Thursday, March 20, 2014 1:00 pm
Feds probe colorful financier's business dealings
Interviews and documents obtained by The Associated Press portray entrepreneur Lynn Tilton and Col. Bert Vergez as being in unusually close contact for more than a year before Vergez retired from the Army in late 2012. Among the allegations is that Vergez provided Tilton with details about upcoming contracts to give her company, MD Helicopters of Mesa, Ariz., an advantage over the competition. No charges have been filed.
Vergez went to work for Tilton less than three months after hanging up his uniform. The Justice Department is examining whether his hiring breached "revolving door" rules that require federal officials to wait a year or more before receiving compensation from a company they had dealings with while employed by the government, according to people knowledgeable of the inquiry but not authorized to be identified as the sources of the information. Vergez's ties to two Russian businessmen also are being investigated.
AP last week sent a list of questions to Davidson Goldin, a spokesman for Tilton and her company. Goldin declined to comment. Vergez did not return emails and telephone calls. Justice Department spokeswoman Allison Price said the department had no comment on the investigation.
The allegations run counter to the by-the-bootstraps image Tilton has cultivated since founding the private equity firm Patriarch Partners in 2000. With her platinum blonde hair and trademark stiletto heels, the Bronx, N.Y.-born Tilton relishes her role as a maverick in the buttoned-down world of finance.
Her portfolio includes MD Helicopters and 74 other companies that employ 120,000 people and generate more than $8 billion in revenue. Tilton's biography posted on Patriarch's web site attributes her success to a "tireless work ethic, innovative spirit and an unwavering quest for truth and light where others see hopelessness."
The investigation offers a window into the fiercely competitive arena of government contracting. Boeing, a defense industry giant, sought information last year about the circumstances of Vergez's hiring, a request one of Tilton's lawyers viewed as an attempt to intimidate the smaller MD Helicopters, documents show.
At the time, Boeing and MD Helicopters were locked in a legal battle. The dispute stemmed from a 2005 arrangement under which Boeing would offer a helicopter for an Army contract that was based on an airframe designed by MD Helicopters. Boeing didn't win, and the program was later cancelled. When the Army launched a successor program, known as the Armed Aerial Scout, Boeing argued the previous arrangement still applied and MD Helicopters should be barred from competing.
David Ruppert, then general counsel for MD Helicopters, rebuffed the request and rebuked Boeing for trying to bully Tilton's company into settling the dispute. In a letter to Boeing senior counsel Anthony Tumminello, Ruppert called the inquiry a "baseless insinuation of improper conduct." He warned Tumminello that if Boeing "disseminates any false allegations of misconduct," Tilton's company "will vigorously seek to hold Boeing fully accountable."
John Dern, a spokesman for Boeing, declined to comment. Ruppert did not return telephone calls.
On a separate but parallel track, the FBI and Defense Criminal Investigative Service are conducting an inquiry into Vergez's connections to Russian businessman Pavel Borisov, and his father and business partner, Yuri.
The probe is focused on why the Army acquisition office in Huntsville, Ala., that Vergez ran kept dealing with the Borisovs even though they had a dismal performance record on a contract to overhaul Russian Mi-17 helicopters.
Despite the inquiry, Vergez pushed his new employer to appoint Pavel Borisov as its sales representative in Russia, Ukraine and nine other former Soviet republics, according to internal company emails discussing the move.
A copy of Borisov's March 2013 agreement, signed by Craig Kitchen, chief commercial officer for MD Helicopters, said Borisov would maintain exclusive rights to the territory provided he generated sales of $50 million. But the agreement was terminated seven months later because Borisov failed to complete the required background checks, the emails show.
Government attorneys have instructed Tilton and her companies to turn over a broad range of records, including Tilton's phone and expense records and communications between her, her employees and Vergez that discussed his potential employment. They also have requested information about any payments to Borisov.
Tilton describes herself as the business world's "turnaround queen." She buys financially struggling companies and attempts to make them profitable. When she acquired MD Helicopters in 2005, it had fewer than three dozen employees. Eight years later, it had nearly 500, according to an interview Tilton gave last year to Bloomberg's Businessweek. The about-face, she said, was due largely to "a lot of new business with the U.S. Army."
A lot of that new business came from the Army office Vergez commanded from early 2010 until he retired nearly three years later. The Huntsville office purchased Russian-made Mi-17 helicopters to outfit Afghanistan and other U.S. allies with the gear they needed to defeat al-Qaida and other extremist groups. It also arranged contracts between foreign governments that want to buy U.S. helicopters and the American companies that make them.
Vergez spent 25 years in the Army. He flew Apache and Cobra attack helicopters before moving into procurement-related assignments in 2001. Among his awards were the Bronze Star medal, the Legion of Merit, and the Iraq Campaign medal.
He bore good news when he and Tilton met in March 2011 at a helicopter industry trade show in Orlando, Fla., according to the individuals knowledgeable of the government's investigation. He informed Tilton that an announcement would soon be made that MD Helicopters had won a contract potentially worth $186 million for copters to train Afghan air force pilots.
After that meeting, Vergez and Tilton spoke in person and by telephone about pending contracts, the individuals familiar with the investigation said. MD Helicopters' sales thrived in the months that followed the Orlando meeting. The company won more than $60 million worth of contracts managed by Vergez's office to provide logistics support for the Afghan choppers and to supply helicopters to the governments of El Salvador, Costa Rica, and Saudi Arabia.
Even bigger deals loomed. The winner of the competition for the Armed Aerial Scout contract stood to earn billions of dollars in new business.
Vergez's office didn't oversee the program, but in early 2012, he allegedly supplied Tilton with Power Point slides and detailed notes compiled by Army officials about soliciting bids from contractors for the Armed Aerial Scout, the individuals familiar with the investigation said. Such secretive exchanges have been explicitly banned since the late 1980s after nearly two dozen Department of Defense officials were caught selling inside information about upcoming military contracts for cash and gifts.
MD Helicopters eventually won its legal battle with Boeing. But cuts to the Pentagon's budget forced the Army last year to shelve the Armed Aerial Scout program indefinitely.
A focus of the Justice Department's probe is whether Patriarch Partners circumvented the revolving door restrictions by obscuring Vergez's role with MD Helicopters.
On his LinkedIn page, Vergez lists his title as senior vice president at Patriarch's offices in New York. But an MD Helicopters organizational chart dated January 2013, a few weeks before his official date of employment, included Vergez among the company's highest ranking executives.
Other records show he was directly involved in MD Helicopters' business affairs.
Vergez commissioned a little-known consulting company called BioTech Research Lab in Madison, Ala., to help to improve the company's bids for government and commercial contracts. BioTech was to get just over $251,000 for the review with half the total paid up front, according to the March 2013 purchase agreement signed by Vergez.
It turns out that one of BioTech's consultants is a former civilian Army employee named Willis Epps. Epps ran the Huntsville office's acquisition center and retired from government service shortly after Vergez did. On behalf of the Army, Epps signed the Afghan choppers contract with MD Helicopters. Epps did not return telephone calls.
An internal company email shows Vergez also was immersed last March in the technical details of preparing MD Helicopters' bid for the Armed Aerial Scout contract before it was put on hold.
In June, Vergez and Tilton traveled to the Paris Air Show for meetings aimed at establishing partnerships to jump start copter sales in eastern Europe and central Asia, documents show. After those meetings, Vergez took charge. He proposed to personally lead teams of technical experts from MD Helicopters to Russia and Ukraine to certify facilities in both countries.
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