High cost for doing what's right

Six employees accuse a Largo defense contractor of cheating the government. Their claims are substantiated, and they receive part of a settlement. But a sense of being cheated for their trouble lingers.

[Photo: Courtesy Greg Crino]

From left, whistleblowers James Emerson, Debra Richter-Robinson, Bonnie Ormerod, Theresa Ensch, Greg Crino and Amy Odell celebrate the settlement. Go to photo gallery

Like co-workers at an office party, six men and women gathered around a cake decorated with an image of their company's flagship product: a pedestal to hold a high-powered radar.

But these celebrants no longer worked at ElectroMechanical Systems Inc., the Largo plant that makes and repairs radar pedestals for military and commercial customers. They had been fired more than six years earlier after accusing their employer of cheating the federal government through false and inflated billings for the pedestals used on Navy ships.

This was a band of corporate whistleblowers, and they had plenty to celebrate at the little party in their Tampa lawyer's office in October 2001. Squiggled in frosting on the cake was the reason: a $10.5-million price tag dangling from the pedestal.

That was the total their former employer paid the government to settle the fraud allegations. The six celebrants, plus a seventh whistleblower who wasn't at the party, received a portion of the award, amounting to about $250,000 each after taxes.

"We were all happy that finally, after all these years, there was some resolution," said Bonnie Ormerod, one of the plaintiffs. "For a long time, we had been on an emotional rollercoaster."

With the rash of recent corporate scandals, whistleblowers at companies such as Enron have emerged as celebrities of the moment, praised for their honesty in a world of corruption. But the seven people who stood up and said EMS was cheating found little glamor as informers.

For their trouble, they got a wad of cash, years of anxiety and a lingering sense that they've been cheated.

Ormerod, a soft-spoken mother of two, received threatening phone calls after the lawsuit became public. She endured nerve-wracking grand jury appearances and hours of interrogation by government officials. Like the co-workers who joined her in the complaint, she struggled to find a new job.

The case was like a low-grade fever that hung over the plaintiffs while they tried to get on with their lives. Months would go by without a word of progress on the case, then a hearing or motion would reignite feelings of anger and powerlessness.

And there was risk in doing right. All of the plaintiffs had participated in the fraud and admitted as much in sworn statements. It cost one of the whistleblowers dearly: He spent six months in jail for his role in the company's scheme; he was the only executive to serve time.

So when the whistleblowers gathered to celebrate the company's payoff, they were ready for the whole affair to be over. But they left their party with a nagging unease because their fight for vindication had not yet reached the top. Though his three top lieutenants had been convicted of felonies, Kenneth Grannan, EMS' former president, remained untouched.

Grannan, removed from his position shortly before the company pleaded guilty, had been identified by assistant U.S. attorney Tony Peluso as the target of a criminal investigation. But as the whistleblowers received their checks, they were eager to see the prosecution of their former boss.

It never happened. The case was quietly closed last year with no action against Grannan.

The decision infuriated the whistleblowers, who see Grannan as a local version of executives like Ken Lay of Enron and Bernie Ebbers of WorldCom: Teflon-coated big guns who escape unharmed while the corporations they led -- and lower-level executives -- suffer.

"Where's the justice?" asked Greg Crino, a 46-year-old machinist who lost his job after 16 years with EMS. "It's like they paid off the peons so we would go away. But I'm tired of people in this country thinking money is justice."

Grannan, 55, declined to comment for this story. His attorney, Peter George of Tampa, responded angrily when told of the whistleblowers' belief that justice had not been served.

"It's outrageous for them to say the top guy got away," George said. "There was a full and complete investigation as far as I understand. The investigation was dropped because there was no evidence my client committed any crimes."

EMS, with its sprawling plant off 66th Street N near Pinellas Park High School, has operated in near-obscurity for decades. One of many factories clustered in the heart of Pinellas County, the company was known for offering steady work at slightly above average pay. Its workforce totaled about 130; turnover was low.

