Navy contractor charged with passing off Chinese gear as American-made
By JUSTIN GEORGE | The Washington Post | Published: December 22, 2019
The owner of a Virginia company that provides the U.S. Navy with ballistic vests, protective helmets and riot gear is facing a federal charge of wire fraud after the owner was accused of misleading authorities about where the products were made.
Prosecutors said Arthur Morgan, the 67-year-old chief executive of Surveillance Equipment Group and its division SEG Armor, falsely claimed the equipment was made in Hong Kong and the United States when it was made in mainland China.
According to federal court records, Morgan's company was an authorized seller of law enforcement and security supplies to federal agencies. Such sales must comply with the Trade Agreements Act, which requires products to be made or "substantially transformed" in a "designated country."
The United States includes Hong Kong, a special administrative region of China, on its list of countries designated to make equipment under the act but excludes the mainland. If a contractor wants to supply products from non-designated countries, it must specifically disclose that information in an initial offer.
"A contractor's failure to do so disqualifies the contractor from eligibility for the contract," a federal affidavit said, "and a contractor who falsely certifies cannot lawfully seek payment from the United States."
Surveillance Equipment Group became an authorized equipment provider in 2003 and has fulfilled federal orders over the past 16 years, the U.S. attorney for the District of Maryland said. In 2014, prosecutors said, the company's price list stated that concealable body armor and helmets were made in Hong Kong.
When a General Services Administration contracting officer asked Morgan whether his items complied with the trade act, prosecutors said, Morgan emailed saying his products were made in the "United States/Hong Kong." In 2017, he submitted a spreadsheet to the GSA stating that the ballistic helmets, anti-riot suits and shields originated in Louisa, Virginia.
A federal prosecutor visited the Louisa address, on Mount Airy Road, which property records listed as a home. "Specifically, no manufacturing facility was observed at the address, which appeared, from the point of my observation, to be a field and/or forested area containing several vehicles," the affidavit said.
An Army special agent then checked pictures Morgan's firm had filed with the GSA and detected that a photo of a helmet for sale had been altered, court records said. When the agent did a reverse image search, he found the unaltered photo on Alibaba.com, a Chinese e-commerce site, indicating that the helmet was made by a Chinese firm. Another reverse image search found the same was true for a ballistic vest.
Federal prosecutors researched shipping records from U.S. Customs and Border Protection and found that Morgan's company received 14 shipments of vests or helmets between 2015 and 2017 from the same Chinese firm that made the equipment agents found in the unaltered photos.
Investigators also found serial numbers on equipment that traced back to the Chinese company and Mandarin handwriting on ballistic material, prosecutors said. Emails Morgan had sent, however, indicated that orders were made in the United States and were being shipped from a factory in southern Virginia.
Between 2015 and July 2019, prosecutors said, five federal agencies placed nine orders for ballistic vests, helmets or riot gear from Surveillance Equipment Group, totaling about $640,000.
On Thursday, a magistrate at U.S. District Court in Greenbelt, Maryland, ordered that Morgan be released to home confinement after he paid a $75,000 bond. An order of detention filed Friday showed that he hadn't found a suitable custodian and hadn't posted bond.
An email and phone message left for Morgan on Sunday were not returned, and no lawyer was listed in court records.
If convicted, prosecutors said, Morgan could face a maximum sentence of 20 years in federal prison. Actual sentences are typically less than that, they said.