Federal investigators: Korean company abused stimulus funds

A blower manufactured by Kturbo Inc. in Korea.

Written by CBS Investigates Intern Rahul Sinha and Producer Laura Strickler

A Korean company, Kturbo, Inc., is under federal investigation for allegedly duping four U.S. municipalities into spending $2 million in stimulus funds on products the company said were assembled in the United States when they were actually made and assembled in Korea.

The Buy American provision of the 2009 Recovery Act requires that stimulus funds can only be used for products that were manufactured or assembled in the U.S.

In statement late today HeonSeok Lee, CEO of Kturbo, Inc., told CBS News his company "made a few mistakes but [they were] not intentional." In his statement, Lee also alleged the U.S. government is overpaying for inefficient blowers offered by Kturbo's competitors.

According to the website for Kturbo, the company manufactures and sells single-stage centrifugal aeration blowers used in wastewater treatment plants.

Federal investigators seized Kturbo's aeration blowers that were shipped from Korea to the United States and found them to be already "fully assembled" even though the placards attached to them said "Assembled in USA".

The company is under investigation by the inspector general for the Environmental Protection Agency according to the agency's latest semiannual report.

The municipalities that purchased the blowers include South Burlington, VT, Indian Springs, NV, Pendleton, OR and Millbrae, CA.

When an official from Indian Springs, Nevada was informed about the investigation, he told investigators, "I was afraid you were going to say that," according to a search warrant affidavit filed by the Department of Homeland Security.

Another official from Indian Springs, Nevada said he was suspicious of Kturbo's ability to manufacture in the US "from the beginning," according to court documents.

Mark Milne, the Wastewater Treatment Superintendent from Pendleton, Oregon told CBS News that he wished Kturbo had not allegedly taken "a shortcut" by shipping the blowers already fully assembled from Korea to USA.

Court documents show the alleged fraud was first reported during the fall of 2009 by a competitor that claimed to have lost many contracts to Kturbo, Inc, according to the Department of Homeland Security. The company complained to the inspector general for the EPA saying that Kturbo's Illinois factory was a "tiny little place" that had a small work force of 7 employees and was more of a "warehouse" than a manufacturing facility according to court documents.

In February, 2011 federal investigators from the EPA and ICE executed a search warrant for the company's offices in Illinois.

Kturbo USA, Inc. is the U.S. subsidiary of Korean-manufacturer Kturbo, Inc., which is headquartered in Chungbuk, Korea. Kturbo Inc. had 123 employees and total assets worth $34,376,431 as of December 2010, according to a Dun & Bradstreet report of the company.