U.S. Scrutinizes Private Equity Hiring of Ex-Army Officer

Government lawyers have asked the private equity firm headed by the prominent financier Lynn Tilton for information related to its recent hiring of a former Army official, according to people briefed on the matter.

The former Army official, Col. Norbert E. Vergez, headed a unit that awarded lucrative business to a helicopter company owned by Ms. Tilton’s firm, Partriarch Partners. Last Friday, the civil arm of the Justice Department asked Patriarch to provide it with documents related to Mr. Vergez.

The inquiry is expected to examine Mr. Vergez’s government activities, his dealings with Patriarch and how he came to be hired by the firm in February, according to an official who spoke on the condition of anonymity because he was not authorized to speak publicly.

Until he retired late last year, Mr. Vergez ran a multibillion-dollar Pentagon unit that purchased helicopters for the Army and United States allies. In 2011, Ms. Tilton’s company, MD Helicopters, won a contract from that unit for six helicopters to be used in Afghanistan worth nearly $200 million. The deal could be even more beneficial, reaching as many as 54 aircraft over the life of a four-year deal.

In a statement, Ms. Tilton said she and Patriarch were fully cooperating with the inquiry and was confident it would not affect her firm or any of its companies.

“MD and Patriarch are squeaky clean,” the statement said. “Our only fear is of any specter that the press might cast and not of any truth that an investigation will find.”

Mr. Vergez, a senior vice president at Patriarch overseeing aviation and aerospace investments, did not return calls seeking comment. A spokesman for the Justice Department did not immediately respond to a request for comment.

Whatever the case, the inquiry is likely to put Patriarch in an uncomfortable spotlight at a time when Ms. Tilton has been promoting herself and her companies.

While most private equity executives shun publicity, the colorful Ms. Tilton embraces it. Earlier this month, the self-described “turnaround queen” sat for an interview with Bloomberg Businessweek and gave a reporter a tour of an MD Helicopter factory in her trademark five-inch stilettos. In a video interview with The Wall Street Journal earlier this summer, she described Patriarch as “the largest female-owned business in America.”

Patriarch, which is based in New York, specializes in buying ailing businesses on the cheap and trying to turn them around. It owns 75 companies with a total of 120,000 employees and revenue of more than $8 billion, according to the firm’s Web site. Holdings include Rand McNally maps, Stila Cosmetics and Dura Automotive. When Patriarch bought MD Helicopters in 2005, the company â€" originally a business owned by the aviation mogul Howard Hughes â€" stood on the edge of collapse.

Davidson Goldin, a Patriarch spokesman, said that the firm and Ms. Tilton did not know Mr. Vergez before MD Helicopters obtained the military contact in 2011. And since Mr. Vergez joined Patriarch, he added, the firm has not secured any new government business.

Before Mr. Vergez joined Patriarch, he served for 25 years in the Army, where he flew Black Hawk, Apache and Cobra helicopters earlier in his career. Since 2010, he ran a multibillion-dollar program that buys helicopters, including the Russian-made Mi-17 and provides them to United States allies. The program for purchasing so-called nonstandard rotary wing aircraft is meant in part to assist allies like Afghanistan and Iraq whose armies are more accustomed to flying Russian-made helicopters.

The office, which was established in 2010 and is based in Huntsville, Ala., came under scrutiny last year after the Defense Department’s inspector general determined that the Army officials “did not adequately manage the acquisition and support” of aircraft. A report issued by the inspector general said that defense officials kept poor records of their purchases of Russian aircraft.

At the time the report was issued, Mr. Vergez said his office was correcting the program’s shortcomings.
On Thursday, Reuters reported that the Pentagon had opened a criminal investigation into the office formerly run by Mr. Vergez. Government officials are examining the payments and relationships between the office and helicopter manufacturers, a person briefed on the matter said, according to Reuters.

Mr. Vergez approached Patriarch about a job in April 2012 with written authorization from an ethics officer to do so, said Mr. Goldin, the Patriarch spokesman. Outside lawyers for Patriarch vetted Mr. Vergez’s hiring, Mr. Goldin said.

While she now has to deal with the legal inquiry involving Mr. Vergez, Ms. Tilton has had recent success in the courts. Last month, MD Helicopters prevailed in a legal dispute with Boeing. An arbitration panel ruled in favor of MD Helicopter after Boeing supposedly tried to block it from competing for military business. In June, a judge dismissed a case brought against Patriarch by the bond insurer MBIA related to a contract dispute.

But more than her courtroom battles, Ms. Tilton has attracted attention for her flamboyant personal style. In a 2011 television interview with Barbara Walters, Ms. Tilton gave a tour of her four closets full of shoes â€" 500 pairs, categorized by color photographs taped to the front of each shoe box. She filmed a pilot for a reality show for the Sundance Channel but the project was abandoned. In a clip from the show, “Diva of Distressed,” she tries to assuage a concerned group of executives at a company that she had recently acquired. “It’s only men I strip and flip,” she said. “My companies I keep long term and close to my heart.”

Ms. Tilton has owned MD Helicopters for eight years, and when she lost her first bid for an Army contract in 2006 to EADS, a European rival, she blasted the government.

“The United States is struggling to stay competitive with its global neighbors and our own taxpayer money is being poured into the coffers of foreign companies,” Ms. Tilton said at the time. “That money could be going to rebuild this industry in our country. It is a true injustice.”