Charles S. Clark | October 12, 2017 | 0 Comments

The Curious Case of a ‘National Laboratory’ That Collected Excess Federal Equipment

A mysterious nonprofit known as Northridge National Laboratory, based in a Milwaukee suburb, for years used the government’s excess property disposal program to acquire computer hard drives, laptops, microscopes, medical beds, a seismograph and even vehicles.

The problem? Northridge doesn’t appear to be the ongoing scientific enterprise it claims to be, according to affidavits filed by a federal investigator. The organization’s skeletal website contains little in the way of specifics about its activities, and nothing about the principals involved. A query sent through the website’s contact page was not returned.

Northridge allegedly targeted multiple federal agencies in an effort to arrange delivery of excess equipment according to affidavits submitted in connection with applications for search warrants, one of which is included in a TechDirt post based on a series of tweets by Seamus Hughes of George Washington University. The applications, submitted under oath to the U.S. District Court for Eastern Wisconsin by a special agent with the Veterans Affairs Department inspector general’s office, allege there is probable cause to believe Patrick R. Budic, a principal with Northridge National Laboratory, committed wire fraud and made false statements to investigators. If proved true, the allegations also would expose lapses in interagency communication, security precautions and fraud prevention due diligence.

Budic lives in VA-subsidized housing in West Allis, Wisconsin, through a program that supports homeless veterans, according to the two 40-page affidavits submitted to the court in May. Reached by phone, Budic told Government Executive, “I’d like to comment but can't.”  

The affidavits, which support an application for a search warrant to compel the release of Budic’s emails by the internet services provider HostGator, based in Houston, reflect months of investigation by federal agencies as summarized by Frederick Lane, a VA IG special agent based in Hines, Illinois.

Lane did not respond to Government Executive inquiries about the affidavits, but the Wisconsin court confirmed they are genuine, and said they are no longer available to the public. Hostgator, which agreed to preserve the data sought by the investigators, told Government Executive, “HostGator will only produce customer content (such as website files and email content) pursuant to a valid search warrant from an entity with proper jurisdiction.”

Budic allegedly worked with David G. Rousseau, an engineer employed at the Space and Naval Warfare Systems Command in San Diego, to establish Northridge National Laboratory in 2013. With Rousseau and Budic as directors, the company was incorporated in Wyoming, after which Rousseau applied to the Internal Revenue Service for tax-exempt status as a science and education nonprofit, under IRS Code 501(c)(3). The IRS granted that status in August 2014. Rousseau did not return calls to his office seeking comment.

Budic also used the name PMR Research and Development Group, a for-profit, service-disabled veteran-owned business he registered with the General Services Administration’s database of federal contractors, known as the System for Award Management, or SAM, in August 2006. That company’s record in SAM expired in 2013, according to the affidavits.

The affidavits allege that from 2013 to 2016, the Northridge Lab inquired about taking possession of excess federal property from the Forest Service, the Interior Department’s U.S. Geological Survey, the National Oceanic and Atmospheric Administration, GSA, the VA, the Air Force and the Defense Logistics Agency.

The lab managed to acquire, for free, products such as printers, hard drives, laptops, microscopes, fiber optic connectors, computer docking stations, servers, and “a lot of other stuff,” a storage facility manager told investigators. Northridge also attempted to obtain an automated prescription dispensing machine, a Boston Whaler Challenger boat, and a fleet of Learjets.

Budic estimated the value of the property Northridge received ranged from $615,000 to $11 million.

The organization’s effort to resell at least some of the acquired property included partnering with MST & Associates, a medical equipment reseller based in Petersburg, Virginia, according to a former MST employee interviewed in March 2016 by a special agent with the GSA inspector general’s office and records the agent obtained from eBay through a subpoena. Government Executive’s calls to MST & Associates were not returned.

In the course of pursuing the property, the affidavits allege, the Northridge team may have deceived GSA, the IRS, the Defense Contract Management Agency and the Defense Security Service.

Excess Property Program

GSA disposes of equipment federal agencies no longer need through the centralized GSAXcess program, which includes the Federal Excess Personal Property Utilization Program and the Federal Surplus Personal Property Donation Program.

If GSA determines that no federal agency needs a particular item, it becomes “personal surplus property that is eligible for donation to state and local public entities,” the affidavits note. Following detailed rules, surplus property specialists at federal agencies are responsible for screening eligible recipients. The recipients generally pay shipping costs, a GSA spokesman said.