The plant, which had a string of out-of-state owners, was well known among Navy contractors for making and repairing radar pedestals. EMS became the go-to place for pedestal repair, the sole source for such government contracts. About 80 percent of EMS's work was for the Navy.

"We had the technology and the machinery, so we always got the government contracts," said Ormerod, a contract administrator at EMS.

In high-ceilinged buildings attached to EMS's modest front offices, shop workers pieced together the company's signature radar pedestals.

Workers fabricated the pedestals' framework, painted and assembled them and installed wire harnesses, ball bearings and electronics. The goal: a product sturdy enough for conditions aboard a Navy ship, yet flexible enough to allow maximum range for the radar.

The game at EMS was to shave prices for commercial customers but milk Navy contracts for all they were worth. It made for a profitable plant, with Grannan and his top managers sharing the rewards at year end with generous bonuses.

"It was a plush slush fund," Ormerod said of EMS's attitude toward Navy contracts.

When the plant was painted, the painters' time was charged to a Navy contract.

When machinists worked on commercial jobs, they kept the bill low by foisting their hours onto the government's tab.

And when a Navy pedestal needed repairs, it was often fixed with a used part, while the government was charged for a new piece. In one case, EMS charged the government for a fictitious trip to Canada to inspect a piece that was never used.

Ormerod and the other whistleblowers said employees carried out such systematic fraud with the knowledge and involvement of Grannan, who ruled with an iron hand.

Grannan became president of the Largo plant in 1985 after working in operations at a parent company. The guys on the shop floor quickly dubbed him "Mr. Malibu." With his blond hair, perpetual tan and crisp white shirt, Grannan breezed across the plant floor without ever getting dirtied. He seldom talked with the rank-and-file, communicating through a handful of top directors.

Despite his management style, Grannan was involved in every company matter, the whistleblowers said. In sworn statements, they said that when government accountants appeared at the plant for surprise audits, Grannan ordered the company's comptroller to hide documents that would show the routine overbilling.

When one government auditor asked for a particularly sensitive file, the whistleblowers said, Grannan told an executive to say it had been lost in a tornado that hit the plant in 1992. Then he ordered the subordinate to destroy it.

Paul Beattie, the highest-ranking EMS official to join the whistleblower lawsuit, said Grannan brooked no dissent.

"He would say, "It's my sandbox and if you don't like it, get out,' " said Beattie, who was director of contracts and pricing. "When I was negotiating a contract, all price parameters came from him."

Employees learned that questioning inflated contracts and fraudulent time cards led to trouble. Ormerod said when Grannan overheard her telling a supervisor she was concerned about the rampant fraud, he confronted her.

"He wanted to know why I would even question it when we got what we wanted," said Ormerod, who said Grannan would turn red in the face and curse when challenged. A few weeks later, Ormerod was removed from work on all Navy contracts.

Crino, who had worked his way up from machinist to supervisor, said he was demoted to the shop floor after asking why his group's time cards were being altered, with hours wrongly attributed to government jobs.

Grannan's lawyer declined to respond to the allegations.

"I just don't see any value in rehashing old allegations made by people who obviously are biased and motivated to try and hurt Mr. Grannan," George said.

Amy Odell, a secretary involved in the whistleblower lawsuit, said she complained to her boss, Derry Mount, the vice president of manufacturing, about being ordered to improperly charge her time to government contracts.

"He said if I intended to keep putting food on my table, I'd better keep quiet and do as I was told," said Odell, then a single mother of two.

Mount, who pleaded guilty to a felony, declined to comment.

Odell piled so much administrative time on government contracts -- time the Navy thought was being billed by skilled machinists, electricians and assembly workers -- that colleagues joked her next job would be installing pedestals aboard Navy ships.

The audacity of the fraud struck Odell one day when a government auditor walked up to her desk. As usual, the plant's receptionist sent out a phone alert to workers when the auditor left the lobby to tour the plant. And, as always, an EMS representative accompanied the auditor.

