Aerospace Firm Accused Of Fraud -- Tests Of Fasteners Allegedly Falsified

For more than 15 years, the world's largest supplier of high-tech titanium nuts and bolts to the aerospace industry falsified and omitted tests on parts that are used to hold together jetliners and military aircraft, the government has charged.

The U.S. attorney yesterday charged VSI Corp., a subsidiary of Fairchild Industries, with systematically generating fraudulent testing documents for products that had never been tested and, in some case, for bolts the company knew were defective.

The charges filed in U.S. District Court in Seattle against Culver City, Calif.-based VSI, also known as Voi-Shan, represents the big fish targeted by NORDECON, a special government task force formed two years ago to investigate fraud in defense contracts in the military and aerospace industries.

Fairchild nuts and bolts, also referred to as fasteners, are installed on almost every military and commercial aircraft, including jets built by Boeing. Eighty percent of them are used in airframes and 20 percent in engines. Sixty percent of the fasteners are used on commercial aircraft and 40 percent are used in military planes.

A key to breaking the case was the February 1989 raid of the Voi-Shan plant in Chatsworth, Calif., in which 50 boxes of test reports were seized. Investigators, led by Seattle-based Assistant U.S. Attorney Bruce Carter, uncovered the widespread use of a fictitious ``Inspector 11'' to sign off on hundreds of fraudulent test documents.

The government charged VSI quality-assurance manager James E. Ryan and Aram Marderian, supervisor of VSI's metallurgy lab, with conspiracy to defraud the government and others in a conspiracy that started about 1975 and continued until the government raid last year.

The defendants, who are scheduled to appear for arraignment tomorrow, face up to five years in prison and $250,000 in fines. VSI could be fined an undetermined amount.

A Fairchild Industries spokesman said the company had no comment on the charges but had dispatched corporate counsel Donald Parker to Seattle.

Carter confirmed that Northrup, Boeing and other Voi-Shan customers had discovered and returned substandard fasteners to Voi-Shan.

Shipping documents obtained by The Times last year showed that Boeing Advanced Systems received two shipments of more than 200 Voi-Shan titanium fasteners approved with test reports certified by the phantom ``Inspector 11.''

Those parts were only two of many similar shipments destined exclusively for the B-2 Stealth bomber project in 1988 and early 1989. Boeing makes primary structures including the outboard section, the aft-center section, fuel system, weapons-delivery system and the landing gear. Boeing has used Voi-Shan parts on military and commercial aircraft for 40 years.

Boeing, one of Voi-Shan's largest customers, released a statement yesterday indicating its use of Voi-Shan fasteners ``has not compromised the integrity of Boeing products.''

The company said it has tested all lots of parts received from Voi-Shan, re-inspected a statistical sampling of Voi-Shan parts used over the past 15 years and retested all lots that could be traced to Inspector 11. No problems were found.

The statement said Boeing, which continues to use Voi-Shan fasteners, believes Voi-Shan's ``quality-control irregularities were corrected.''

Carter said today that NORDECON could not directly trace any aircraft accidents to substandard Voi-Shan parts.

NORDECON, a federal task force made up of agents of the FBI, the Internal Revenue Service, the Navy, the Air Force and the U.S. Attorney's office, previously has returned eight felony convictions in two similar cases against New York-based Rice Aircraft Corp. and Miami-based Southeast Connectors Inc.

Carter said NORDECON's work is not finished.

``More charges are expected in the aerospace and defense contracting industry,'' he said. Carter declined to say whether current investigations continue to focus on Voi-Shan or other aerospace-parts suppliers.

According to court documents, the object of the Voi-Shan conspiracy was ``to minimize costs of testing and inspection and thereby enhance profitability.''

Court documents cite numerous instances in which Voi-Shan failed to conduct tests for strength, brittleness and durability, yet produced documents approved by the fictitious Inspector 11 indicating the tests had been properly performed.

In other instances, Voi-Shan shipped defective parts to customers ``accompanied by test reports misrepresenting that the parts were manufactured and inspected in accordance with the applicable . . . specifications.'' according to court documents.

The company reportedly avoided performing some sophisticated tests because of a lack of trained personnel and testing machinery.