Itochu: Marketing the Fiber, Allegedly Downplaying the Degradation

Itochu agreed to a $6.75 million settlement over how the Zylon importers marketed the fiber and represented its degradation, resolving allegations that Itochu promoted fiber for bullet-proof vests while downplaying a problem it knew made woven-Zylon vests unfit for use.

The Justice Department announced the settlement on December 7, 2009. It covered Itochu Corp. of Japan and its American subsidiary, Itochu International Inc., over the importation and sale of fiber used as the key ballistic material in vests purchased by the United States for federal, state, local and tribal law enforcement agencies.

Itochu’s Place Between the Fiber Manufacturer and the Vest

Itochu imported Zylon on behalf of its Japanese manufacturer, Toyobo Co. Ltd.

That position matters in a case about goods that fail the government’s performance requirements.

Marketing Zylon While Allegedly Downplaying Its Degradation

The government alleged that Itochu knew Zylon degraded quickly over time and knew that the degradation made vests containing woven Zylon unfit for use. It further alleged that Itochu personnel actively participated in marketing the fiber despite that knowledge and downplayed how serious the degradation problem was.

Downplaying the extent of that deterioration is the alleged mismatch between the information inside the business and the message reaching the market.

The material at issue was supposed to help stop a bullet, and the alleged sales response was to make its deterioration sound less serious. A reassuring sales account could not supply that protection.

For an insider who worked with technical information or customer communications, the question is specific. What did the business know about degradation when it promoted the fiber for vests? A dated technical warning and the account given to a customer can tell very different stories. We examine that comparison with you, including who received the information and who decided what to communicate.

How the Fiber’s Performance Reached a Public Purchase

Government procurement buys specified performance, and the Itochu allegations concerned a material central to the performance of the purchased vests. The connection ran from imported fiber to body armor bought for law enforcement. Taxpayers paid for the equipment, while the people wearing it depended on its protective function.

For this kind of supplier case, we connect the purchase order, invoice, acceptance and payment records with the product information. The technical question is whether the fiber could provide the protection represented for it. The commercial question is how those representations reached the publicly funded purchase.

An importer employee may recognize the information that came from the manufacturer. A sales employee may recognize the description given to customers. A purchasing employee may know which supplier’s material went into the product. Those different views can help connect a technical concern to the representation made about a publicly purchased vest. Our work is to bring those views together around the transaction the government funded.

The Importer’s Role in the Zylon Supply Chain

In the separate N.I. Teijin Shoji matter, the government alleged that the importers resold woven Zylon fabric after a Canadian weaver refused further sales because of liability concerns. Itochu’s allegations instead focused on active marketing and downplaying degradation.

The Settlement Included Cooperation With the Investigation

Itochu’s agreement resolved False Claims Act allegations concerning its importation and sale of the Zylon fiber. It also included a pledge to cooperate with the government’s wider investigation of the industry’s use of Zylon in body armor.

By the time of Itochu’s agreement, the government had settled with five other Zylon industry participants for over $47 million. Agencies assisting the wider investigation included the General Services Administration’s Office of Inspector General, the Department of Homeland Security’s Office of Inspector General and the FBI.

Whistleblower Rewards for Government Procurement Cases

A whistleblower case under the False Claims Act can pay the person who brings it 15% to 30% of what the government recovers.

You Know What the Customer Was Told

If you saw technical concerns softened in the sales account for body armor, talk with our whistleblower experts about what changed between the warning and the pitch. We build the case with you and bring in government procurement fraud whistleblower lawyers who understand supplier representations and defective-product claims. We stay beside you through the case, from understanding what you saw to working with the whistleblower lawyers we bring in.