Odell was ready, with a file on a Navy contract open on her desk, though it had no relevance to her work. With a company official listening, she assured the auditor she was working on a government job.

"It's one thing to know this kind of stuff is happening around you," Odell, 44, said recently. "But when you out-and-out lie to government auditors, it really hits you."

James Emerson, a manufacturing engineer and technical manager for EMS for 15 years, told federal investigators the company worked on about 144 Navy pedestals from 1989 through 1995. The company charged $80,000 to $110,000 per pedestal for the work, saying the work entailed 40 to 55 hours of labor.

At that rate, total government billings for the six-year period would have ranged from $11.5-million to $15.8-million.

In fact, Emerson said, each repair job took only about 24 hours, meaning the charge to the government should have been roughly cut in half.

"I personally witnessed extensive and continuous fraudulent activities for the purposes of filing false claims for payment to the Government under the BOAs," Emerson testified, using the industry shorthand for government contracts or Basic Ordering Agreements. "These frauds occurred at all levels, and were directed by principals including, but not limited, to Kenneth A. Grannan and Derry Mount."

In early 1994, someone in the government became suspicious of the company's accounting. A Naval investigator questioned several employees, including Odell and Ormerod. Ormerod said she was asked if she would secretly record conversations with company executives. Then the investigation fizzled without a word of explanation.

Yet someone was determined to make public the wrongdoing at the pedestal plant.

In August 1994, an anonymous letter spelling out the overbilling scheme arrived at Comsat RSI, then the plant's corporate parent. In the fall, Richard Thomas, Comsat RSI's president, visited the factory twice, interviewing employees about the claims. Workers said he assured them they would suffer no repercussions.

But a few months later, in February 1995, EMS fired all the employees who told Thomas about overbilling the Navy, parts switching and accounting shenanigans.

Though the sudden dismissals were officially "a reduction in force due to lack of work," the employees escorted from the plant that day had one thing in common: all had spoken to Thomas.

Crino, who had refused to turn over personal records documenting the fraud to Thomas, was shocked and humiliated by the firing. He took little comfort from the reference letter given to all those discharged saying, "The termination was not due to performance."

The sole breadwinner in his family of four, Crino had just taken a loan to build a home swimming pool; workers were digging up his yard when he lost his job.

"You don't ask for the truth if you don't want to hear it," Crino said.

The firing came as little surprise to Ormerod, who had been looking for other work. She said Thomas' comments and attitude suggested he didn't want to hear about serious wrongdoing at the plant.

"After talking to him (Thomas), I knew I wasn't going to be there long," she said recently.

Ormerod immediately began looking for an attorney and soon was steered to John Vento in Tampa. Of the dozen people fired, seven joined the lawsuit that followed.

"When they originally came to me, they said, "These people treated us badly. We need a couple of weeks' severance pay,' " Vento said. But after hearing their story, he said he believed the case was about much more than wrongful firing.

It took 15 months for Vento to put together a lawsuit accusing EMS, Comsat, Thomas, Grannan, Mount and Quentin Voigt, the company's controller, with defrauding the government. (Thomas was later dropped from the complaint because of poor health.)

The case was filed in U.S. District Court in Tampa in May 1996. It remained under seal while government investigators reviewed the case. Beattie, Ormerod and Odell spent hours talking to Navy auditors and FBI agents at MacDill Air Force Base. Their information helped government agents target offices and documents during a raid on the plant in May 1997. It also helped prosecutors as they prepared to interrogate EMS officials before a grand jury in late 1997 and 1998.

In early 1999, the Justice Department joined the whistleblowers' civil lawsuit and the complaint was made public. But federal prosecutors wanted to pursue criminal charges against both the company and the individuals involved. They asked the whistleblowers to put the civil case on hold.

"I thought the plaintiffs made a tremendous sacrifice being as patient as they were," Vento said. "They said, "All we want to see is Grannan prosecuted. If we have to put the civil case on the backburner to see it done, we'll do it.' "

While federal prosecutors pieced together their criminal case, the whistleblowers tried to move on.

