Now in Legal Rebels:
Posted Oct 01, 2008 09:50 pm CDT
Axion’s 61 workers met some grueling deadlines that December. Latifi treated them to juicy chicken and fluffy lemon pie from Big Bob Gibson’s joint. He offered overtime, a $100 bonus and a turkey to anyone willing to work Christmas.
“Our fighting men and women are in danger,” Latifi, a naturalized American citizen born in Iran, told workers. “Do it for your country.”
“He’s the best boss any of us ever had,” former Axion employee Connie Kidd says. “We’d work on Christmas, even without poultry.”
Just five months later, federal investigators raided Axion and Latifi was caught in a four-year investigation involving the Army Criminal Investigation Command, FBI, Immigration and Customs Enforcement, NASA, a hazmat team, IRS, Alabama Bureau of Investigation and U.S. postal inspectors. The U.S. Department of Justice sent lawyers from its National Security Division to help U.S. Attorney Alice Martin prosecute Latifi on charges that a report he filed was falsified and a drawing of a Black Hawk helicopter part he sent to China was classified.
Latifi, 61, faced up to 40 years in prison if convicted on all charges. His assets were frozen; records, computers and cell phones seized.
Preparing for trial, Latifi’s lawyers were stunned by the first entry in the lead investigator’s official notebook. “It said Latifi was a Democrat and gave $30,000 to a Democratic politician’s charity for abused children,” says Jim Barger, an associate at Baker, Donelson, Bearman, Caldwell & Berkowitz.
The trial was potholed with crazy. The government’s key informant was a fired company secretary convicted of stealing from Axion and forging Latifi’s signature. She said on the witness stand she sabotaged Axion records. The judge excluded a top government fraud attorney from court for bizarre conduct. The drawing at issue was marked both “unclassified” and “uncontrolled.” China owns Black Hawk helicopters and can examine the part anytime it wants.
After a seven-day October 2007 trial, Latifi was acquitted of all charges. But his business is gone.
Photo by J. Hanshaw
The strange case seems to bring up some crucial questions about how DOJ pursues arms export prosecutions, though DOJ spokesman Dean Boyd disagrees. (“You should not be writing about this case! It’s weird! It’s an anomaly. It’s a weird anomaly!” he fumes.) But the U.S. Office of Professional Responsibility is investigating defense attorneys’ charges that Martin launched a political and baseless prosecution of Latifi. And arms control lawyers—a scant but growing breed—are following the case avidly.
Martin was appointed U.S. attorney for northern Alabama by President George W. Bush and took office 18 days after 9/11. In 2007 an Alabama GOP operative testified before a House Judiciary Committee that Martin and another Alabama U.S. attorney wrongly prosecuted former Democratic Alabama Gov. Don Siegelman at the behest of Bush’s deputy chief of staff, Karl Rove.
Martin denies all charges of political bias. Before she could indict Latifi on arms export control charges, she says, the National Security Division reviewed the evidence and gave its required approval.
Latifi is the only defendant to prevail in the 100 arms export cases Justice pursued last year, and he questions the department’s priorities.
“I never failed a quality inspection,” Latifi says, still distraught. “I produce better parts than the Pentagon specs require. While they were investigating me, huge contractors were electrocuting soldiers in Iraq with bad wiring and making them sick with contaminated water. How many would be alive if the U.S. spent the resources thrown at me on investigating those contractors?”
Martin told the ABA Journal, “If KBR or Halliburton committed an illegal act in my jurisdiction in Alabama, I would have prosecuted them. I prosecuted the case that was brought before me.”
Former Axion workers sit in their empty factory, telling a reporter about their former jobs.
Sean Bailey, 36, was an outstanding Axion employee. “I had appreciation stars for good work all over my shirt,” Bailey says, his smile as sweet as Alabama’s Red Mountain honey. “I never had a dad, so Mr. Latifi was like my father. I helped make this” —Bailey grabs a helicopter seat—“for our soldiers. If a copter crashed, maybe the man could survive.”
Bailey runs his hand across the seat, smile fading. “When Axion closed, I had to sell my vehicle and my home. My wife walked out. The end came so fast.”
