Grand Junction-based defense contractor Capco will pay more than $1 million in a settlement amid allegations that the company defrauded the U.S. Army when manufacturing certain weapons.

According to the agreement, Capco allegedly manufactured and shipped M320 grenade launchers for the Army between July 2016 and March 2018 while knowing the items did not meet contract specifications. U.S. Attorney Jason R. Dunn announced the settlement Tuesday.

The settlement notes that despite Capco’s knowledge, it certified that each shipment met contract requirements. It also alleges that in two shipments, Capco had reason to know that it had used the wrong steel in firing pins for the grenade launchers and that the company’s investigation into the matter was “inadequate.” It also did not disclose the matter to the Army.

The issue first came to the U.S. Attorney’s attention in November 2017 when former Capco quality engineer James Cole filed a complaint against the company in U.S. District Court. The complaint alleged that Capco had submitted false claims to the Army for payment for weapons that did not meet specifications.

“Not conforming to contract requirements that ultimately have a direct impact on the success in combat of our brave men and women in uniform is incredibly unconscionable,” Frank Robey, director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit, said in a press release. “Thanks to the efforts of our special agents and our other law enforcement partners, today’s settlement is possible.”

Capco will pay $1,025,429 to the U.S., per the settlement. It will also provide 492 replacement firing pins to the Army by Dec. 15. This will satisfy $8,610 of the settlement amount. The rest will be paid over two installments.

Roughly $236,000 of the settlement will be paid to Cole from the U.S. Additionally, Capco will pay Cole $250,000 to resolve his remaining claims against Capco, according to the agreement. Both parties agreed not to disparage each other in a way that could potentially damage the other’s reputation.

The settlement is not an admission of any wrongdoing or liability by Capco, nor is it a concession that the U.S.’s claims are not well founded, according to the document.

In a press release, Dunn stated that: “We entrust our defense contractors to manufacture equipment of the highest quality for the men and women who serve our country in the U.S. Armed Forces. Any breakdown in the production process must be swiftly and honestly addressed and we will hold contractors fully responsible for fraudulently covering up production problems.”

In a statement from Capco, the company asserts that it fully cooperated with “an exhaustive government investigation for nearly two years.”

It also states that the government “commended the company for its transparency and the robust safeguards that were put into place since the beginning of the investigation.”

Capco CEO Cordell Bennigson stated: “As a company, this chapter has made us smarter and stronger. The safety and effectiveness of our products, which are used by the men and women who serve us all in the military and law enforcement, always has been and always will be Capco’s highest priority. Today, Capco’s quality and compliance systems are stronger than ever.”

The agreement was signed by all parties and their lawyers by Nov. 4.

Capco employs roughly 375 people and moved to Grand Junction in 1971. Ownership changed hands in 2016.

On Nov. 7, 2017, a day prior to Cole filing his complaint, Capco’s office at 1328 Winters Ave. was searched by federal agents. Three employees were later placed on administrative leave. The organization announced that was a “precautionary step” at the time.

A spokesman for the U.S. Attorney’s Office in Colorado would not confirm if the raid was related to the allegations surrounding the grenade launchers.

Last year, Capco announced three new government contracts totaling more than $100 million, which spurred the acquisition of a new 35,000 square-foot building at 640 S. 12th St. The new contracts included the manufacture of bomb-fin assemblies and machine-gun tripods. A few months after the acquisition, however, Capco laid off 37 employees citing program delays.

In late September, Capco received a tax incentive from Mesa County for its expansion in the form of a rebate on a portion of the company’s business personal property taxes over 10 years. The rebate gives back roughly $17,000 of Capco’s county tax payments.

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