Operation Octanova was high on undercover glamour--and stress. Over four years, 27 federal agents lived double lives. They wore body wires, chatted while hidden cameras rolled. They play-acted through jaunts to the Belmont Stakes and $800 French Quarter dinners with New Orleans suspects.
All that ended yesterday when the FBI held a news conference to announce the filing of criminal charges against 21 individuals for fraud, kickbacks and false claims on contracts for repairs of Navy ships. The eight ships--all named for stars--prompted the Latin-derived code name.
From 1995 to 1999, the Navy, paying $200 million for repairs to its eight sealift vessels, also was paying for a variety of contractors' extras--among them pianos, boats, television sets, golf outings, private school tuition and payments to a girlfriend, according to the FBI.
Thomas J. Pickard, assistant director in charge of the FBI's criminal investigative division, said officials do not yet know the total amount of fraudulent payments. Jule E. Miller, in the FBI national press office, said an audit is ongoing and estimates were unavailable.
Officials stressed that Navy readiness was not compromised by the fraud. The ships are used to move military equipment quickly; they were used in the Persian Gulf War. Ernest A. Simon, assistant director at the Naval Criminal Investigative Service, said that needed repairs were made to the ships.
The government acted on a tip in late 1993. Four federal agencies cooperated--the FBI, the Defense Criminal Investigative Service, the Naval Criminal Investigative Service and the Transportation Department's inspector general.
"This type of fraud is very difficult to uncover," Pickard said. "Creative techniques" were devised.
For four years, the FBI, DCIS and NCIS ran an undercover business in Ponte Vedra Beach, Fla., near Jacksonville, according to an FBI affidavit. The fake company grew with the case. It eventually had offices in New Orleans, Houston, Norfolk and San Francisco.
FBI special agent Joseph Carroll was instrumental in developing the operation. Two other key agents were Angela David of DCIS and Helen Sherry of NCIS, who worked 25 months undercover.
"It's a tremendous stress. They were literally part of the community--undercover. They lived it 24 hours a day," said Mark F. Johnson, the FBI case agent in New Orleans.
The agents posed as company employees. They bid on subcontracts to Bay Ship Management, one of the contractors that was the focus of the investigation, and worked on about 200 contracts in 1994-96.
The contracts, agents discovered, were "fraudulently inflated" to pay cash to Bay Ship employees and for "meals, golf outings and other forms of entertainment," according to the FBI affidavit.
During the next two years, more fraud emerged. Bay Ship Management employees told the government that certain repairs--which were not needed--were done, but then did not do them. Invoices were inflated by showing "more laborers working on the job than actually did," the FBI affidavit says.
Bay Ship Management was not the only organization caught up in the wide-ranging investigation. Officials from the Seafarers International Union, H&R Electric, Boston Ship Repair, Fire Protection Services, Horizon Marine Industries, Triplex Marine Maintenance and other subcontractors also were charged in the case.
Bay Ship's contract with the Navy has not been suspended, according to chief executive Eugene Rose.
Rose said his company first learned of the investigation last August, when agents burst into the Englewood, N.J., offices of Bay Ship with search warrants. The company started its own investigation, and fired Donald L. Allender, 53, Cary G. Byron, 56, Eric M. Bardes, 42, Robert C. Kessler, 35, Robert Collins, 56, and George McNabb--all of whom have been charged in the case.
Rose said he hopes Bay Ship, which has about 280 employees, will continue to do business with the government. "We are back on the course to reestablish our credibility."