Department of Justice
U.S. Attorney’s Office
District of Maryland
Friday, December 18, 2020
FOR IMMEDIATE RELEASE
Virginia Defense Contractor Pleads Guilty to Federal Charges in Maryland for Illegally Selling Chinese-Made Body Armor and Related Goods to Federal Agencies and for Illegal Possession of a Firearm
Falsely Certified that the Products Were Manufactured in Countries Approved Under Federal Regulations, When He Knew They Were From China, Which is Not Approved
Greenbelt, Maryland – Arthur Morgan, age 67, of Lorton, Virginia, pleaded guilty today to a federal wire fraud charge, in connection with federal contracts to provide helmets, body armor, and other items to military and other federal entities. Morgan also pleaded guilty to illegal possession of a firearm by a prohibited person, a charge which was originally brought in U.S. District Court for the Eastern District of Virginia, but was transferred to Maryland.
The guilty plea was announced by United States Attorney for the District of Maryland Robert K. Hur; United States Attorney for the Eastern District of Virginia G. Zachary Terwilliger; Special Agent in Charge Eric D. Radwick of the General Services Administration (GSA) Office of Inspector General; Special Agent in Charge Ashan Benedict of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) Washington Field Division; Special Agent in Charge Alison F. Zavada, Naval Criminal Investigative Service; and Assistant Inspector General for Investigations Michael Ryan of the U.S. Department of State Office of Inspector General.
According to his plea agreement, Morgan was the Chief Executive Officer of Surveillance Equipment Group Inc. (SEG) and its relevant division, SEG Armor, both of which Morgan managed from Lorton, Virginia. The GSA enters into government-wide contracts with commercial firms to provide supplies and services that are available for use by federal agencies worldwide. All GSA contracts are subject to the Trade Agreements Act (TAA), which requires that all products listed on GSA contracts must be manufactured or “substantially transformed” in a “designated country.” China is not a designated country under the TAA. Contractors were not allowed, under these GSA contracts, to supply products that did not comply with the TAA. Any such products would have been disqualified from eligibility under the contract. Further, a contractor’s failure to certify that its products complied with the TAA would have disqualified the contractor from eligibility for the contract. A contractor who falsely certified that a product was TAA compliant could not lawfully seek payment from the United States for that product.
As detailed in his plea agreement, Morgan falsely certified that the ballistic vests, helmets, riot gear, and other items he offered for sale under his federal contract were from designated countries, specifically, Hong Kong and the United States. While representing that none of SEG’s products offered to federal agencies under the relevant contract were manufactured in China, Morgan knowingly provided products that Morgan knew had been manufactured in China, in violation of the TAA and the contract. SEG received multiple federal government orders under the contract between 2003 and 2019. Between September 15, 2014 and August 29, 2019, approximately six federal government agencies placed at least 11 orders for ballistic and other law enforcement/security equipment from SEG—which SEG sourced from China in violation of the TAA, as part of the scheme to defraud— totaling approximately $658,866.92.
For example, the U.S. Navy placed an order with SEG for helmets, and Morgan had a series of e-mail communications with Navy contracting personnel in Indian Head, Maryland, including concerning SEG’s inability to meet the agreed-upon delivery schedule. In his e-mails, Morgan falsely advised the Navy contracting personnel that SEG had a factory in southern Virginia, that the helmets for the order “were in production” there, and that the delays were due to a backorder of materials needed for the helmets. To the contrary, the helmets that Morgan provided under the U.S. Navy order originated from China before Morgan sent them to the Navy, in violation of the TAA and the contract. Specifically, Morgan admitted that these products were manufactured by Chinese Company 1, from which Morgan knowingly ordered them.
On February 16, 2016, and March 10, 2016, the Defense Finance and Accounting Service paid SEG $127,069.60 and $191,990.28, respectively, for the U.S. Navy order. For all of the orders, federal government agencies paid SEG at least approximately $488,976.92.
On December 17, 2019, law enforcement executed search warrants at Morgan’s residence in Lorton; at the Louisa, Virginia property that his wife owned and which Morgan had claimed housed SEG’s manufacturing operation; at one of Morgan’s storage units in Mineral, Virginia; and at a rental warehousing location in Springfield, Virginia. Law enforcement recovered: a 12-gauge shotgun; a 9mm semi-automatic firearm with two magazines; a .380-caliber semi-automatic firearm with two magazines; a .38-caliber five-shot revolver, with two speed loaders; 315 rounds of various caliber ammunition; a 30-round 9mm extended magazine; four ballistic vests; five ballistic plates; three black ballistic helmets; one “SEG Armor” ballistic vest manufactured in China; and personal use marijuana with accompanying paraphernalia. At the time that Morgan possessed the firearms, ammunition, and body armor, he had been convicted of at least one crime of violence, specifically, second-degree murder, assault with the intent to murder, rape or rob, and use of a handgun in a crime of violence, in the Circuit Court for Prince George’s County, Maryland on June 1, 1982. As a result of this conviction, Morgan was prohibited from possessing firearms, ammunition, or body armor.
Morgan faces a maximum sentence of 20 years in federal prison for wire fraud and a maximum of 10 years in federal prison for being a felon in possession of firearms and ammunition. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors. U.S. District Judge George J. Hazel has scheduled sentencing for March 15, 2021, at 10:00 a.m.
United States Attorney Robert K. Hur commended the GSA OIG, the State Department OIG, the ATF, the NCIS, and the U.S. Attorney’s Office for the Eastern District of Virginia for their work in this investigation and prosecution, and recognized the Army Major Procurement Fraud Unit, the Defense Criminal Investigative Service, Homeland Security Investigations, the FBI, the Air Force Office of Special Investigations, and the Coast Guard Investigative Service for their assistance. Mr. Hur thanked Assistant U.S. Attorney Elizabeth Wright, who is prosecuting the case.
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Source: U.S. Department of Justice press release.