Debra Richter-Robinson, a stockroom clerk who had been with EMS 13 years, saw her credit rating shattered after she was fired. Unemployment and a thorny divorce depleted her limited savings and she ran up debt while searching for work.

"If I put on an application that I'd worked at EMS, I'd wonder whether they were going to say something negative about me," said Richter, who ended up supporting her two daughters on a string of low-paying jobs. "My whole lifestyle changed."

Odell, who made $10 an hour at EMS, had to ask her children's private school for tuition help after she was fired. She found a new secretarial position, at close to her previous pay, the week her unemployment benefits ran out.

Crino, the long-time machinist, forfeited about 100 days of sick leave when he was fired and lost company-subsidized health insurance for himself and his family. He landed a new job within two weeks of his dismissal, though at lower pay and without health benefits.

Ormerod, whose husband was laid off about the same time she was fired, searched for nearly five months before she found work with a pharmaceutical company.

After the case was made public, Ormerod and the other plaintiffs had to explain their involvement to new bosses, a stomach-churning experience that could have jeopardized their jobs. Ormerod was relieved to learn her new supervisor had been through a similar experience, witnessing fraud in a former job.

Being fired was hardest for Beattie, the highest-ranking whistleblower. He was in his early 50s with a master's degree and 25 years of experience in defense contracting.

"I was a little shell-shocked," said Beattie, now 60. "I didn't think Ken (Grannan) had the stupidity or nerve to get rid of me. I didn't hide the fact that somebody was going to hear about it."

Turning whistleblower carried extra risks for Beattie. Though all the fired workers had participated in the fraud, Beattie had profited the most. In addition to his salary of about $70,000, Beattie, like Grannan and other members of top management, had received annual bonuses tied to EMS' profitability. And the plant's profitability was tied to its fraud.

Beattie had another problem. He had been dating fellow whistleblower Odell for several months while working at EMS. Shortly before they were fired, Odell ended the relationship.

After the firing, Odell said, Beattie began drinking heavily, calling her and following her. Beattie said Odell exaggerates the situation but doesn't deny that it culminated in a blowup.

Six months after they were fired, Beattie entered Odell's home without her permission and struggled with her when she tried to call police. He was arrested on charges of burglary with assault. After pleading guilty, Beattie was sentenced to one year of house arrest and two years of probation.

He violated the probation when he was arrested in late 1997 for driving under the influence. He was sent to state prison for 27 months, from April 1998 through July 2000.

Vento, the lawyer, tried to keep the whistleblowers focused on the federal case while the domestic drama played out between Beattie and Odell.

Vento said Beattie "was definitely the most problematic of the clients. I spent much more time with him than with any other of the whistleblowers."

Still, Beattie was valuable to the case because he knew the most. He had been involved in top-level meetings with Grannan and knew how labor charges were inflated and paperwork faked.

Beattie, who says he believed he had been given immunity, was eager to explain the intricate scheme to federal investigators. He even was questioned while in state prison on the domestic violence charges.

Prosecutor Peluso told a federal judge that Beattie was the "key ingredient" in providing the government with a "treasure trove of information."

"He actually put his neck on the block and, without guile, cooperated with our investigation," said Peluso, who credited Beattie's information for helping the government extract guilty pleas from two EMS executives, as well as a guilty plea and millions of dollars in restitution from the company. "In my interaction with him, he has been honest and accurate. He's told us the truth."

Telling the truth did not help Beattie. His immunity agreement proved to be too vague to protect him from indictment on charges of covering up the scheme.

Beattie, who learned of the federal indictment soon after being released from state prison, pleaded guilty with the understanding that Peluso would ask the judge for probation. Federal judges had already agreed to probation for the company's controller and its vice president of manufacturing, who had both pleaded guilty to similar charges. Neither of them had stepped forward as a whistleblower.

Peluso pleaded at length with the sentencing judge for leniency.

