Fraud isn't rocket science

What do pizza chains, horror movies and ski lodges have in common with rockets, satellites and space stations? The U.S. National Aeronautics and Space Administration (NASA) has paid for all these things, whether knowingly or unknowingly.

It may seem unthinkable that NASA could have unknowingly financed such unrelated things, but as Joseph Gutheinz Jr., CFE, explained to attendees at the 28th Annual ACFE Global Fraud Conference, even large government entities can fall victim to crafty fraudsters. Between 1986 and 1993, fraudster Ralph E. Montijo Jr., fleeced the government for millions of dollars that he then laundered through a wide array of colorful schemes.

Gutheinz was a senior special agent at the NASA Office of Inspector General (OIG) during the investigation that ultimately led to the arrest and prosecution of Montijo. When Gutheinz began the case in 1992, they received a tip on the NASA hotline about a subcontractor, Omniplan. Montijo owned Omniplan which was under contract by Rockwell Space Operation Company — a prime contractor for NASA. Gutheinz and his investigative team went over Montijo’s invoices to NASA for leasing buildings, equipment, cars and other business expenditures from third parties and quickly discovered something fishy — Montijo owned all the buildings and equipment outright already; there was no third party that needed to be paid.

Once that fact was established, the NASA OIG officially put together a task force. Through their investigations, they discovered that Montijo was laundering his stolen money through a variety of channels. “There couldn’t have been a more egregious bad guy than Ralph Montijo,” said Gutheinz. “He had all these crazy ways of hiding money and we kept catching him.” Some of those ways included owning a number of pizza franchises in the “Papa Primo’s” chain, funding a feature-length horror movie filmed in Spain called “Demons of the Dark” and keeping 35 separate bank accounts. Montijo also used NASA funds for his mortgages in Houston, Texas, Tuscon, Arizona, and a ski lodge in California. Trips to India, Nepal, Switzerland, Singapore, Argentina and more were also added to invoices.

Montijo wasn’t selective about his fraud though. “He liked to steal,” Gutheinz said. “He came up with inventive ways to steal and he came after his employees as well.” Montijo embezzled from his employees’ health and pension plans and was known as a micromanager. He demanded he be the point of contact on all accounts related to all his ventures, which allowed him to hide the mechanics of his thefts from others.

After sifting through mountains of evidence and interviews, Gutheinz and his investigators were able to take their findings to prosecutors. Gutheinz says that there were 10,400 different possible felony counts that could have applied to Montijo and Omniplan, but they chose to go after 285 counts. “My auditors spent four years putting the packets together for each and every count,” said Gutheinz. The case was notable not only in volume of charges, but because it was the first time any defendant had been tried under Title 18 U.S.C. 1516 — Obstruction of a Government Audit. Gutheinz said his auditors were so proud of the years of work they put into this investigation that they started carrying around a printed copy of the title in their pockets.

In 1996, Montijo pled guilty to around 180 criminal counts and was sentenced to two years in prison and ordered to pay $12 million in restitution, according to the Los Angeles Times article, “NASA Paid Millions to Fraudulent Contractor,” by David Rosenzweig on Jan. 13, 2000. Gutheinz received a letter from Louis Freeh, the director of the FBI, declaring this case the largest fraud case NASA had ever experienced. Despite the complicated layers of deception, through hard work and perseverance, Gutheinz and his team were able to bring an odious fraudster to justice.

Read more articles containing live coverage from the 28th Annual ACFE Global Fraud Conference at Fraud Conference News.

Sarah Hofmann is the ACFE's Public Information Officer. She can be reached at: shofmann@ACFE.com.