Former line manager Wayne Smart is also struggling in a harsh economy. As Smart discusses Axion, his foot begins bleeding. He cut it hooking an abandoned car to his pickup.
“I earn money trading scrap metal for cash,” Smart says. “It’s hard. I almost lost my house. So many people are picking up scrap metal now, there’s not much left.”
The workers’ unlikely mentor was Alex Latifi. Latifi grew up in Iran, the son of an Arab sheik who hunted wild boar with Gen. Norman Schwarzkopf’s father. He came to America in 1971 to study engineering at the University of Alabama. He married his classmate Beth and became a citizen in 1982. His company eventually earned $4 million in annual revenues focusing on small parts.
Latifi’s strength was deconstructing parts to find ways to make them quicker and better. All defense contractors are scrutinized by Defense Department quality assurance representatives who make scheduled and surprise inspections of parts and shipments. They pore over all paperwork, especially test reports.
Latifi’s QAR was Henry Stickrod, a tough ex-Navy chief petty officer who slapped 50 cents on the table whenever Latifi offered him coffee.
“Alex got so involved in improving a part, required paperwork would pile up—common for small contractors,” Stickrod says. “The contracting system favors giant contractors with teams of secretaries.”
Three times, Stickrod killed Latifi’s contracts when he thought Latifi would miss paperwork deadlines. “But Alex fulfilled hundreds of other contracts making a much improved, cheaper part,” Stickrod says.
Ironically, the Black Hawk part—a bifilar weight assembly used to help stabilize copter blades—that put Latifi in Martin’s crosshairs was a success for the U.S. Army. The assembly is made from tungsten.
Contractors typically buy tungsten in 185-pound blocks, whittle it into shape and charge about $4,500 per part. Leftover shavings are molded to create another part. The Army basically pays twice for the same tungsten. Latifi found a Chinese supplier selling 22-pound chunks. Whittling smaller blocks halves production time; Latifi could charge just $2,860 per part.
Latifi asked if the supplier could machine the tungsten before shipping. The Chinese asked for a drawing of the part.
Black Hawk parts are on a U.S. Army CD labeled “for official government business only.” The Defense Department requires each drawing too sensitive to be shown to foreigners be stamped with a “classified” warning. The assembly drawing was unstamped. Latifi hired a mechanical engineer to create a dumbed-down drawing to send to China.
But Axion secretary Elizabeth Lemay was giving federal agents a different story. In October 2003, while embezzling from Axion, Lemay contacted the FBI. She was fired in February 2004 for stealing $12,730 from Axion. At her arrest, Lemay told police, “Before you put on the handcuffs, you better call the FBI. This is bigger than you.”
Lemay’s three-year jail sentence was suspended. She and her probation officer did not respond to requests for an interview.
This summer, the team that won the Latifi case dines al fresco at the trendy Hot and Hot Fish Club, ignoring thunder, rain pelting patio umbrellas and heat lightning shimmering in the twilight. The attorneys are too happy to notice.
“Here’s to love of justice crossing political boundaries,” Henry Frohsin toasts. “Our team includes a Yellow Dog Democrat [Frohsin], two young independents [Barger and Elliott Walthall] and a devout Republican who’s a former Miss Alabama beauty queen [Catherine Long]. When pretrial stress built too much, Catherine put on a swimsuit and sash and played piano. Deeply disturbing. She wore her tiara to celebrate the acquittal.”
Long rolls her eyes and says, “My role in this law firm family is younger sister with obnoxious big brothers.”
They were all working in Baker Donelson’s Birmingham office in 2004 when Latifi contacted Frohsin, a shareholder at the firm and a former U.S. attorney. Long and Walthall had not yet graduated from law school. They missed day two of the 2007 trial to be inducted into the bar.
The year martin launched a full-blown investigation of Latifi, the DOJ ramped up regional task forces and working groups to help U.S. attorneys prosecute arms export cases. Wendy Wysong, a partner at the Washington, D.C., office of Clifford Chance, prosecuted arms export cases while at the U.S. Commerce Department. She says in 2004 the obscure field of law became the hot, starmaking field for U.S. attorneys.
