Named in the indictment are Wright as president of ESM, Gregory and Justin Magness, president and vice president of Superior Metal Powders, Qian Chen, William Nehill and his company International Technology Group Inc., as well as Eldon Bott, president of Innovative Materials & Solutions Inc.
ESM owner, others face charges for mag fraud
Publication: American Metal Market (AMM)
Date: Tuesday, May 4 2010
allbusiness.com
Chuck Wright, owner of ESM Group Inc., one of the largest desulfurizing reagent suppliers to the domestic steel industry, has been indicted along with five other people for evading anti-dumping duties worth some $11 million on Chinese magnesium powder imports into the United States.
A federal grand jury has returned an indictment charging the six people and three companies with conspiring to defraud the U.S. government and wire fraud connected with the supply and composition of critical materials used by the U.S. military, U.S. Attorney for the Western District of New York William Hochul said in a statement.
Named in the indictment are Wright as president of ESM, Gregory and Justin Magness, president and vice president of Superior Metal Powders, Qian Chen, William Nehill and his company International Technology Group Inc., as well as Eldon Bott, president of Innovative Materials & Solutions Inc.
Their companies, excluding ESM, which has not been indicted, are also included.
The defendants allegedly violated Defense Department rules by obtaining magnesium produced in China, rather than from the United States or Canada and then mislabeling and undervaluing the material to evade customs and anti-dumping duties, actions which resulted in a loss of more than $10 million in customs duties, according to the charges.
As part of the alleged scam, Wright sold Chinese magnesium powder to Kilgore Flares, which had a contract with the U.S. military to produce countermeasure flares, primarily composed of magnesium powder and used in military aircraft to divert heat-seeking missiles.
Between 2003 and 2006, the material was bought from Superior Metal Powders via Chen, a specialty metals importer in China, as well as Nehill and his company International Technology.
The defendants agreed to import ultra-fine ground magnesium powder labeled as magnesium reagent and/or magnesium desulfurization reagent to avoid the 305.56-percent anti-dumping duty on powder, according to allegations contained in the indictment filed in the Western District Court of New York.
Chen and Nehill allegedly had the drums labeled and the invoices and bills of lading falsely and fraudulently describe the material as magnesium reagent or magnesium desulfurization reagent. Two sets of invoices pertaining to the cost of the product were kept.
Some 1.8 million counterflares valued at some $42 million using the Chinese material were sold to the military in violation of contract regulations, according to the charges.
"The critical aspect of this case is that the defendants stand accused of intentionally evading Department of Defense regulations, jeopardizing military service men and women and a critical American industry, and defrauding the government out of millions of dollars of tariffs and duties," said U.S. Attorney Hochul.
"This is a case where men, operating under the guise of legitimate businesses, conspired to import mislabeled and undervalued magnesium powder-a key component of flares-from China into the United States," said U.S. Immigration and Customs Enforcement special agent in charge Lev Kubiak.
"As a result, (the Defense Department) was sold non-conforming flares, which could have put our war fighters at additional risk."
The charges carry a maximum penalty of five years imprisonment, a $250,000 fine or both and 20 years imprisonment, a fine of $250,000 or both.
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