Update: This article has been updated with a statement from the company.
The Department of Justice unsealed a federal indictment yesterday after three individuals were arrested for illegally sending some 70 drawings to a Chinese company, as well as a scheme to sell prohibited materials of Chinese origin to the Department of Defense (DOD).
From December 2018 to January 2020, Phil and Monica Pascoe and Scott Tubbs violated the Arms Export Control Act and International Traffic in Arms Regulations by sending technical drawings to a Chinese company without a license from the U.S. government. The property of a pair of U.S. companies, the schematics were related to end-use items for aviation, submarines, radar, tanks, missiles, mortars and other systems.
Phil Pascoe is the president of Quadrant Magnetics, a magnetic products company also charged in the indictment for importing rare earth magnets smelted and magnetized in China.
Quadrant sold the magnets to a pair of U.S. companies that used them in components that wound up in F-16s, F-18s and other defense assets. The scheme violated the Defense Acquisition Regulations System (DFARS) specialty metal clause, which says rare earth magnets sold to the DOD must be produced and magnetized in the U.S. or an approved country. China is not approved.
The Pascoes, Tubbs and the company are charged with wire fraud, violating the Arms Export Control Act and a host of other charges. They face many years in prison.
If Quadrant Magnetics sounds familiar, it's because Kentucky Gov. Andy Beshear announced in January that the company would build a new rare-earth magnet manufacturing facility in Louisville, Kentucky. The development was valued at $95 million, aimed to create 200 new jobs and stood to receive some $3.4 million in tax incentives.
According to WLKY, at the time, Pascoe said he wanted to bring magnetics manufacturing back to the U.S. He said, "It's time to get America in the magnet game." No word yet on how the arrests could shake up Quadrant's plans.
"The company is cooperating with the government regarding the recent indictment from the Western District of Kentucky. We will continue to do so, and we remain focused on our mission to serving as an important partner to our customers,” said a Quadrant Magnetics spokesperson in a statement.