Penn Yan Man Charged With Falsifying Inspection Reports For Space Parts

BUFFALO, N.Y.--U.S. Attorney James P. Kennedy, Jr. announced today that James Smalley, 41, of Penn Yan, NY, was arrested and charged by criminal complaint with falsifying inspection reports for space parts. The charge carries a maximum penalty of 10 years in prison and a $250,000 fine.

Assistant U.S. Attorney Richard A. Resnick, who is handling the case, stated that according to the complaint, the defendant was a Quality Assurance Engineer at PMI Industries, LLC, a Rochester aerospace precision machining service, specializing in high-tolerance machining for flight critical aerospace parts used to build space flight vehicles by SpaceX and other Department of Defense aerospace contractors. Smalley began his employment at PMI on March 6, 2017, working on contracts for SpaceX, which developed the Falcon launch vehicle family and the Dragon spacecraft family. Falcon and Dragon both currently deliver payloads into Earth orbit for NASA, the Air Force, other United States government agencies and private industry. SQA Services, Inc. (SQA) is a subcontractor to SpaceX, and provides multiple quality assurance functions within the aerospace and defense manufacturing industries.

The complaint states that in January 2018, an internal audit by SQA Services, Inc. (SQA), at the direction of SpaceX, revealed multiple falsified source inspection reports and non-destructive testing (NDT) certifications from PMI Industries, LLC, for Falcon 9 and Falcon Heavy flight critical parts. SpaceX notified PMI of the anomalies. Source inspections and NDT are key tools used in the aerospace industry to ensure manufactured parts comply with quality and safety standards. Specifically, the signed source inspection report had a forged signature of the SQA inspector. SpaceX and SQA officials believed the signature of the inspector was photocopied and cut and pasted onto the source inspection report with a computer.

On February 16, 2018, the NASA Launch Services Program alerted the NASA Office of Inspector General (OIG), and Kennedy Space Center (KSC) Resident Agency, regarding the falsified source inspection reports and false NDT certifications created by PMI. Some of the false source inspection reports and false NDT certifications were related to space launch vehicle components that, at the time of discovery, were to be used for the upcoming Transiting Exoplanet Survey Satellite (TESS) mission, which launched from a SpaceX Falcon 9 rocket on April 18, 2018.

The investigation has identified that Smalley, while an employee of PMI, falsified at least 38 source inspection reports for space vehicle parts procured by SpaceX for the construction of the Falcon 9 and Falcon Heavy series of space vehicles.  The investigation has also identified at least 76 individual piece parts that were rejected during source inspection or were never inspected by SQA, then subsequently shipped to SpaceX.

A records request from SpaceX identified seven NASA space flight missions, two United States Air Force space flight missions, and one National Oceanic and Atmospheric Administration (NOAA) space flight mission that were affected by parts purchased by SpaceX from PMI.

Subsequently, SpaceX terminated its business relationship with PMI averaged approximately $200,000 per month from the business with SpaceX, as a disqualified supplier. PMI subsequently closed its operation.

“The success of America’s reinvigorated space program depends not just on American ingenuity but on American integrity as well,” stated U.S. Attorney Kennedy.  “These charges make clear that those who commit fraud against NASA, the Air Force, the National Oceanic and Atmospheric Administration, who are among the government agencies leading our space program, and those private companies, such as SpaceX, with whom the government partners and contracts in its effort, will be held accountable when they seek to cut corners. Such fraudulent conduct jeopardizes no only the success of the program but the lives of the brave men and women who rely on the integrity of not just the space vehicles themselves but all those who help to design and build them.” 

“The NASA Office of Inspector General will continue to aggressively investigate those who undermine NASA operations and jeopardize U.S. space launch missions by their fraudulent actions,” said Special Agent-in-Charge John Corbett, Central Field Office.”

“The Air Force Office of Special Investigations (AFOSI), along with its law enforcement partners, has, and always will, aggressively identify, investigate, and neutralize anyone who attempts to commit aircraft and space vehicle part fraud and put our nation's warfighters at risk,” stated Special Agent-in-Charge Wendell W. Palmer, AFOSI, Office of Procurement Fraud.

“According to the criminal complaint, James Smalley took the act of forgery to a new level,” said FBI Buffalo Special Agent-in-Charge Gary Loeffert. “A potentially catastrophic level with the potential to not only cost millions of dollars, but also jeopardize years of irreplicable work.”

The defendant will make an initial appearance before U.S. Magistrate Judge Jonathan W. Feldman on May 23, 2019, at 1:00 p.m.

The complaint is the result of an investigation by the NASA Office of Inspector General, under the direction of Special Agent-in-Charge John Corbett, Central Field Office; the Air Force Office of Special Investigations, under the direction of Special Agent-in-Charge Wendell W. Palmer, Office of Procurement Fraud; and the Federal Bureau of Investigation, under the direction of Special Agent-in-Charge Gary Loeffert.

The fact that a defendant has been charged with a crime is merely an accusation and the defendant is presumed innocent until and unless proven guilty.