Three Alabama men allegedly orchestrated a multimillion-dollar accounting fraud scheme at a defense contractor that builds ships for the Navy, federal prosecutors said.
The Department of Justice (DOJ) announced Friday that the men were indicted for allegedly conspiring to mislead shareholders and the investing public about Mobile, Alabama-based, shipbuilder Austal USA’s financial condition from around 2013 through at least July 2016.
According to the DOJ and Securities and Exchange Commission (SEC), former Austal USA President Craig Perciavalle, current director of financial analysis Joseph Runkel and former director of the firm’s Littoral Combat Ships program, William Adams, sought to artificially reduce cost estimates for Navy shipbuilding projects by tens of millions of dollars.
The trio allegedly knew Austal USA’s costs were rising and higher than planned but directed others to lower the cost estimates to meet the defense contractor’s revenue budget and financial projections.
Investigators said they suppressed an accounting metric known as "estimate at completion" in relation to several Navy littoral combat ships (LCS), which resulted in a false overstatement of the company’s reported earnings in public financial statements.
The DOJ claimed that they did this in part to maintain and increase the share price of the company’s stock, and when the higher costs were eventually disclosed, the stock price fell significantly and Austal USA’s parent company, Austal Limited, wrote down more than $100 million.
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Austal USA is the lead shipbuilder for the Navy’s Independence-class littoral combat ship – which is designed to be a fast, highly maneuverable multipurpose warship that operates in the littoral zone near coastlines.
The Navy has 13 active Independence-class LCS with another four in various phases of construction. However, the Navy has decommissioned two of the ships and is planning to decommission two more of the older ships in the class that lack the upgrades of their successors and have been plagued by maintenance issues.
Austal USA is a wholly-owned subsidiary of Austal Limited, an Australian company that has stock traded over-the-counter in the U.S. via American Depositary Receipts (ADR) and is also traded on the Australian Securities Exchange. The company did not immediately respond to a request for comment for this story.
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The DOJ charged each of the three men with one count of conspiracy to commit wire fraud and wire fraud affecting a financial institution, five counts of wire fraud and two counts of wire fraud affecting a financial institution.
If convicted, they each face a maximum of 30 years in prison for each conspiracy count and each count of wire fraud affecting a financial institution, and 20 years in prison for each count of wire fraud.
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The SEC alleges that the men violated anti-fraud provisions of the Securities and Exchange Act of 1934 and seeks disgorgement plus prejudgment interest, civil monetary penalties, and officer and director bars.
The Defense Criminal Investigative Service and Naval Criminal Investigative Service are investigating the case, as are officials from the SEC.
