MZM Inc. and its felony convicted owners did more than just buy and sell Congressman Virgil Goode (and Martinsville). The story of MZM Inc (purchased by Veritas Capital) is a tale of how war profiteers have done business in the post September 11 atmosphere. And it isn+óGé¼Gäót pretty.
First, what happened to MZM Inc.
They were bought by an investor.
Veritas Capital, a New York private-equity firm headed by Robert McKeon, invests in intelligence and defense contractors. Among the fund's holdings: DynCorp International Inc. (DCP ) in Irving, Tex., whose name was tarnished in the late 1990s when some of its employees in Bosnia became embroiled in a sex trafficking scandal.In the summer of 2005, another scandal-plagued military contractor caught McKeon's eye. MZM Inc. was the focus of a federal investigation into whether its owner bribed California Representative Randy "Duke" Cunningham in exchange for hundreds of millions of dollars of government contracts providing technical and other support to intelligence agencies and the military. Sensing an opportunity, McKeon hired a former CIA general counsel to quiz Pentagon and intelligence officials about the viability of MZM's business, which before the invasion of Iraq included helping with controversial analysis of Saddam Hussein's nuclear capabilities. "We take on messy situations, and MZM was a mess," says McKeon, whose top secret security clearance still doesn't allow him to know all the details of what his companies do.
He closed the MZM deal in September for around $20 million and renamed the company Athena Innovative Solutions. Athena has projected revenues this year of more than $100 million.
Wow! Not bad for a $20M investment+óGé¼-ªa five-fold return in 9 months. How do you do that?
Not everyone is cheering. Critics argue that Athena's apparent success rests on lucrative contracts landed under questionable circumstances. "Veritas is profiting from the spoils of congressional bribes," says Keith Ashdown, vice-president of Taxpayers for Common Sense, in Washington.McKeon, 51, shrugs off that kind of criticism and continues to expand his firm, tapping into a market that since the September 11 attacks has seen a spike in private investment. According to Thomson Financial (TOC ) and the National Venture Capital Assn., private-equity firms have invested in 628 defense and homeland security companies, many of them relatively small. Veritas is poised to become a major player, helping to fill a void left by the Carlyle Group, a much larger private-equity firm that has moved away from its military industry roots to take on a wider range of deals
But how did MZM (and now Veritas) get the Defense contracts?
Federal investigators are looking into contracts awarded by the Pentagon's newest and fastest-growing intelligence agency, the Counterintelligence Field Activity (CIFA), which has spent more than $1 billion, mostly for outsourced services, since its establishment in late 2002, according to administration and congressional sources. In fiscal 2003 legislation, Congress (Virgil Goode) earmarked, $6.3 million for work to be done "to benefit" CIFA shortly after the agency was created. The contract went to MZM Inc.
Who is CIFA?
CIFA, whose exact size and budget remain secret, was established in September 2002 to coordinate policy and oversee the counterintelligence activities of units within the military services and Pentagon agencies. In the past three years, it has grown to become an analytic and operational organization with nine directorates and widening authority focused primarily on protecting defense facilities and personnel from terrorist attacks. The agency was criticized after it was revealed in December that a database it managed held information on Americans who were peacefully protesting the war in Iraq at defense facilities and recruiting offices.
70% of CIFA+óGé¼Gäós work is contracted out to companies like MZM/Veritas.
According to the Washington Post+óGé¼-ª
CIFA has had a connection to MZM dating to its formation, said congressional and administration sources who spoke on the condition of anonymity because of the ongoing investigations. Director David Burtt, who was a deputy assistant secretary of defense for counterintelligence at the time of the Sept. 11, 2001, attacks, developed the concept for CIFA.
A consultant to Burtt on the CIFA project was retired Lt. Gen. James C. King, who joined MZM after retiring in late 2001 as director of the Pentagon-based National Imagery and Mapping Agency. In August 2005, investment firm Veritas Capital bought MZM and changed its name to Athena Innovative Solutions Inc. King, who replaced Wade as president of MZM in June 2005, has remained president of Athena.
In late 2002, Duke Cunningham [and Republican buddy Virgil Goode] made the contract for Wade's company, MZM, one of "his top priorities" in the defense appropriations bill, according to the prosecutors' pre-sentencing filing. After Congress approved the money, Wade told unnamed Defense Department officials they had to "work something up" that would provide+óGé¼-¥real benefit to CIFA,+óGé¼-¥ according to the prosecutors+óGé¼Gäó documents.
The resultant program saw more than $6 million spent for a mass data storage system supposedly for CIFA that, according to the prosecutorial document, included almost $5.4 million in profit for MZM and a subcontractor. "Adding insult to injury," the prosecutors wrote, "the final system sold to the government was never installed (as it was incompatible with CIFA's network system) and remains in storage in Arlington, Va."
Who is Veritas/Athena Innovative Solutions?
The Bronx-born McKeon, a Harvard B-school grad, has a reputation as a hard-nosed businessman. In 1999 a consultant for Veritas admitted he had paid kickbacks to the Connecticut treasurer, who had approved the state's $125 million investment in a Veritas fund. Connecticut officials demanded a refund, but McKeon refused, arguing that no employee of the firm knew about the contractor's actions or had done anything wrong. Connecticut kept its money in the fund and realized a return of nearly 24%, according to state documents. (The treasurer pleaded guilty in the kickback scheme; no one connected to Veritas, including the consultant, was criminally charged.)Today, McKeon, a history and military buff, oversees a firm that owns all or part of seven companies, including Wornick Co., which sells food rations to the military, and McNeil Technologies Inc., a defense and intelligence contractor.
