A Portland aluminum company that sold NASA defective aluminum, which allegedly caused two rockets to explode shortly after launch, has agreed to pay $46 million to settle criminal charges and civil claims.
Hydro Extrusion USA LLC, formerly known as Sapa Extrusions or Sapa Profiles, allegedly covered up substandard manufacturing by altering quality test results over two decades.
These were “tests that their customers, including the U.S. government, depended on to ensure the reliability of the aluminum they purchased,” said Assistant Attorney General Brian Benczkowski of the Department of Justice’s Criminal Division. “Corporate and personal greed perpetuated this fraud against the government and other private customers, and this resolution holds these companies accountable for the harm caused by their scheme.”
The Oregonian/OregonLive first reported in 2017 that Sapa products had been linked to two failed NASA projects. Both missions were intended to launch satellites into orbit that would measure carbon in the atmosphere and look for other signs of climate change.
NASA engineers and scientists from around the country, who had helped develop some of the tests and experiments onboard, watched in horror as their years of work went up in flames after the vessels exploded.
NASA maintains that Sapa’s defective aluminum caused the two explosions.
“It’s just outrageous. I’m actually angry,” said Joseph Gutheinz Jr., a retired senior special agent with NASA’s Office of the Inspector General. “These guys were totally indifferent to safety, to aviation safety. Those rockets exploding could have killed people and they didn’t care. They were in it for the money.”
Sapa disputes NASA’s claims.
Sapa Profiles has agreed to plead guilty to one count of mail fraud, according to the justice department. A related company, Sapa Extrusions has been charged with mail fraud.
As part of a plea agreement, Sapa Profiles has agreed to pay $34.1 million in restitution to NASA, the Department of Defense’s Missile Defense Agency, and commercial customers. As a part of a related civil settlement, the company also agreed to pay $34.6 million, though only about $11 million will be in cash.
Sapa’s plea deal still has to be approved by the court in a hearing currently scheduled for May 13.
Sapa officials admitted to providing customers, including U.S. government contractors, with falsified certifications after altering the results of tensile tests designed to ensure the consistency and reliability of aluminum manufactured at the companies’ Oregon-based facilities. In a statement released Tuesday, Hydro Extrusions noted that Sapa officials reported the misconduct to U.S. authorities in the first place. The company added that it has entirely revamped its testing procedures.
“Since learning of the misconduct and reporting it to the government and customers, we have invested significant time and resources to completely overhaul our quality and compliance organizations. We have also implemented over $14 million in state-of-the-art tensile testing equipment across our North American operations that automates the tensile testing process,” says Charlie Straface, Business Unit President for Extrusion North America.
Tensile testing involves slowly stretching and then ripping apart a sample of the metal using a machine, which then measures the force applied to the sample at each stage of the test.
The federal government has banned Sapa from government contracting since Sept. 30, 2015.
“Our partners at NASA and in the military – as well as hundreds of private businesses – put their faith in the integrity of this supplier and the structural integrity of its products,” said Special Agent in Charge Loren ‘Renn’ Cannon of the FBI’s Portland Field Office. “For almost two decades, this company’s greed violated that trust. Today’s proposed resolution is an important step to repairing the harm done.”
For the first ten years, the test alterations were decidedly low tech. Employees altered results by hand and then typed them onto a certification provided to customers, according to the justice department.
Later, Dennis Balius, the Sapa testing lab supervisor, allegedly took the scheme digital, altering results in company computers and providing the bad data to customers. He pleaded guilty in July 2017 and was sentenced to three years in prison and ordered to pay more than $170,000 in restitution.
The justice department said it opted to settle the criminal case because the company cooperated with federal investigators. Gutheinz, the retired NASA investigator, lamented the decision.
“These guys and their bad products might have killed people, we’ll never know,” he said. “It appears the agents in this case did a first-rate job. The idea of paying money to avoid prison time just rubs me wrong.”
NASA alone says it spent $9 million investigating the Sapa case.