In August 2014, Budic allegedly contacted a GSA supervisory property disposal specialist in Auburn, Washington, to discuss an aircraft that Northridge wanted to acquire. The GSA official questioned Budic on whether Northridge was an actual federal lab. “He confirmed that it is ‘not a federal laboratory yet but is on its way,’” the GSA official reported.

According to the affidavits, Budic told the GSA agent Northridge maintained 120-130 laboratories on a 110-acre complex staffed by scientists and engineers. Budic himself is a scientist, he said, but the complex is top secret. Budic told investigators he receives 95 percent of his government equipment under the 1980 Stevenson-Wydler Act, which facilitates technology transfers from government to private and nonprofit entities.

In March 2016, Budic contacted a Defense Criminal Investigative Service special agent to complain about government interference in his acquisitions. Confronted about his past description that Northridge owned a large complex, Budic said he had been in the process of acquiring the defunct Northridge Mall shopping center in Milwaukee, which had 139 spaces for labs, but his effort had fallen through. He later described the lab as being located at the Armour Self Storage facility in Milwaukee, where agents confirmed he had rented space. The manager at Armour, however, told investigators that Budic was behind on his bill.   

Seeking 14 Jets

Nearly three years before Budic allegedly complained to the DCIS special agent about federal interference in his operations, in August 2013, he emailed the Air Force property administrator at the Pentagon with a report that he said was copied to members of Congress. The report, according to the affidavits, said Northridge could provide office facilities, a secure room for classified work, a 500-seat briefing and conference theater, another 200-seat center and two 50-seat secure rooms, along with computer facilities. Those secure conference rooms would be “unmatched by any other facility and will be in great demand by government and industry,” the report said. Budic’s goal: the transfer of custody of 14 Bombardier Aerospace Learjet C-21A aircraft for use by Northridge for national security research. (The Defense Criminal Investigative Service verified with the Air Force that Budic never received the planes.)

Rousseau, when asked the purpose of creating the lab, told investigators, “Part of the rationale for setting up Northridge the way we, we did is that, um, there’s tons and tons of surplus government equipment . . . that is, you know, going to scrap yards and stuff, and would it be possible to create a nation-class or world-class R&D facility just using all that stuff that the government is about to throw away?”

In a Feb. 21, 2014, phone interview with an undercover GSA IG special agent, Budic said Northridge Lab was working with the Defense Security Service, top GSA attorneys and the U.S. Attorney’s office to procure excess radios from U.S. Customs and Border Protection. Six months later, Budic again invoked the Defense Security Service as a partner in his mission to acquire excess aircraft. “At one time Budic talked his way into getting an office space at the U.S. Army Reserve Center in Milwaukee, across the hall from the DSS agent who was located there,” the affidavits said. “Budic was later removed.”

According to the affidavits, in September 2014, a month after Northridge was granted tax-exempt status, Budic used a Defense activity address code from the Army Medical Research Acquisition Activity to access the Defense Contract Management Agency’s Plant Clearance Automated Screening System as an authorized recipient of property transfers. He said Northridge was a national laboratory. Though he failed to obtain equipment from DCMA, by claiming to be an educational nonprofit he obtained 96 items from Defense contractors, the affidavits allege. This included computer hardware, monitors, printers, routers, laptops, docking stations, servers and projectors. But after investigators began checking into the matter, Budic’s code for accessing the plant clearance screening system was terminated.

On Dec. 14, 2014, Budic wrote to a GSA Personal Property Policy Division official on Northridge letterhead declaring that GSA had cost his lab $760 million in denied equipment. The letter claimed that Northridge Lab had already acquired an $18,000 boat and 47 other items worth a total of $11,298,000—including a $10 million supercomputer.

In March 2016, special agents from GSA’s inspector general’s office and DCIS interviewed Budic about sales of the excess equipment and what the lab did with the proceeds. Subpoenaed bank records showed six deposits in 2015 ranging from $1,500 to $8,800. Budic allegedly told them that everything went back into the company and that there was no personal gain involved.

A spokeswoman for the GSA inspector general told Government Executive, “The investigation is ongoing, and we do not discuss ongoing cases.” The VA and Defense inspector general offices said they were unable to comment. A clerk at the court for the Eastern District of Wisconsin in late September said the search warrants requested in the affidavits were granted, but there is no documentation that they were executed.

The available public record does not indicate that any charges have been filed against the principals of Northridge National Laboratory. According to a recent news report, the lab is currently involved in a lawsuit against a shipper in Wisconsin over alleged damage to a supercomputer. The lab’s attorney in that case told Government Executive he does not represent Patrick Budic on any other issues and has no familiarity with the GSA excess property program.

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