Feds Investigating Suspended UTC Contractor: Ma Brothers Suing United Technologies for $21.2 Million

United Technologies Corp. said Friday that the U.S. Securities and Exchange Commission is investigating a sales contractor hired by the company to market its commercial jet engines and related services in China.

Three weeks ago, securities regulators issued a subpoena to United Technologies as part of its investigation into the contractor, who was hired by United Technologies International Operations Inc. and International Aero Engines.

United Technologies did not name the contractor. But court documents show United Technologies to be involved with a sales contractor named Ma Brothers in Hong Kong.

In December, United Technologies told law enforcement officials in the United States and the United Kingdom that it began an internal investigation into the hired contractor, the company said in regulatory filings. When it began the investigation, United Technologies "suspended all commission payments to the sales representative, and since have not resumed making payments.

Cutting off payments led to two claims by the sales contractor for unpaid commissions.

"We are contesting the lawsuit and the arbitration claim," the company said. "We do not believe that the resolution of the lawsuit or the arbitration claim will have a material adverse effect on our competitive position, results of operations, cash flows or financial condition."

In a statement, United Technologies spokesman John Moran said: "UTC, Pratt & Whitney and IAE are cooperating fully with the investigation, and we will not make any further comment at this time."

In January, a contractor operating in China and employed by United Technologies to sell its engines, Ma Brothers Republic & Holdings Inc., sued United Technologies in federal court for $21.2 million, accusing the company of breaching its contract, unjustly enriching itself at the expense of Ma Brothers, and violating the Connecticut Unfair Trade Practices Act.

Ma Brothers, in court documents filed two weeks ago, said United Technologies is "flexing its corporate muscle" by suspending payments without a proper excuse.

"At first, United Technologies claimed that it was suspending payments while it performed a hazily-defined 'audit' or 'review' of the relationship," the contractor said. "Then they heard some hearsay about business dealings in China which supposedly raised 'questions' in their mind, and which, they said, required further investigation before United Technologies would resume payments."

Ma Brothers said it had been a contractor of United Technologies since 2009, and works in the People's Republic of China, Macau and Hong Kong. It received its last payment from United Technologies in June 2013. United Technologies began its audit of the company in October 2012.

Further, Ma Brothers claims that United Technologies is using the company as a "scapegoat."

"United Technologies has chosen to seek to use Ma Brothers, without proper grounds or foundation, to improperly distance United Technologies from charges and/or investigations or potential investigations by government authorities into United Technologies' conduct concerning sales of its products. … In this way, it appears that United Technologies is attempting to use Ma Brothers as a classic 'scapegoat' to absolve itself of United Technologies' own misconduct."