronics, Inc., Mobile, Alabama, an authorized distributor of P&B products. When the relays arrived at SHNP, they were inspected and found to have indications of tampering and alteration. It was also detemined the relays were shipped to SHNP from Stokley Enterprises.

Inc., in Norfolk, Virginia, rather than Spectronics. This information was relayed to the NRC and it was later confirmed by toe manufacturer that the ShNP relays were refurbished relays with counterf - labels to give them a new appearance. On June 26, 1990, NRR requested a fun. investigation (Exhibit 2) to determine the origin and extent of distribution of the suspect relays.

Investicative Activity Eugene P. (Pete) TOLBERT, Vice President, Spectronics, Inc., was contacted to detemine where he obtained the relays and whether he had sold them to other customers for use in nuclear applications (Exhibit 3). TOLBERT supplied records which provided sales and distribution information. At the time of TOLBERT's interview, the primary goal was to obtain documentation in the form of %siness records. The answers he provided during his oral interview were largely seltserving since he did not volunteer infomation regarding sales to other nuclear users. A review of the documents provided by TOLBERT provided leads which indicated fraudulent sales of relays to nuclear customers as well as contractors to the U.S. Navy (Exhibit 4, pp. 20 and 26). It was detemined that a reinterview of TOLBERT would not provide any additional useful informa-tion, in view of his evasive responses during the interview of July 2, 1990.

The sales documents provided by TOLBERT generated sufficient lead infomation to establish his method of operation.

A review of Spectronics' records revealed other suspect relays were sold by Spectronics to the Tennessee Valley Authority (TVA), Sequoyah Nuclear Plant (SNP), Soddy-Daisy Tennessee, and Nutherm International, Inc., Mt. Vernon, Illinois. The relays sold to Nuthere had been put into service at Watts Bar  !

Nuclear Plant (WBNP), Spring City, Tennessee. Documents and testimony I indicat' that in all three cases the sales were made by telephone by TOLBERT.

Morris A. EARL, President of Spectronics, Inc., resides near Atlanta, Georgia, and said the operation of the store in Mobile, Alabama, is the responsibility of TOLBERT (Exhibit 29, p.1). EARL was not implicated by any of the witnesses I in this matter nor did his name appear on any documents. i I

Case No. 2-90-014 11 l

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. It was established during the course of this investigation that neither Spectronics, Stokley, nor The Martin Company violated NRC regulations since the relays were purchased as commercial grade (Exhibit 5, pp. 2, 4, 6, and 8 and Exhibit 19, p. 1). However, infomation was developed that as a result of the sale of the refurbished relays there may have been violations of Federal ,

criminal statutes regarding trafficking in counterfeit goods, fraud by wire. -

fraud by mail, and making a false statement to the U.S. Government. Pertinent evidence was developed and provided to the U.S. Attorney's Office, Eastern District of Virginia, Norfolk, Virginia. Prior to completion of this ,

investigation, it was determined that trafficking in counterfeit goods was not applicable.

Coordination with NRC Staff This investigation originated from infomation received from the NRR Vendor Inspection Branch (VIB). VIB conducted inspections at Spectronics and Stokley to detemine whether NRC regulations were violated concerning the sales or i purchase of the electrical products. VIB representatives accompanied 01 personnel during this investigation to assist in reviewing sales records.

Customer records were reviewed for potential sales to other nuclear users and ,

that infomation was provided by VIB to 01.  !

Allegation No. 1: Useofinterstatewiretransmission(telephone)for  !

fraudulently obtaining money.  ;

Summary

. The following individuals were interviewed to determine whether Pete TOLBERT ,

used long distance telephone calls to fraudulently sell used electrical parts  !

which were represented as new products.

Name Position Date of Interview BOYD, Harold D. Purchasing Manager, Nutherm July 24, 1990  !

International, Inc. ,

HANNAH, Frances Senior Purchasing Agent, TVA October 1, 1990 HOTTE, Mary E. employee Stokley Enterprises Inc. June 28, 1990 '

MARTIN, Michael A. Owner, The Martin Company, Inc. July 17, 1990 ROBERTS, Arthur J. fomer Engineer, Carolina Power June 15, 1990 and Light Company (CP&L) -

STOKLEY, William M. President, Stokley Enterprises. Inc. June 27, 1990 THOMPSON, Gary S. Senior Procurement Specialist, CP&L January 7, 1991 Evidence

1. ROBERTS said he contacted Spectronics, Inc., in Mobile, Alabama, from his office at SHNP in New Hill, North Carolina, and discussed the purchase of electrical relays with Pete TOLBERT (Exhibit f, p. 1).