DynCorp is Veritas's best-known and potentially most lucrative holding. Veritas paid $850 million for the company in 2005, putting down $100 million of its own cash and borrowing the rest. Veritas took DynCorp public in May, and the company is now valued at about $1.4 billion. (Veritas retains a 56% stake in DynCorp but is prevented from selling its shares until this fall.)
Wow, the civilian defense contracting business is very lucrative.
GAMBLING ON MZM Inc?
McKeon minimized his risk in purchasing MZM by insisting that he wouldn't pay then-owner and CEO Mitchell J. Wade full price if McKeon wasn't able to keep MZM's dozen or so contracts. Wade, who has pled guilty to bribing the disgraced Cunningham, is not the only one linked to the company who has been implicated in illegal activity. On June 30, federal prosecutors accused former MZM employee Richard A. Berglund, a retired military officer, of helping Wade funnel improper campaign contributions. [Berglund has since plead guilty to felony charges]. McKeon says Berglund left the company earlier this year after it became aware of his potential legal trouble.
So, the investor offers 20 cents on the dollar for MZM but won+óGé¼Gäót even pay that without an assurance of keeping MZM+óGé¼Gäós contracts. Who will make that decision?
McKeon had no guarantees that Pentagon officials would approve the transfer of MZM's contracts to Athena, a decision that would be made only after the mandatory Defense Dept. review triggered when a contractor is sold. The former CIA general counsel he hired, Jeffrey H. Smith, now a partner at the Washington law firm Arnold & Porter, reported back that the half-dozen intelligence agencies he approached thought highly of MZM. McKeon's gamble paid off when the Pentagon approved Athena's takeover of all of MZM's contracts.
Veritas needed a fixer, someone to get over to the agencies and let them know that the gravy train was under attack. MZM was, and is full of high ranking former Defense Department Intelligence (CIFA) officials:
Lt. Gen. James C. King (ret.) +óGé¼GÇ£ CEO, MZM Inc.
Lt. Col. Richard A. Berglund (ret.) +óGé¼GÇ£ (former) Manager, MZM Inc.
CIFA Deputy.Director (frmr), Kenneth Geide +óGé¼GÇ£VP, MZM Inc.
NSC member John Quattrocki, Manager, MZM Inc.
McKeon's contribution history is more interesting. In 2003-2004 he gave substantially to several Republican candidates (Tancredo, Shelby, Gary Miller and Shays). He also gave $250 that year to Goode (07/12/2003). This is just not a typical pattern.
All of his other contributions are listed as Darien, CT, but the address for his contribution to Goode is listed as New York.
What would put Goode on McKeon's radar back then? And why the $250 nod instead of $2000-3000 like the others? And why only for Goode does he give his work address?
Veritas had several DOD contractor aquisitions beginning about then. In July 2004, the firm acquired McNeil Technologies Inc., an IT services firm in Springfield, Va. In February 2005, Veritas acquired DynCorp International.
The federal agency responsible for making charts and maps used by military pilots has a history of providing incomplete and inaccurate data, resulting in fatal mishaps such as the bombing of the Chinese Embassy in Yugoslavia, the Los Angeles Times reported Sunday.
The article says that National Imagery and Mapping Agency and its predecessor organization have produced charts or maps that were a factor in at least a dozen accidents between 1985 and 1999, some resulted in fatalities and loss of military aircraft.
On May 7, fighter pilots using outdated maps attacked the Chinese Embassy in Belgrade, killing three journalists and injuring 20 people. The map had the embassy in the wrong place, although the Belgrade phone book and tourist maps had the correct address.
A spokesperson said that the NIMA databases did not identify the targeted location as the Chinese embassy.
NIMA maps were a factor in three accidents in the last 15 months that killed a total of 28 people, including the clipping of an Italian gondola cable by a Marine fighter jet in February 1998 that left 20 people dead.
Also, roughly two weeks after the Marina gondola incident, five Navy fliers were killed when their UH-1N Huey helicopter collided with power lines.
The electrical wires were not shown on the map used even though those same power lines killed two other people three years earlier according to a military investigator said.
NIMA director Lt. Gen. James C. King declined to be interviewed for the Times story.However, King accepts blame for the embassy bombing in a memo sent Wednesday to agency employees and contractors.
"Our work, which used the best available information, was performed under existing, approved procedures," King wrote. "Nonetheless, shortcomings in our work contributed to the unintended attack against the Chinese Embassy."
CIA analysts had selected the target - which was supposed to be the Yugoslav Federal Directorate of Supply and Procurement, and NATO commanders approved the air strike.
NIMA had been formed from a merger of the Defense Mapping Agencey and defense and intelligence divisions of the Pentagon and the CIA in 1996.
The agency has encountered funding shortages, a loss of senior analysts and cartographers and friction between intelligence and defense communities for its services.
In May 2002, the GSA put MZM on a list of approved technology information providers even thouigh MZM had no experience with government contracts. In August 2002, MZM was awarded its first contract, $140k to provide Dick Cheney's office with computers and furniture. At the end of the month, Wade bought Cunningham's yacht for $140k.
In September 2002, the GSA awarded a five-year blanket contract to MZM that potentially was worth $250 million. Under the contract, the Pentagon could purchase specific computer services from MZM without competition.