The  Department of Justice and the Securities and Exchange Commission (SEC) have charged three current or ex-Austal USA executives with accounting fraud in the construction of Independence-class Littoral Combat Ships (LCS).

A grand jury issued indictments against Craig Perciavalle, who was the shipbuilder’s president until he resigned in 2021 amid investigations by multiple agencies; Joseph Runkel, the company’s director of financial analysis; and William Adams, the former LCS program director. Craig Perciavalle, who became the GM/VP of Fincantieri Bay Shipbuilding in Nov. 2021, has now been suspended by Fincantieri. Runkel was fired from Austal USA after the indictment was announced. Adams left Austal USA in 2021.

The Justice Department and the SEC claim that the three men “conspired to mislead Austal Limited’s shareholders and the investing public about Austal USA’s financial condition,” artificially boosting the stock price and leading to a write-down of “over $100 million in previously wrongly booked profits.”

Perciavalle, Adams and Runkel are each 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 count carries a 20 to 30-year imprisonment and fines of $500,000 to $1 million, and each defendant faces forfeiture of property if they are convicted on any or all of the counts.

Craig Hooper writing in Forbes notes that Austal USA, as a relatively young shipyard, has been an unsophisticated bidder, prone to underestimating project costs. In the bid for LCS work, Austal underestimated design requirements, needing to “purchase over twice the amount of aluminum sheets for each LCS ship than initially budgeted”. Labor was low-balled, and ended up “higher than the labor bid costs”. The Government alleges that the failure to estimate project costs led Austal managers to cook the books in an effort to avoid disciplinary action from the shipyard’s parent company in Australia.

The indictments serve as a fitting coda to the largely unsuccessful LCS program. Politico notes that the issues with the LCS started at its inception when the Navy moved so fast that it didn’t do detailed planning on what the ships should be, or how they would be employed, until after Congress began appropriating money. But the program charged ahead.

The issues the ships have faced — cracked hulls, broken equipment and technologies that simply didn’t work — follow from the Navy’s original demands for cheap, technologically advanced ships built quickly without much testing or analysis.

It is difficult to add up all the money the Navy has spent on the LCS program, but the current ships are coming in at close to half a billion dollars each, almost double the early promises that pegged the ships at about $250 million apiece.

Of the over 50 LCS originally planned, the Navy currently wants only 21 — six Freedom-class hulls built by Fincantieri Marinette Marine in Wisconsin, and 15 Independence-class ships built by Austal USA in Alabama.