Giant plastic water pipe maker accused of fraud

(CBS News) Few things are as crucial to everyday life as clean water, carried in PVC plastic pipe.

Much of it is made by JM Eagle, the biggest pipe manufacturer of plastic PVC pipe on the planet.

But whistleblower John Hendrix claims JM Eagle harbored a terrible secret.

He says it's "absolutely" fair to say he felt as though he was being asked to be a participant in fraud.

Hendrix was an engineer in JM Eagle's Product Assurance Division.

In his first TV interview, he says his own company cut corners for profit and hid internal tests allegedly showing some pipe had a high failure rate and was too weak to meet industry standards.

He says tests had "anywhere from 50 to 80 percent failure rates. ... When you're at 50-80 percent, you're buying a lottery ticket that's going with odds in the wrong way."

Across the country, JM Eagle customers have fought the odds:

-- a nighttime rupture under a major San Diego road.

-- catastrophic breaks in Calleguas, Calif. in 1999, 2003, '06, '07 and '08. They cost taxpayers $4 million.

-- and in Reno, Nevada, JM Eagle pipe exploded twice in two days on installation workers Casey Jones and Rick Pickworth.

Jones, who weighs about 220 pounds, was thrown some 15 feet.

He was lucky to escape with bruised ribs and a bloody nose. "It's very powerful," Jones says.

"It's like a bomb that goes off," Pickworth added.

Nevada Attorney General Catherine Cortez Masto worries about both safety and cost.

JM Eagle water pipe at a Nevada state prison in the desert broke 17 times in seven years.

Masto says public budgets are already stretched to the limit, and taxpayers can't afford to spend millions repairing pipe that's supposed to last 50 years.

"It was really about pushing these pipes out the door," she asserts. "They didn't care whether they were defective or not, and their only concern was if somebody found out they were defective. That's what's so troubling about this."

Hendrix says when the claims came in, he was encouraged to lie.

He says he was told to blame contractor error and say the pipe had been installed improperly.

After Hendrix put his concerns in writing to management, he was fired.

The company claims he attempted a kickback scheme; he says the story was fabricated in retaliation.

Neal Gordon, JM Eagle's press representative, says the company "never" falsified or misrepresented test results.

Gordon says JM Eagle pipe has a very low rate of failure, and most customers are satisfied, adding that, "Pipe breaks for a variety of reasons. In 99.9 percent of the incidences, pipe breaks because of improper installation."

But 45 government entities, including Nevada are unconvinced, and joining Hendrix in suing JM Eagle for fraud.

The government agencies are hoping for a monetary award so that, as JM Eagle pipes break, the company, rather than taxpayers, will have to foot the bill for fixing it.

To see Attkisson's report, click on the video in the player above.