Case No. 2-90-014 12

2. ROBERTS said he was suspicious of the relays that SHNP ordered from Spectronics even as he was discussing the transaction with TOLBERT and, therefore, did not order them insnediately (Exhibit 6, p.1). {

3. THOMPSON, unaware that ROBERTS had already contacted Spectronics, also talked with TOLBERT and placed the order. THOMPSON said TOLBERT never 1 i

said anything about the relays being refurbished nor did he ask if a used productwasacceptable(Exhibits 30and31).

4. ROBERTS said he inspected the relays upon arrival at SHNP and had no doubt they were refurbished (Exhibit 6, p. 1). <

5. ROBERTS made a list of characteristics of the suspect relays which did not' l match a relay known to be an authentic P&B product (Exhibit 7). [

6. The 22 relays received at SHNP were examined by P&B and found to exhibit  :

numerous electrical, mechanical, and cosmetic anomalies which indicated tamperingandrefurbishing(Exhibit 8).

7. STOKLEY said he shipped 22 relays directly to SHNP as a result of a telephoneorderreceivedfromTOLBERT(Exhibit 9,p.1).

8. STOKLEY said he deals almost exclusively in surplus electrical parts which he buys from the U.S. Navy (Exhibit 9, p. 2).

9. HOTTE said she personally cleaned the relays and applied new manufacturer'slabelswhichwereshippedtoSHNP(Exhibit 10,p.4).

10. HOTTE said the new labels which she applied to the relays were purchased fromVirginiaArtMetalandPlastic(VAMP)(Exhibit 10,p.4and l Exhibit 11).

11. BOYD said he telephoned Spectronics and talked with TOLBERT regarding Nutherm's purchase of P&B relays. BOYD said TOLBERT was aware that Nutherm would place the relays into a nuclear application (Exhibit 12).

12. BOYD said that he discussed traceability requirements with TOLBERT during their telephone conversation and that requirement was documented on the purchase order sent to Spectronics (Exhibits 12 and 13). ,

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13. BOYD said Nutherm shipped 28 of the relays to WBNP after they were '

dedicated for nuclear service (Exhibit 12 and Exhibit 33, pp. 3 and 5).

14. Four of the 28 relays purchased by Hutherm from Spectronics were found to be refurbished (Exhibit 17) and could not be traced back to the manufacturer (Exhibit 12).

15. Martin Invoice No. 842 indicates four model 134-1 relays were shipped on l March 26, 1990, to Spectronics, two of which are shown as being converted ,

from a different model (Exhibit 15).

16. Spectronics shipped four P&B model 134-1 relays to Nutherm on March 28,.

1990(Exhibit 16).  ;

Case No. 2-90-014 13 i

17. The relays received at Nutherm from Spectronics were examined by P&B and were found to exhibit electrical, mechanical, and cosmetic anomalies which indicated tampering and refurbishing (Exhibit 17). <

18. HANNAH contacted TOLBERT by long distance telephone to inquire about the ,

purchase of electrical relays and was assured the relays could be .

delivered to SNP by October 16, 1989. HANNAH called from her office in Chattanooga, Tennessee, to TOLBERT's office in Mobile, Alabama (Exhibit 18). ,

19. TVA issued Purchase Order No. 89NLB-85028B on September 15, 1989, on behalf of the SNP, to Spectronics, confirming HANNAH's telephone order to TOLBERT on the same date. The order was for three P&B model 135-1 relays and specifically required "All materials and/or equipment offered to be furnished as a result of this request for quotation shall be new, unused, not surplus, and not rebuilt" (Exhibit 19, pp. I and 3).

20. MARTIN said he refurbished three P&B model 135-1 relays which he shipped to TOLBERT on October 16, 1989 (Exhibit 14, p. I and Exhibit 20).

21. SNP received three P&B model 135-1 relays from Spectronics on October 20, 1989 (Exhibit 21).

22. TOLBERT provided a Certificate of Compliance to SNP which certified the three relays met all contract requirements (Exhibit 22).

23. An examination by P&B of two of the relays purchased from Spectronics by

. SNP revealed characteristics inconsistent with the P&B quality assurance program (Exhibit 23).

24. CP&L's THOMPSON received a letter dated July 12, 1990, from Spectronics and signed by TOLBERT, wherein he stated, "It is not and has not been our

. intent to handle used or used surplus items" (Exhibit 26).

Conclusions It is concluded that TOLBERT received interstate telephone sales orders from SHNP, Nutherm, and SNP. It is further concluded that TOLBERT knowingly provided used or refurbished products as if they were new with the intent to defraud the purchasers.

Allegation No. 2: Use of U.S. Mail to obtain money by fraudulent means.

