Alcore facing federal probe

Aerospace materials firm accused of fraud, false finance reports

Manufacturing

January 26, 2000|By Eric Siegel | Eric Siegel,SUN STAFF

A Harford County aerospace materials manufacturing company that has received $3.4 million in state aid is under criminal investigation by federal authorities for knowingly falsifying its financial statements, a violation of securities law.

Alcore Inc. executives are also under investigation for mail fraud for devising a scheme to defraud lenders, potential buyers and outside auditors, according to an affidavit filed in U.S. District Court in Baltimore.

Investigators were told that the company reported a $50,000 profit for the third quarter of 1999 when, in fact, it had a $2 million loss, the affidavit said.

FBI agents, armed with a search warrant, seized Alcore's computerized financial records earlier this month. The two top executives of the company, which has more than 100 employees, are on leave, according to a company official.

Alcore's parent firm, Advanced Technical Products of Roswell, Ga., acknowledged in a statement that a search warrant was served but said it is unaware of the "exact nature or extent of the government's investigation."

"We're not privy to all the details of the allegations involving Alcore," Garrett L. Dominy, executive vice president and chief financial officer of ATP, said yesterday. He said ATP was cooperating with the investigation.

Stephen M. Schenning, First Assistant U.S. Attorney for Maryland, said he could not provide any information beyond what was contained in the affidavit.

In the affidavit filed in federal court in support of the application for a search warrant, special agents Robert Allen Hamlett of the FBI and William Harry Armstrong of the Defense Criminal Investigative Service said they had interviewed current and former managers of Alcore and had also been provided with some company financial documents.

One of those managers, identified in court papers only as Cooperating Witness 1, said Alcore used "irregular accounting practices" that "greatly overstated" the net worth of the company, the affidavit said.

Investigators were told that company president Edward A. Kiley and chief financial officer Richard N. Orzechowski wanted to make it appear that Alcore was a profitable company so that the sale price of ATP would be increased, thereby increasing profit for Kiley, who has 30,565 shares of ATP stock, the affidavit said.

Orzechowski, reached at home yesterday, declined comment. Efforts to reach Kiley were unsuccessful.

Dominy, the ATP executive vice president, said both men were on leaves of absence from Alcore that began last week. He said the leaves were unrelated to the investigation but declined further comment, saying personnel matters were confidential.

According to the affidavit, Alcore also overstated inventory and listed as an asset a $175,000 piece of equipment that was never purchased, falsely boosting the company's balance sheets.

Alcore officials took personal trips and charged them to the company, and Orzechowski and Kiley received $10,000 and $25,000 bonuses, respectively, at the end of 1998 that were charged to a company expense account and never reported to the IRS as income, the affidavit said.

In 1997, the Maryland Industrial Development Financing Authority provided Alcore with $2.6 million in bond financing to help the company expand its operations, which the company used to obtain a commercial loan. The Maryland Industrial and Commercial Redevelopment Fund also lent $810,000 to Harford County, which in turn lent the money to the company.

Harford County also gave Alcore a $60,000 loan and agreed to $30,000 in tax breaks for the company over five years.

"Alcore is one of the private sector businesses that is helping to revitalize Maryland and Harford County," Gov. Parris N. Glendening said when the state aid package was announced in June 1997.

A spokeswoman for the Maryland Department of Business and Economic Development said the agency was unaware of the federal investigation.

"No one has contacted us," said spokeswoman Jacqueline Lampell.

Formed in 1992 by a merger of two companies, Alcore, which has facilities in Edgewood and Belcamp, makes structural core aluminum materials used in both military and commercial aircraft, according to the company's Web site.

"Current aerospace programs include C-17 Nacelles, B-767 Slats, B-757 Slats, B-737 Flaps, Gulfstream IV Flight Controls, Boeing 747 Landing Gear doors, Airbus A-330 Nacellas and airliner flooring," the Web site said.

The company has annual sales of approximately $21 million, according to financial documents.

Alcore's parent, ATP, a publicly traded company, is under contract to be acquired by Veritas Capital Funding, a New York-based investment company, for $135 million. It is unclear what effect the criminal investigation could have on the proposed sale.

ATP spokeswoman Lisa Lawson said Veritas has until Monday to complete the purchase, terminate the agreement or negotiate a new deal.

Efforts to reach Veritas this week were unsuccessful.

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