The Justice Department last Friday said a federal grand jury has indicted three former Austal USA employees, including one time President Craig Perciavalle, for an accounting fraud scheme that misled the Australian-based company’s shareholders related to work on the U.S. Navy’s Littoral Combat Ship (LCS) program.
In addition to Perciavalle, the other defendants are Joseph Runkel and William Adams.
The DoJ alleges that the three individuals conspired to mislead shareholders about Austal Limited’s financial condition by “artificially” reducing estimated completion costs on multiple Independence-variant LCS ships. The government said that “suppressing” the estimate at completion (EAC) costs “allegedly falsely overstated Austal Limited’s reported earnings in its public financial statements,” thereby keeping the stock price higher.
Once the EAC costs were disclosed, Austal’s stock price “was significantly negatively impacted and Austal Limited wrote down over $100 million,” the DoJ said.
In its 2022 annual report filed in Australia, Austal says that U.S. authorities have mainly focused on Austal USA, “including the write back of work in progress (WIP) attributable to the LCS program in July 2016, the procurement of certain ship components for use in connection with US Government contracts and charging and allocation of labour hours.”
An investigation by the company into the labor hour issue found no misallocation or wrongful charging, the Austal report says, adding that it isn’t aware that the DoJ is investigating this matter further.
As for ship components, the company says butterfly valves on certain LCS ships may not have met all military specifications “at the time of their procurement” but they have been accepted by the Navy and are still in use. The U.S. government and Austal are working to resolve the issue via a payment “proportionate to the value of the valves,” it says, adding that the amount of the payment can’t be disclosed at the moment.
The DoJ said that each defendant is charged with one count of conspiracy to commit wire fraud and wire fraud affecting a financial institution, five counts of wire fraud, and two counts of wire fraud affecting a financial institution. Each conspiracy count could mean up to 30 years in prison and each count of wire fraud 20 years in prison.
Perciavalle resigned in early 2021 as president of Austal USA due to the investigation into the accounting fraud.