Summary During interviews and review of documents associated with Allegation No. 1, evidence indicated that invoices for the counterfeit goods and resulting payments most likely were placed in the U.S. Mail. The use of the U.S. Mail for transmitting invoices was not pursued during the early phase of this investigation. However, it is anticipated that subsequent testimony will likely establish this practice as a normal course of business.

Case No. 2-90-014 14

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l Evidence

1. STOKLEY transmitted Invoice No. 6956 dated May 31, 1990, from his business in Norfolk, Virginia, to Spectronics in Mobile Alabama, for the sale of the relays ultimately shipped to SHNP (Exhibit 24).

2. Invoice No. 14141 dated June 4, 1990, was received from Spectronics at l CP&L as a result of TOLBERT selling 22 relays to SHNP (Exhibit 25).

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3. CP&L received a letter dated July 12, 1990, from Spectronics and signed by TOLBERT, wherein he stated "It is not and has not been our intent to handle used or used surplus items" (Exhibit 26).

4. MARTIN advised he has specifically told TOLBERT on previous occasions that a particular item TOLBERT was purchasing was refurbished (Exhibit 14, p. 2 and Exhibit 32). l

5. MARTIN transmitted Invoice No. 842 dated March 26, 1990, to Spectronics for four model 134-1 relays, two of which had been converted from model 163-1 (Exhibit 15).

6. Spectronics transmitted Invoice No. 12311 dated March 28, 1990, as a result of TOLBERT's sale of four model 134-1 relays to Nuthem (Exhibit 16).

7. MARTIN provided Invoice No. 470 dated October 10, 1980, to Spectronics for three P&B model 135-1 relays (Exhibit 20).

8. Spectronics provided Invoice No. 8120 dated October 23, 1989, to TVA as a result of TOLBERT's sale of three model 135-1 relays to SNP (Exhibit 27).

9. TVA transmitted U.S. Treasury Check No. 4912-79431845 dated November 2, 1989, in the amount of $793.80, to Spectronics for the purchase of three P&B model 135-1 relays (Exhibit 28).

10. TVA received a letter dated July 12, 1990, from Pete TOLBERT, wherein he states, "It is not and has not been our intent to handle used surplus items"(Exhibit 34).

Conclusions i

It is concluded that TOLBERT placed invoices in the U.S. Mail to CP&L, TVA, and l Nutherm for the sale of used or refurbished relays which TOLBERT sold as new.

l It is further concluded that TOLBERT received payment from the U.S. Government for the relays he fraudulently represented as new.

Allegation No. 3:

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Fraud against the U.S. Government - false statement and false claim.

Sumary During interviews and review of documents associated with Allegation No.1, evidence indicated that TOLE RT may have defrauded the U.S. Government. A TVA contract from SNP for the purchase of three P&B relays from Spectronics 1

Case No. 2 90-014 15 l

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i required the relays to be new. TOLBERT supplied a signed certificate to TVA, along with the relays, certifying they were new when, in fact, he knew the relays were not new.

Evidence ,

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1. TVA issued Contract No. 89NLB-83028B dated September 15, 1989, to Spectronics for the purchase of three P&B model 135-1 relays. The contract refers to a telephone order to Pete TOLBERT on the same date (Exhibit 19, p. 1). ~

2. Condition 7 of the TVA contract requires the purchased material to be new, unused, not surplus, and not rebuilt (Exhibit 19, p. 3).

3. TOLBERT provided a Certificate of Compliance, signed by him, which indicated compliance with the purchase order (Exhibit 22).

4. MARTIN provided Invoice No. 470 for three P&B model 135-1 relays he shipped to TOLBERT on October 16, 1989. MARTIN said the relays he shipped to TOLBERT were refurbished and that TOLBERT knew the relays were not new, but were either new surplus or refurbished (Exhibit 20 and Exhibit 14, p.

1).

5. TVA Receiving Report No. P1050 indicates three P&B MDRs 135-1 were received from Spectronics on October 20, 1989 (Exhibit 21).

6. TOLBERT received a check from TVA drawn on the U.S. Treasury for $793.80

. as payment for the relays (Exhibit 28).

7. Two of the relays sold to SNP by TOLBERT were examined by P&B and were detennined to have been refurbished (Exhibit 23).

