Military manufacturer sentenced in phony parts scheme

PORTLAND – An Oregon defense contractor was ordered to pay $5 million in restitution, and five key figures were sentenced Friday in a case that involved the sale of millions of dollars worth of phony parts for attack helicopters and military vehicles to the U.S. government.

U.S. District Judge Michael Mosman noted that Kustom Products Inc. of Coos Bay wasn’t selling pencils or toilet seats, but military parts. One of the parts was a locknut that secures the rotor on the Kiowa attack helicopter.

The company founder and owner, Harold R. Bettencourt II, 60, was sentenced to 3 3/4 years in prison, The Oregonian reported.

Bettencourt’s two oldest sons, 34-year-old Harold R. Bettencourt III and 32-year-old Nick Bettencourt, were sentenced to a little more than two years each for their roles.

A younger brother, Peter Bettencourt, 28, got a year and a day in prison. Office manager Margo Densmore, 43, also got a year and a day.

The judge placed Kustom Products, also charged in the conspiracy, on five years probation and ordered the company to pay $5 million in restitution and a $150,000 fine.

The government and defense lawyers negotiated a deal under which Kustom Products could remain open and make yearly payments on the $5 million. As long as the company makes its payments on time, those sent to prison on Friday won’t be required to chip in.

The last person sentenced was Josh Kemp, a parts department worker who cooperated in the investigation. He got five years probation.

When the key defendants pleaded guilty in July to conspiracy to defraud the United States, authorities said the company lied to the Defense Department to secure 750 contracts worth $10 million from 2006 through 2010. Kustom Products was able to undercut bids from other companies by substituting phony parts for genuine parts, and produced phony records to cover up the substitution, the government said.

The case was based on emails and purchasing records seized by investigators.

The investigation was triggered in 2008 when mechanics for the Kentucky Army National Guard found that eight locknuts that were supposed to secure the main rotor assembly on an OH-58 A/C Kiowa attack helicopter did not meet specifications, according to court documents. The defective locknuts were found as far away as Kuwait.

In an affidavit, James McMaken, a special agent with the Defense Department Inspector General and Defense Criminal Investigative Service, wrote: “The military field terminology for this locknut is the ‘Jesus nut,’ which is a colloquialism for the main rotor retaining nut that holds the main rotor to the mast of some helicopters. The failure of this part can be catastrophic, resulting in possible death or serious injury to military personnel.”

According to court documents, the Bettencourts sold the phony parts for between 22 percent and 3,754 percent more than they paid for them.