When Lemay contacted the FBI in 2003, agents passed her to the Army Criminal Investigation Command, still known by its old acronym CID, in Alabama. CID became the lead agency in the investigation.
That’s highly unusual, says Larry Mackey, a partner at the Indianapolis office of Barnes & Thornburg and former federal prosecutor who convicted Oklahoma City bomber Timothy McVeigh. Normally, the FBI and Immigration and Customs Enforcement lead such an investigation. “CID serves the role of police detective, investigating rapes, murders, armory robberies on military bases, payroll fraud,” Mackey says.
CID public affairs chief Christopher Grey declined to comment on Latifi’s case but said, “Our major procurement fraud unit helps to recover about $130 million annually from individuals and companies involved in contract fraud—all this with less than 100 special agents.”
During discovery, Frohsin and Barger asked for the notebooks of all investigating agents. Barger says Assistant U.S. Attorney David Estes refused to let them photocopy the material.
“He said we would have to stay inside the evidence room and take notes,” Barger says. “When we got there, hundreds of files and investigators’ notebooks from other cases covered our work table and overflowed out of open boxes. Not exactly a tight ship.”
The Defense Department continued buying Axion parts as the investigation trudged into 2005. Estes is an Army National Guard lieutenant colonel who served in Iraq from November 2004 to November 2005. While he was gone, Martin had another assistant U.S. attorney bring Latifi’s case to a grand jury.
There was no indictment. Investigators kept foraging.
June 7, 2006, was the day Latifi says killed Axion. Agents from 10 federal entities executed a second search warrant. This time, agents didn’t simply copy Axion computer hard drives. They seized all Axion computers, files and disks. They seized Axion cell phones as well as those belonging to every Latifi family member and carted all the computers out of Latifi’s home. Martin froze $2.5 million in assets belonging to Axion and Latifi.
Yet Defense still continued buying parts from Axion. Latifi cashed in retirement savings to pay his workers and vendors. But without his computers and records, fulfilling contracts became impossible. In December 2006, he finally had to let his workers go. He paid them for Christmas.
The investigation continued into 2007.
“Can you imagine if the feds seized Lockheed Martin’s or ITT’s assets and computer system—without any charges—while the government investigated?” Frohsin asks. “Every lobbyist in D.C. would howl until the feds backed down. We asked Martin to put up or shut up.”
Latifi’s generosity also brought trouble with the prosecutors. Back when Ayatollah Ruhollah Khomeini came to power in Iran in 1979, some of Latifi’s relatives were murdered for being pro-American. Latifi kept in touch with family and friends and tried to help in any way he legally could. After a nephew died because he could not be evacuated to a hospital, Latifi pledged $250,000 to an Iranian charity for medical evacuation helicopters.
His business attorney and friend, Jerome Gabig, says the gesture was “generous and really stupid.”
The 2005 donation was legal, but Gabig reminded Latifi he was under a microscope and begged him to wait. Latifi felt the investigation would drag on forever.
“I’m a West Point graduate; I bleed red, white and blue,” Gabig says. “Alex kept saying he trusted justice in America to protect his rights. But we’re in a war. That check rang warning bells with Dave Estes at exactly the wrong moment,” Gabig says.
Elliott Walthall, Jim Barger, Henry Frohsin,
Photo by J. Hanshaw, Photography Inc.
Estes agrees. “We thought he might be moving assets to Iran,” says Estes. “I called in the IRS to investigate him as well.” The IRS found no evidence of criminal conduct.
On March 30, 2007, Martin announced an indictment of Latifi and Axion on six counts of export control violations and filing false test reports.
Barger did a computer search on the Black Hawk part’s serial number to show Estes the drawing was sold online by reputable publishers and thus in the public domain. The men discussed Axion, rather than Latifi, pleading guilty to a count that would take prison off the table.
“Estes called me back and said Alice would not accept any plea that didn’t include Latifi,” Barger says.
Frohsin wanted a forgery expert to examine the fraudulent test report Latifi allegedly signed. Latifi said Lemay forged his signature. Opposing counsel gathered for a conference call.