Conclusions It is concluded that TOLBERT knowingly supplied TVA a Certificate of Compliance he knew to be false.

f Case No. 2-90-014 16 4

SUPPLEMENTAL INFORMATION a During the course of this investigation, it was determined that that no NRC 2

regulations had been violated regarding the sales of the relays by Stokley and Spectronics. However, it appeared that TOLBERT and others had possibly violated certain sections of the U.S. Federal criminal code. Specifically, the relays which were being refurbished had new nameplates attached to them bearing the original manufacturer's name (Potter and Brumfield). It was the opinion of the U.S. Attorney, Eastern District of Virginia, Norfolk, Virginia, that this practice was a violation of 18 U.S.C. 2320, trafficking in counterfeit goods,

, which prohibits the unauthorized use of a patented trade name. Paul CASSELL, Assistant U.S. Attorney (AUSA) responsible for this matter, was advised by attorneys for Potter and Brumfield that the logo "P&B" was patented for their products. However, the name " Potter and Brumfield," which was how the unauthorized labels were printed, is not protected by patent according to the attorneys. CASSELL said he would not pursue prosecution of Stokley, 1 Spectronics, The Martin Company, or VAMP for section 2320, but would continue to seek prosecution of TOLBERT for the remaining violations described in the

" Details" section of this report.

l As a result of this investigation, collateral information was developed regarding possible fraudulert sales of electrical products to several ship-building fims holding contracts with the U.S. Navy. The U.S. Naval Investi-gative Service (NIS) developed the information and presented the matter to AUSA 4 CASSELL. CASSELL indicated he would consider the facts from both the NRC and NIS investigations for joint prosecutive action due to the business

- relationships involved.

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LIST OF EXHIBITS Exhibit No. Description 1

Request for assist to inspection dated June 13, 1990.

2 Request for Investigation dated June 26, 1990.

3 Report of Interview with TOLBERT dated July 2, 1990.

4 Alphabetical Customer List for Spectronics as of July 2, 1990.

5 Memo from NRR/VIB to 01:RII dated September 27, 1990, with

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attachments.

6 Report of Interview with ROBERTS dated June 15, 1990.

7 List of non-conforming characteristics compiled by ROBERTS of suspect relays received at SHNP from Stokley, undated.

8 Report of examination by P&B of 22 relays received at SHNP with cover letter dated July 13, 1990.

9 Report of Interview with STOKLEY dated June 27, 1990.

. 10 Signed statement of HOTTE dated June 28, 1990.

11 Copies of two VAMP Invoices, No. 4541 and No. 4563, to Stokley for product labels which were applied to relays by HOTTE.

12 Report of Interview with BOYD dated July 24, 1990.

13 Nutherm Purchase Order No. 3996-01 to Spectronics dated February 15, 1990, for 30 P&B relays.

14 Report of Interview with MARTIN dated July 17, 1990.

15 Martin Company Invoice No. 842, for four P&B model 134-1 relays shipped to Spectronics on March 26, 1990.

16 Spectronics Invoice No. 12311 to Nutherm for four P&B model 134-1 relays shipped March 28, 1990.

17 Report of examination by P&B of five relays received at Nutherm dated August 7, 1990.

18 Report of Interview with HANNAH dated October 1, 1990.

19 TVA Purchase Order No. 89NLB-83028B to 3pectronics for three P&B model 135-1 relays.

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! Exhibit i No. Description i 20 Martin Company Invoice No. 470 dated October 10, 1989, to Spectronics for three P&B model 135-1 relays shipped

] October 16, 1989. .

21 SNP Receiving Report No. PIO50 dated October 24, 1989, for

three P&B model 135-1 relays received from Spectronics on. ,

October 20, 1989.

l 22 Certificate of Compliance provided by TOLBERT to SNP for l rt: lays sold under TVA Contract No. 89NLB-83028B.

j 23 Report of examination dated August 7,1990, by P&B of two

relays received at SNP from Spectronics on October 20, 1989.

24 Stokley Invoice No. 6956 to Spectronics for four 142-1, six 173-1, and twelve 138-8 P&S relays at $6,792.00, shipped j on May 30, 1990. J

! 25 Spectronics Invoice No. 14141 to CP&L for four 142-1, j six 173-1, and twelve 138-8 P&B relays for $11,472.00. 1 l 26 Letter from TOLBERT to CP&L dated July 12, 1990.

i j 27 Spectronics Invoice No., 8120 to TVA for three model 135-1 ,

j - relays sold to SNP.  !

l l 4 28 U.S. Treasury Check No. 4912-79431845 in the amour.t of l $793.80 payable to Spectronics, Inc.

i i 29 Report of Interview with EARL dated July 6, 1990.

30 Report of Interview with THOMPSON dated January 7,1991.

l 31 CP&L Requisition No. 90136 dated May 30, 1990, i

l 32 Martin Company Invoice No. 0855 dated March 26, 1990.

1 33 Nutherm Letter of Transmittal to WBNP dated May 4,1990, with l attached Certificates of Compliance 4

! 34 TOLBERT letter to TVA dated July 12, 1990.

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