"But for Mr. Beattie's cooperation," Peluso said, "I stand before this court and I tell the court that in my opinion I would not have guilty pleas of ElectroMechanical Systems" or the two other convicted EMS executives.

Instead of probation, however, Beattie got jail.

"I take signing documents under oath very seriously," said U.S. District Judge James Moody, who had not handled the other executives' hearings.

He sentenced Beattie to six months in federal prison, which he served from February to August 2001.

With one executive in prison, two on probation and Grannan identified by Peluso as a target, EMS' latest owner, Lockheed Martin, moved to settle both criminal and civil charges, paying $10.5-million.

One month before the civil settlement was signed, Lockheed removed Grannan as president of EMS. Shortly after, Lockheed's attorney asked the whistleblowers to swear that Grannan had acted on his own initiative. Such affidavits would free the company from paying Grannan's future legal fees. Vento said his clients were happy to do so, but prosecutor Peluso was not.

"Peluso yelled and screamed at me on the phone, saying it would wreck his case against Grannan if we did so and he'd have to shut it down immediately," Vento said, still sounding surprised at the outburst that took place nearly two years ago. "So I had to call Lockheed back and say we couldn't do it."

The next time Vento spoke with Peluso, he learned the prosecutor was dropping the case against Grannan.

Vento said Peluso dropped the bombshell during a lunchtime encounter at a hot dog cart in downtown Tampa.

"He was standing there with two hot dogs in his hands, saying he wasn't going to prosecute Grannan," Vento said. "I was beside myself. The whistleblowers handed him that case and he dropped it."

Peluso had been handed the mess created by prosecutorial misconduct in the government's investigation of Steve and Marlene Aisenberg, the Valrico couple whose baby disappeared in 1997. Vento said Peluso told him he was too busy to tackle Grannan.

Steve Cole, a spokesman with the U.S. Attorney's Office in Tampa, said Peluso's workload had nothing to do with the Grannan decision.

"A number of factors are taken into account when making the decision whether to charge somebody or not," Cole said recently. "Certainly someone's workload would never prevent us from pursuing a righteous prosecution."

Not long after, the federal attorney handling the civil case against Grannan also closed his case, deciding there wasn't enough cash to make it worth the government's trouble.

In a letter to Vento, a Justice Department attorney wrote: "An extensive search of public records for assets of Kenneth Grannan -- who did not plead guilty -- has revealed only modest personal and real property, much of which Florida law exempts from execution and sale. In addition, pursuant to his contract as president of EMS, Mr. Grannan's legal fees are being paid by Lockheed Martin Corp. (successor to EMS), so he has no practical impediment to litigating the case through trial and appeals. Given these factors, we have concluded that it is highly unlikely that further action against these individuals would result in a net recovery for the government."

February will mark nine years since the whistleblowers were escorted from EMS.

Grannan was on paid leave for a year at a salary of $154,000 before being dismissed in May 2001. His ex-wife said he is now retired. Grannan lives in north Pinellas County, within a few miles of several whistleblowers, but they've rarely encountered him. One whistleblower recently saw him at a local steakhouse, but they did not speak.

Crino, who said he put his share of the settlement into a college fund for his two daughters, said Grannan should be in jail for his actions.

"My wife says to forget about it, but he hurt a lot of people," Crino said.

Odell, who bought a laundry business with her share of the award, said, "The government's sending the message it doesn't really care about the top guy."

Beattie, who saw inmates kill two prisoners in federal prison, tried to restart his life with an online real estate business underwritten by his award check. The business and bad health devoured most of his money. He is close to bankruptcy and bitter.

"In retrospect, I should have kept my mouth shut," Beattie said recently. "People ought to know that whistleblowers don't always come out smelling like a rose."

EMS is now owned by DRS Surveillance Support Systems and is again handling government contracts.

Referring to Grannan and EMS, Beattie said, "They did, in fact, get away with it."

-- Times researchers Kitty Bennett and Caryn Baird contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.