“Alice Martin said something at this meeting that forced me to file a complaint against her with [the Office of Professional Responsibility]; my sworn duty as an officer of the court left me no choice,” Frohsin says.
Frohsin asked whether prosecutors would drop a related charge if handwriting experts declared the signature a forgery. According to the Baker Donelson lawyers, Martin replied, “We don’t care if Latifi is innocent. Our goal is to put him out of business.”
When asked later by telephone whether she made that statement, there is utter silence for a long moment.
“If you know someone is a bank robber,” Martin said carefully, “then you want to put him out of the business of robbing banks, no matter what.”
Martin says she remembers her sentiment, not her exact wording.
After their conference call, Frohsin called his troops to his office and said, “Tape your ankles. We’re hittin’ the field for the big game.”
Trial began on a glum, rain-soaked day. Long wrestled exhibits up the stairs (the elevator was broken) to the tiny Florence, Ala., courtroom where U.S. District Judge Inge Johnson heard Latifi’s case.
Frohsin decided against a jury, fearing escalating casualties in Iraq might spark bias against a defendant from the Middle East. He was further convinced by several courtroom spectators: They often wore matching polo shirts; they muttered “ass- hole” and “bastard” whenever Barger or Frohsin stood up. A courthouse staffer who approached an unruly group member says the man growled and yipped like a rabies-riddled Yorkie.
Frohsin called them “nutjobs.”
They were not nutjobs. They were government employees who worked for the Defense Contract Management Agency, the federal agency charged with supervising defense contractors, from titans like KBR and Halliburton to mom-and-pops.
In 2004, the U.S. Government Accountability Office reported that DCMA was too ill-equipped to tackle critical problems with defense contractor fraud and abuse in Iraq. More recently, DCMA was cited in a New York Times article about faulty electrical wiring installed by KBR that killed U.S. soldiers in Iraq in 2006 and 2007. The Times reported a DCMA official said DCMA and KBR had been “fully aware” of the electrical problems before they resulted in soldiers’ deaths in 2007.
Those same years, DCMA was helping Estes search for evidence of fraud in Latifi’s paperwork. DCMA fraud attorney Gill Bass sat behind Estes in the courtroom.
On the trial’s first day, the court received letters for a would-be witness who had worked with Latifi and conveyed some of Lemay’s tips against Axion to investigators. The letters, delivered by the witness’s husband and from her doctor and a psychologist, said she was too mentally unstable to testify.
On day three of the trial, Beth Latifi claimed Bass told her daughters their dad would die in prison. They sobbed. A court deputy demanded Bass’s business card and deemed her behavior “obnoxious.”
The judge, Frohsin and Estes met in chambers.
“I think the best thing to do is put [Bass] out of the courtroom,” Johnson said, according to case transcripts. “I have no doubt she is doing what Mr. Frohsin is saying.”
Estes said when he turned to look at the spectators, he saw Bass talking to one of Latifi’s daughters.
Frohsin added, helpfully: “She has been acting bizarre all week long. She blurts out in that courtroom and she calls me a son of a bitch. She calls me an asshole.” During the trial, the Latifis and their attorneys said Bass often punched the air with her fist and said, “Yesssssss!”
DCMA public affairs chief Richard Cole, in an e-mail response to ABA Journal questions, said, “Ms. Bass denies screaming at any time during the trial or calling anyone names. She was not present in chambers when the transcript pages you refer to were transcribed, but takes issue with what was stated. As to court personnel stating she was rude when she was approached, Ms. Bass said the individual never identified herself before asking questions.”
Cole added, “She also denies having any conversation with the defendant’s family even though she sat in the same row as the Latifi family in the courtroom.” Bass was not made available for comment for this story.
After the morning brouhaha, Lemay testified. Barger says she was smug and cocky. She threw Estes, too, when he asked whether Latifi submitted a fraudulent test report. She testified she didn’t know whether that was true.
Frohsin asked her about the tips she gave CID and the FBI; she repeatedly replied, “I don’t recall.”
Frohsin asked whether she recalled anything she said to the lead CID investigator.
