Workers, Contractors Plead Guilty in North Island Bribery Scheme

Update 3 p.m., with details from prosecutors, and names and communities of those charged.

The local U.S. Attorney's Office said Wednesday that a group of Navy employees and defense contractors entered guilty pleas to fraud charges stemming from a $1 million bribery case at .

Four employees of the base's Fleet Readiness Center were accused of accepting bribes to falsely bill the Navy for services from three employees of contractors located in Carlsbad and Poway, according to federal prosecutors.

All face a charge of conspiracy to commit wire fraud; some of the individuals also face counts of conspiracy to commit bribery or filing of false tax returns.

The contractors charged are:

• Michael Graven, 43, owner and operator of X&D Supply Inc., in Carlsbad, which received at least $2.26 million in contracts connected to the case.
• John Newman, 51, a sales manager and former owner of a defense contractor identified in court records only as “Company A,” located in Poway. The Navy paid the firm at least $3.31 million in contracts connected to the case.
• Paul Grubiss, 39, was a sales manager of a defense contractor identified in court records as “Company B,” also located in Poway. The Navy paid the firm approximately $1 million in connection with the case. Grubiss resides in Ohio.

The North Island workers charged are:

• Donald Vangundy, 54, Chula Vista, a superviser who authorized the purchase and replacement of tools for Fleet Readiness Center programs. 
• Kiet Luc, 53, San Diego, liaison and coordinator for an aircraft tool program. 
• David Lindsay, 57, San Diego, supervisory production controller for an aircraft program.
• Brian Delaney, 55, La Mesa, deputy program manager for the aircraft program. 

Prosecutors said another man, Jesse Denome, owner of JD Machine Tech Inc., also was implicated in the case, but he was not part of the group that entered pleas Wednesday.

In a statement, Chris Hendrickson, Special Agent in Charge, with the Defense Criminal Investigative Service, said, “While the vast majority of Navy officials and contractors are honest in their work, some choose to abuse the public trust ... Corruption of this nature strikes at the heart of our national security and erodes public confidence.”

Hendrickson's agency conducted the probe, along with the U.S. Attorney, FBI, IRS, Naval Criminal Investigative Service and General Services Administration, Office of the Inspector General.

Investigators said the contractors coerced civilian employees with cash, gift cards, furniture, electronics, home remodeling services and other gifts, which were charged to the Navy as part of their defense contracts.

Prosecutors said in exchange for the bribes, the workers accepted fraudulent orders from the contractors. The orders included payment for the goods offered to the workers, according to investigators, and improper mark-ups for goods provided as part of the contracts.

The employees were associated with a Navy aircraft program, the E2/C2, which maintains the tactical readiness of the planes. The E2, prosecutors said, is thought of as “the eyes of the fleet” for early warning tactical operations.

Investigators attributed the North Island case to complaints lodged after the public became aware of a 2009 corruption case involving workers and contractors at the Space and Naval Warfare Systems Command in San Diego. 

Channels for reporting suspected crimes were established following the case. The Procurement Fraud Working Group hotline can be reached at sandiego.procurementfraud@usdoj.gov or 1-877-NO-BRIBE.

Sentencing for the group that pleaded guility is set for July 2. They face fines of up to $250,000 per count, and for the most severe charge, conspiracy to commit wire fraud, up to 20 years in prison.