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Criminal Practice – Fraudulent Navy procurement convictions upheld

The district court found that defendant Lee Hall, former Director of Intelligence for the Deputy Undersecretary of the Navy, facilitated the purchase of hundreds of firearm suppressors from defendant Mark Landersman, Hall’s boss’s brother, for over $1.6 million in government funds. We find no reversible error in the district court’s conclusions that this transaction was illegal because, inter alia, Hall did not use the proper channels for government funding approval; Mark Landersman was an untested and unlicensed firearm manufacturer; and upon arrival, the suppressors did not meet government performance standards.

Background

Appellant Lee Hall – former Director of Intelligence for the Deputy Undersecretary of the Navy – and Appellant Mark Landersman – the brother of Hall’s former boss, David – challenge their convictions related to the Navy’s purchase of hundreds of firearm suppressors from Landersman for over $1.6 million in government funds.

In the summer of 2012, David Landersman and Hall approached David’s superior, Robert Martinage to seek funds for “intelligence studies.” Martinage approved their request to seek funding for this purpose, and the Navy’s Financial Management Division Director began working with Hall on the budget request. The Navy’s Assistant for Administration ultimately authorized disbursement of $2.2 million.

On August 13, 2012, David corresponded with Mark, who owned an automobile machinery company in California called Advanced Machining & Engineering (AME). The company had recently filed for Chapter 7 bankruptcy, and another of Mark’s businesses already owed David $50,000 in unpaid loans. David emailed Mark a link with instructions on how to build a firearm suppressor, writing that the product “looks very much like what we’re going to send you.”

Five weeks after authorization of the $2.2 million for intelligence studies, Hall met with Navy staff and a program manager at CACI International, a government contractor. Rather than discussing studies, Hall sought to procure firearms equipment. During the procurement process, he proposed to use AME as a vendor for the project, with “Mark Stuart” as the company contact (leaving off Mark’s actual last name of Landersman). Hall also told CACI to proceed with a “sole source” vendor purchase, meaning that no other companies would compete for it. As justification, Hall explained that AME had unique proprietary expertise and tooling systems.

After receiving approval, Mark hired a contractor to manufacture the suppressor tubes. He paid the contractor $10,000 but billed the government for $860,285.

Eventually, the FMD Director noticed that the money intended for intelligence studies had been used for the suppressors. The suppressors were located and tested, revealing that they did not meet performance standards.

Hall and Mark Landersman were indicted on conspiracy charges. The district court found that, among other things, Hall didn’t use proper channels for funding approval; Landersman was an untested and unlicensed firearm manufacturer; and, upon arrival, the suppressors didn’t meet government performance standards. The Appellants have appealed their convictions on multiple grounds.

Sufficiency of evidence

As to the charge of conspiracy to commit mail fraud, the government presented ample evidence to support an agreement among Hall and the Landersman brothers to participate in a scheme to defraud. In 2011, seeking to gauge agency interest in suppressors, David told a fellow Navy official that Mark could produce suppressors substantially cheaper and better performing than any comparable product.

David and Hall then approached Martinage about procuring $3 million, and David instructed Mark on how to make a suppressor and sent AME’s information to Hall. Hall used this information to procure funds for the purchase of suppressors, claiming the funds would be used for intelligence studies and assessments. Once the contract was awarded to AME and manufacturing was underway, Mark referred CACI questions to Hall, and Hall arranged for shipping.

The conspirators’ emails also show that they knew false statements were being made with the intent and purpose to funnel government money to Mark’s flailing business, and that they each took actions indicating their participation.

As to the charge of conversion against Hall, the government presented a valid theory that government money was misused at Hall’s direction in that he knowingly enabled money allocated for another purpose to be used to purchase suppressors that were unwanted and ineffective, so as to enrich his boss’s brother. Hall circumnavigated the procurement and due-diligence process – resulting in a misuse of funds – by misrepresenting Mark Landersman’s name and company information; switching the purpose of the funding without official approval; avoiding and refusing to answer CACI’s questions when they attempted to perform due diligence; and making false statements on the sole-source justification about the accelerated need for the suppressors and viability and expertise of AME.

There is also sufficient evidence to show that Hall knew the use of Navy funds to purchase the Landersman suppressors was not authorized. He didn’t disclose the true reason for the funding to the Navy Assistant of Administration and then didn’t explain to CACI the parameters of the approval. He submitted fraudulent statements to CACI in support of a sole-source justification so that no other businesses could compete for the suppressor contract. The evidence presented reveals that Hall, instead of acting in good faith, knew how the system worked and circumvented it in order to deliver government money to his boss’s brother.

Expert testimony

The district court did not abuse its discretion in admitting suppressor testing conducted by Navy mechanical engineer Jason Davis.

The Davis Report and Davis’s testimony were both reliable and relevant to the usability of the suppressors, and Appellants’ arguments to the contrary speak to weight, not admissibility. Davis successfully demonstrated that the suppressors simply didn’t work on a functionally indistinguishable weapon, and he applied standards for weapon systems used in comparable government special forces operations. While there may have been some differences in the AME suppressors versus the suppressors that would normally be used on an AK-47 (the test subject), the Appellants not demonstrated that an “unacceptable” suppressor could still be useful to the Navy at the time Hall ordered and Mark manufactured the suppressors.

In sum, Davis’s testimony had a valid scientific connection to the issue at hand and was based on specialized knowledge. As the district court stated, “The bottom line is they’ve got to suppress or they don’t do their job.”

Evidentiary challenges

None of the procedural errors raised by the Appellants rise to the level of a constitutional violation or meet the harmless-error standard.

Even if the Appellants had demonstrated that the suppressors were reasonably priced, sufficient evidence of an agreement to commit mail fraud abounds in the record. The conversion conviction likewise does not rise and fall on the suppressors’ unit price. Thus, the judgment was not substantially swayed by the suppressor price.

Moreover, as already explained, there is a barrage of evidence proving that Hall acted with the requisite knowing and willful intent. The district court made several rulings supporting its conclusion that Hall had not demonstrated a legitimate and urgent governmental need for 349 suppressors from an untested machinery company in California. Any error in failing to consider adverse evidence is harmless in this context, as it surely would not have substantially swayed the judgment.

Finally, the district court did not abuse its discretion in failing to admit Hall’s suppression hearing testimony regarding the destruction of his personal notes. Federal Rule of Evidence 403 does not permit evidence whose probative value is substantially outweighed by a danger of undue delay, wasting time, or needlessly preventing cumulative evidence. Here, the record reflects that the district court did undertake the requisite balancing, even if it did not specifically cite Rule 403, and excluded Hall’s prior testimony on that ground. Therefore, this court cannot say that the district court abused its discretion.

Affirmed.

United States v. Landersman (Lawyers Weekly No. 001-059-18, 37 pp.) (Thacker, J.) No. 16-4066; Mar. 28, 2018; EDVA at Alexandria (Brinkema, J.) Stuart A. Sears for Appellant; Cary Citronberg, Morris Rudolph Parker Jr., & Patricia Marie Hayes for Appellees. 4th Cir.

 


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