“No, I don’t,” Lemay said.
“Do you have a memory problem, ma’am?” Frohsin asked, exasperated.
“As a matter of fact, I do.” Lemay replied.
Lemay did admit to altering and sabotaging Axion files and computer records. This proved useful to another prosecution target, Kary Warren, a small Huntsville defense contractor who sometimes tested Axion parts.
During the April 2004 raid on Axion, the doorbell rang at Warren’s home. His wife thought it was the Avon lady. She found 10 government agents lugging a battering ram onto her porch.
“The prosecutors said they knew Alex must be guilty of fraud,” Warren says. “How else could he afford to make Cadillac parts for Kia prices?”
Some DCMA investigators were convinced Warren was a member of a mosque because he was a Shriner. An Alabama law enforcement officer persuaded the DCMA agents that Shriners were a nationwide charitable group that has funded U.S. children’s hospitals and burn units since 1922.
Lemay had told investigators Warren turned in a test report without doing the test. Warren did the test, but days earlier Latifi had badgered him for an in-house progress report. Warren was swamped. To get his colleague off his back, he wrote Latifi a note saying the test was done.
Warren thought he could go to prison for that note.
“I couldn’t afford a lawyer; I was facing five years in prison and a $100,000 fine,” says Warren, a strapping man who played football for the University of Alabama. Tears spill down his cheeks. “The prosecutors said if I pled guilty to falsifying a report, I’d just pay a $300 fine.”
On the stand, Warren couldn’t remember the dates he performed the tests, only that it was before deer season and after dove season. Judge Johnson, a hunter, was familiar with the seasons.
Between them, the hunters in court established that Warren had completed the tests at the proper time.
Warren later was allowed to withdraw his guilty plea by U.S. District Judge U.W. Clemon, who said an innocent man deserves no punishment. However, Warren was forced to sell his business and lay off half his workers to pay legal fees.
On day five came the “gotcha” moment. The State Department determines what military parts are prohibited for export. Restrictions vary year to year according to who is in the White House and which countries have warming or chilling relationships with the United States.
Estes called State Department trade expert Mal Zerden. Prosecutors made an enormous blow-up copy of the Black Hawk part drawing for Zerden to discuss.
Photo by J. Hanshaw Photography Inc.
Barger had not had time to study it, so he went through the drill, asking Zerden to confirm it was not stamped as classified.
“Just as a wrap-up I asked if he noticed any noteworthy stampings,” Barger says. Barger expected to get a no and sit down.
But Zerden scrutinized the drawing and offered this: “On the bottom left, it does say ‘unclassified’ and has a long number, ‘uncontrolled when printed,’ then has some more numbers.”
The courtroom became dead silent. The DCMA workers were living statues. Lawyers had not spotted the phrase mired in fine print and jargon.
The judge climbed down from the bench to look at the telltale phrase.
Estes objected that they were all misinterpreting uncontrolled and unclassified. But even if Estes were correct, Barger scored a decisive point. The State Department’s own expert thought the drawing was unclassified, so why shouldn’t an Alabama defense contractor share the same conclusion?
When she acquitted Latifi of all charges, Johnson called the U.S. attorney’s case “sloppy.” Martin’s office posted notice of the acquittal two months later. Johnson awarded Latifi almost $364,000 in legal fees under the Civil Asset Forfeiture Reform Act.
National security division attorney Mariclaire Rourke, who assisted Estes on the case, did not respond to interview requests. OPR e-mailed a statement about its investigation of Martin for the Siegelman case when asked about Latifi.
In a phone interview in July, Martin deferred to Estes as the case’s point man on most questions. Estes is distressed that his honor has been impugned.
“My reputation has been spotless!” he says. “Mr. Latifi is a criminal. I don’t regret anything I’ve done.”
Estes has 23 years of military experience. He notes that lives depend on the military to be able to pinpoint every vendor and contractor involved in producing a part in case something malfunctions. He insists the only way Latifi could afford to offer budget prices to Defense was to use repurposed parts or inadequate testing.
“I had a witness, Levi Weir, who said he quit Axion because Latifi wanted him to lie,” Estes says. “But Weir died before the trial.”
