Prosecutors say Eric Schmidt, 40, of Murietta, Calif., skimmed $1.7 million from the deals by using his position as a Marine captain to take advantage of the Iraqi First Program, which was supposed to award contracts to Iraqi vendors to assist with the country's economic expansion and entrepreneurship.
Prosecutors say Schmidt instead worked out a deal to award the contracts to an Iraqi contractor, the Al-Methwad Company, which was in cahoots with his wife on the scheme.
Janet Schmidt, 39, used the money provided by Al-Methwad to buy far fewer or inferior products than those required by the contract, prosecutors say. She then arranged for the goods to be delivered to Marines in Iraq, where Capt. Schmidt falsely certified the goods had been provided by Al-Methwad. The company then used the paperwork to get money from the U.S. government.
"This is an example of corruption that directly affected our Marines' military capabilities in Iraq," said Chris Hendrickson, an agent with The Defense Criminal Investigative Service, the criminal investigative arm of the Office of the Inspector General, U.S. Department of Defense. "Captain Schmidt found an Iraqi partner, exploited his role as a logistics officer, and profited from the Marines' role in providing security in Iraq. Iraqi contractors bought this Marine with cash, gifts, and a cut of their contracts."
As a result of the scheme, the U.S. Department of Defense lost about $1.7 million and the Internal Revenue Service lost about $460,000. Phillips ordered Capt. Schmidt to reimburse both agencies.
During the sentencing hearing, Phillips noted that the Schmidts' actions resulted in fewer first aid kits and explosive detecting devices being delivered to personnel in Iraq.
When he pleaded guilty, Capt. Schmidt specifically admitted to defrauding the Marine Corps by authorizing the delivery of fewer exercise machines and dumbbells than called for under one contract that earned them $93,000 alone, prosecutors say.
Government agents seized from the Schmidts two California properties - one in Big Bear and one in Murietta - two luxury vehicles, and approximately $40,000 in cash.
"The Schmidts defrauded U.S. taxpayers, cheated the Iraqi people, and betrayed the trust placed in them," said Stuart Bowen, inspector general of the Special Inspector General for Iraq Reconstruction. "They will now pay the price for their criminal wrongdoing."
Schmidt pleaded guilty last May to conspiracy to commit wire fraud and filing a false tax return.
Janet Schmidt, who now lives in Nebraska, pleaded guilty last year to a tax offense for failing to report income received as part of the scheme. She faces up to three years in prison and is scheduled to be sentenced by Phillips on March 7.
An ongoing investigation is being conducted by the Department of Defense, the Navy, the Special Inspector General for Iraq Reconstruction, and the IRS.