CEO Sentenced to 7 years in Prison and Will Pay $1.1 Million

2016/04/06

By: Danielle McClellan

Founded in 1996, Valley Forge manufactured momentum wheels that were used in spacecraft. Between 2004 and 2008 the company’s revenues declined and the company moved into the direction of weapon detection systems found in airports and photonuclear detection systems used to find bio-chemical weapons and explosives on cargo ships beginning in 2009.

During this time, Louis Brothers was the CEO of Valley Forge and began selling nearly $37 million worth of semiconductors to China. He hid the transactions and concealed the profits from the sales which would later lead to 31 counts of conspiracy, aiding and abetting illegal exports of defense articles, and conspiracy to launder money. These charges were in violation of the US Arms Export Control Act and the violations occurred to boost Valley Forge’s business finances.

US Securities and Exchange Commission filings show that Valley Forge’s revenue grew from $132,000 in 2008 to $3.2 million in 2009 and finally peaked at $18.6 million in 2010. The large jump in revenue was explained to have come from the sale of aerospace products and other mechanical devices, including two orders worth a gross profit of $2 million…no sales to China were mentioned.

In 2013 the US Attorney’s Office seized $1.5 million in the company’s bank accounts and later explained to stockholders about the investigation. The stockholders did not deny any sales to Hong Kong, however they believed the transactions were legal. A year later, Louis Brothers and his wife were arrested and eventually released on a $500,000 bond related to the charges. At that time they both pleaded not guilty and denied all sales to China. A pending class-action lawsuit was also brought on by shareholders against them.

In late 2013 Valley Forge filed for bankruptcy with assets of $500,000-$1 million and debts in excess of $1-10 million.
Brothers entered into a guilty plea to seven of the 31 counts and will serve a total of 93 months in prison for selling military-grade microchips to Hong Kong. He will also forfeit $1.1 million in a monetary judgement. He could have faced 125 years in prison based on all charges. He admitted in the agreements that between 2009 and 2013 he intentionally avoided notifying the Department of State about the illegal exports and proceeded to label his shipments as “computer parts” in order to conceal the true identity of the items. Brothers also admitted that he falsified paper work to make it appear that the money he received from the sales of the illegal microchips were profits from another business that he personally owned in Kentucky.

Additional Details: http://www.bizjournals.com/cincinnati/news/2016/03/04/former-cincinnati-ceo-sentenced-to-7-years-in.html and https://www.justice.gov/opa/pr/former-chief-executive-officer-sentenced-over-seven-years-prison-illegally-exporting

Comments are closed.