Weir died after an extended illness. Stickrod knew him. Stickrod thinks Estes misunderstands the way defense contracting works and misinterpreted Weir’s frustration with Latifi’s absent-minded-professor habits. Stickrod says Weir quit Axion’s staff but worked with Axion as a consultant until he was too sick to get out of bed.
“The dirty, nasty secret of the system is gigantic contractors rip off the U.S. government,” Stickrod says. “They hate little genius engineers like Alex. Once a part is modified, they can lose money from patents. They hire lobbyists and former Defense employees to keep the system in place that keeps prices high.”
Former prosecutor Wysong estimates that 99 percent of arms control cases are settled out of court. Martin casts her decision to go to trial as a class issue: Small-business owner Warren pleads guilty, so why should CEO Latifi be allowed a special plea?
Both Martin and Estes still think Latifi’s drawing enables the Chinese to make a Black Hawk part.
“Here’s a woman’s analogy: If you gave someone a picture of a dress but not the pattern, they couldn’t duplicate the dress,” Martin says.
There are skilled designers who can do that.
“Then it would be like giving someone a picture of a cake but not the recipe,” Martin says. “The part on the helicopter is the cake. The drawing is the recipe.”
Martin is a graduate of Vanderbilt University who worked her way through the University of Mississippi law school as a nurse. She made headlines when Alabama GOP operative Jill Simpson swore that Martin and U.S. Attorney Laura Canary prosecuted former Democratic Gov. Siegelman at the direction of Rove and GOP consultant Bill Canary, Laura’s husband.
“This is actually more painful than a root canal because at least the dentist gives you Novocain,” Martin says, in a second, solo interview. “I don’t know Jill Simpson. I have never met Karl Rove or been in the same building with him, to my knowledge. When I ran for elective office, I got some names of consultants from Bill Canary. I couldn’t afford Bill.”
She starts to name an attorney she considers a mentor, then groans. “Oh, no! I just realized his connection with Kenneth Starr probably won’t clear me with conspiracy theorists,” she says ruefully.
Her second interview coincidentally falls on a day when former DOJ official Monica Goodling’s political vetting is in headlines.
“In my heart, I see myself as a career prosecutor,” Martin says. “It’s disappointing to see that people in the department politicized hirings.”
She lists regrets she has about the Latifi trial, but they do not include going to trial.
“Well, you read the transcripts; witnesses said something completely different on the stand from what they told investigators,” Martin laments. “I wish evidentiary problems were spotted earlier. And I hope this case prompts Defense to clarify how restricted materials should be marked.”
Martin says her office is not considering any further actions against Latifi.
OPR is investigating charges that the Latifi case was an improper and abusive prosecution.
Latifi has sued to obtain Martin’s e-mails, memos and phone records regarding his case. He is suing via the rarely used Hyde Amendment, a legal mechanism that allows exonerated defendants to seek compensation from federal officials if the prosecution was “vexatious, frivolous or in bad faith.”
Meanwhile, Latifi says, he has applied for 40 defense contracts since the trial and gotten none of them.
But Latifi’s soft spot for hard-luck stories has led him to a visionary project. He once hired a downsized and unemployed engineer to do some technical drawings. The engineer now supervises a NASA project. He wants Latifi to help him test soil retrieved from Mars for traces of ancient water.
It’s not very lucrative, but Latifi glows when he talks about the work over a heap of catfish at a lakeside joint in the pine-covered hills outside Huntsville. A giant, blue neon fish winks outside.
The same engineer’s impulse to refine what he sees—what drove Latifi to hire workers like Bailey, Smart and Kidd, and to manufacture tiny parts on mammoth weaponry—draws him to the middle-aged waiter cutting through the crowd carrying trays piled with fried fish and cornbread. The waiter tells Latifi he owned his own restaurant until associates tricked him out of it. The last diners trickle out as Latifi listens to the man’s troubles and dreams.
Latifi writes his cell phone number on one of his defunct business cards and says, “Let’s talk again. Maybe I can help you.”
The Black Hawk schematic that was key to the Latifi case
Press release of indictment.