Affidavit — Ex-employee tipped feds to Kustom Products Inc.’s alleged schemes: Worker feared for self, family document says

COOS BAY — A former employee of the local company indicted on federal fraud charges provided the tip that investigators used to search the company’s premises last week, according to court documents released Tuesday.

Joshua Kemp, who also is charged in the case against Kustom Products Inc., told investigators in August that “he wanted to do the right thing,” according to the documents.

Investigators said they uncovered evidence in 2010 that Kustom Products Inc.; its owner, Harold Ray Bettencourt II; several members of the Bettencourt family; and other employees sold the Defense Department counterfeit and defective aviation locknuts for the OH-58 A/C Kiowa helicopter between 2005 and 2010.

The locknut is used to secure the helicopter’s rotor to its body. The fraud allegedly profited the company millions of dollars.

The Bettencourts’ attorney could not be reached for comment this morning.

Alleges additional fraud
 
The company and its employees were indicted in December 2011 on charges of wire fraud, fraud and money laundering related to the locknuts.

In August, Kemp detailed several other fraud schemes he said the company had undertaken since 2005, according to the affidavit supporting last week’s search warrant.

He also told investigators where at the company’s headquarters at 1084 S. Fifth Street, Coos Bay, to look for evidence of the schemes.

Kemp alleged, in addition to the locknuts, Kustom Products sold the Defense Department fabricated catalytic converters or exhaust systems for Humvees, vehicle battery box covers, vehicle mounting brackets, and metallic non-skid tread frame sections for a fifth-wheel ramp.

Kemp participated in the frauds as the company’s purchasing agent and shipping department manager, he said. He left the company Aug. 28, 2010.

Made in Mexico

He said the company began the schemes by winning Defense Department contracts to supply parts.

When the Defense Department buys parts, it first approves certain companies to manufacture its materials, then contracts with another company to purchase those materials, and finally buys the parts from the purchasing company.

Kustom Products set itself up as the go-between company.

The Bettencourts would order one of the genuine parts. They then would hire another company — often based in Mexico — to counterfeit the part for a lower price.

According to Kemp, the company created fake documents to fool federal inspectors. He told investigators they would find those documents, the purchase orders for the real parts, and the actual parts in Kustom Products’ storage area.

Secrecy for safety
 
Federal officials kept Kemp’s interview a secret until Monday to give law enforcement time to guarantee his safety.

“Kemp stated that he was fearful for his life and safety should the Bettencourt family become aware that he was cooperating with the government,” the affidavit reads.

After investigators first searched Kustom Products in Sept. 2010, Harold Bettencourt moved Kemp’s office next to his own to “‘keep an eye on him' and as an intimidation factor,” according to the affidavit. And Bettencourt family members made several loud and obvious comments about physically harming people involved in the investigation, Kemp said.

“During the interview, Kemp was very emotional at times, breaking into tears when discussing his family and his desire to ‘do the right thing,’” the affidavit states.

“Kemp is married, and he and his wife have three children.”

Made no promises

In exchange for Kemp’s “truthful information” and “cooperation,” the United States said it may offer Kemp “a benefit,” but made no promises, according to the affidavit.

It is unclear what evidence, if any, the federal agents seized during Thursday’s search. That information won’t be available until officials publicly release the returned search warrant.

Agents from the FBI, the Department of Homeland Security, Homeland Security Investigations, the U.S. Army Criminal Investigation Command, the IRS and other agencies participated in the search.

The World will update this story when officials release the returned search warrant.

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The story so far

• Sept. 22, 2010: Federal agents search Kustom Products Inc. for evidence the company supplied the U.S. Defense Department with non-conforming, defective and counterfeit parts. They seize 153 boxes of hard-copy evidence and 22 digital devices. Agents also seize the alleged physical non-conforming parts, which had been rejected by the Defense Department and returned to the company.

• Dec. 14, 2011: Kustom Products Inc.; its owner Harold Ray Bettencourt II; and several of his family members and other employees are indicted on charges of conspiracy to commit wire fraud, wire fraud. Harold Bettencourt and a few of his employees are additionally charged with fraud involving aircraft parts. Bettencourt and the remaining employees not charged with fraud are charged with money laundering.

• Aug. 14, 2012: Joshua Kemp, the purchasing agent at Kustom, sits for the first of three “truthful” interviews with federal agents.

• Aug. 28, 2012: Kemp leaves his job at Kustom Products Inc.

• Thursday: Federal agents raid Kustom’s premises looking for additional evidence provided by Kemp.

• Tuesday: Federal officials release the affidavit supporting the search warrants.