Jackson County

Ingalls whistleblower uncovers millions in fraud, but says he suffers for his deed

The federal government and parent company of Ingalls Shipbuilding in Pascagoula have settled a whistleblower lawsuit involving Ingalls’ overbilling for Navy and Coast Guard ships, from 2003-2012.
The federal government and parent company of Ingalls Shipbuilding in Pascagoula have settled a whistleblower lawsuit involving Ingalls’ overbilling for Navy and Coast Guard ships, from 2003-2012. jcfitzhugh@sunherald.com File

Fraud on Navy and Coast Guard contracts at Ingalls Shipbuilding cost taxpayers up to $11.3 million dollars, prosecutors have said, but the whisteblower who brought the wrongdoing to light paid with his health, according to his lawsuit.

The explosive whistleblower lawsuit, filed in August 2013 by then-Ingalls employee Byron Faulkner, was unsealed in tandem with a settlement between Ingalls and the federal government. Ingalls has agreed to repay $9.2 million for over-billing labor costs on U.S. Navy and Coast Guard ships from 2003-2012.

Faulkner will receive almost $1.6 million of the settlement for bringing the allegations to light.

“Mr Faulkner is a classic informant and, in my view here, has really sacrificed to bring this case to the government,” said his attorney Brad Pigott, a former U.S. Attorney who practices law in Jackson.

“It takes someone whose primary values are personal integrity, rather than personal convenience, to blow the whistle on fraud against the government. Bryon Faulkner is such a person.”

In its news release, the U.S. Justice Department characterized the claims in Faulkner’s lawsuit as “allegations only” with no “determination of liability.”

‘Play the game’

Faulkner, who lives in Jackson County, cares for his three children. Pigott said Faulkner is no longer able to work. He had a heart attack after discovering the false billings in 2012, and was diagnosed with “disabling clinical depression and anxiety” after Ingalls supervisors retaliated against him for blowing the whistle.

The whistleblower lawsuit outlines fraud at Ingalls by more than 20 directors, supervisors and foremen involved with filling out time sheets for contract work on Navy and Coast Guard vessels.

Completing tasks ahead of schedule or on time entitled Ingalls and company supervisors to incentive pay under the military contracts.

Ingalls, the lawsuit says, “organized and allocated its supervisory and other personnel based on Ingalls’ corporate purpose of receiving maximum dollars in periodic incentive payments.”

Faulkner said he learned firsthand about the fraud after being named a foreman at Ingalls in August 2012.

Daily time reports showed hours worked on specific projects, but if too many hours had accumulated on a project to qualify for incentive pay, Ingalls supervisors simply billed the time to a project that would qualify, even though the work was not being performed on that project.

“He was directed by very senior management-level people at Ingalls to charge the time of the crew working under him to a ship the crew had done no work on,” Pigott said. “He refused to do it.

“Management at Ingalls threatened him with termination if he didn't participate in the fraud. They were going to remove him as a foreman. He continued to refuse to participate in the fraud.”

Faulkner’s lawsuit says he was told by Ingalls General Foreman Neal Holden, “If you don’t play the game, you are not going to be a foreman for very long.”

Taxpayers the ‘ultimate victim’

By November 2012, the lawsuit says, General Superintendent Robbie Gardner threatened to fire Faulkner unless he falsified time reports. Faulkner resigned.

He reported his findings to Ingalls internal auditors and federal authorities with the Navy and Coast Guard, Pigott said.

“He did not know at that point if Ingalls, left to its own judgment, was going to do right by the taxpayers or not,” Pigott said, “so he decided to go straight to the federal investigators and be interviewed and tell them what he knew.”

The lawsuit says Ingalls auditors did investigate. The company wound up firing at least 20 managers in the shipfitter and welding departments in 2013, the lawsuit says.

The pipefitting, paint, electrical and machinery departments also were involved in the fraud, the lawsuit says.

Time reports were filled out daily for various work crews. Pigott said the falsified records included thousands of reports.

Faulkner “knew that the ultimate victims of the mischarging fraud at Ingalls were the federal taxpayers,” Pigott said. “He just wanted to make sure that the company was held accountable.”

Retaliation starts

Then-CEO Erwin Edenzon asked Faulkner to return to work in March 2013 and even gave him an award for bringing the false billings to light. The lawsuit says the move was an apparent attempt to secure Faulkner’s loyalty and control his cooperation with federal investigators.

Senior managers at Ingalls made it impossible for Faulkner to perform as a foreman, the lawsuit says. He was transferred to a training center in June 2013, where he had limited duties for 12 months, the lawsuit says. He then was placed on unpaid medical leave, losing his health insurance and other benefits.

Two of the former supervisors named in the lawsuit, Charles Gardner Jr. and Neil Riley Holden, pleaded guilty in December 2015 for their roles in the false reports.

In announcing the settlement this week with Ingalls, Mike Wiest of the Naval Criminal Investigative Service said in a news release:

“Corruption, fraud and bribery are not victimless crimes. Overcharging for work not done is not only criminal on its face, investigating those crimes siphoned resources and time, which would have been better invested in protecting the nation.

“Multiple federal agencies spent years investigating this lack of integrity to help hold accountable those who would squander American taxpayer dollars.”

Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division said the settlement shows that the government is unwilling to tolerate “false charges” to the armed forces and other government agencies.

Huntington Ingalls released a statement that said: “The company informed the government of alleged misconduct by certain employees and fully cooperated with the government in investigating and reaching a resolution of the matter.

“The company has strengthened its compliance program to help ensure that no similar issues arise in the future.”

The settlement is the second largest in the history of the U.S. Attorney’s Office in Mississippi’s Southern District, which covers the state from Jackson south.

The commercial litigation and civil branches of the U.S. Attorney’s Office Southern District office worked on the case with the Defense Contract Audit Agency, Naval Criminal Intelligence Service, Coast Guard Investigative Service and Defense Criminal Intelligence Service.

Anita Lee: 228-896-2331, @calee99