Two executives face prison after diverting Air Force contract funds for personal use

Two executives from a company contracted by the U.S. Air Force (USAF) have pled guilty to theft of government property after embezzling over $12 million from an Air Force contract. The funds, intended for developing advanced technology, were diverted to cover unrelated business and personal expenses.

According to court documents, Thomas D. Burns, 74, of Gainesville, and Daniel B. Tolley, 63, of Purcellville, were the founders of SP Global, Inc. (SPG), a company awarded a significant Air Force contract to support research in autonomous technologies. However, rather than using the funds for their intended purpose, Burns and Tolley diverted millions to address their own business debts and personal expenses, resulting in substantial damage to the Air Force project.

A Multi-Million Dollar Misuse of Funds

In December 2017, the Air Force issued a request for information to develop the Autonomy Research Collaboration Network (ARCNet), a collaborative research initiative aimed at advancing autonomy technologies. SPG Institute, Inc. (SPGI), an entity under SP Global, bid for and was awarded the ARCNet project, a contract worth over $196 million.

As part of the contract, SPGI was responsible for paying subrecipients for their research efforts through advance payments received from the Air Force Materiel Command (AFMC). The payments were meant to ensure swift compensation for research contributions. SPGI was allocated 4% of each advance payment to cover operational costs. However, both Burns and Tolley held control over SPGI’s bank accounts, including the ARCNet account that received these payments.

Between March 2019 and June 2020, the Air Force made over $27 million in payments to the SPGI ARCNet account. However, due to substantial pre-existing debts and personal liabilities, Burns and Tolley began siphoning off these funds under the guise of “short term loans” to cover business expenses unrelated to the contract.

Misappropriation of Funds for Personal Gain

Burns and Tolley’s misuse of the ARCNet funds stemmed from SP Global’s previous debts. They had accumulated millions of dollars in debt from a private lender in connection with another government project, and Burns personally guaranteed these debts. Burns repeatedly assured colleagues that he could access a “family trust” worth $70 million to repay any funds diverted from ARCNet, a claim that was later proven false.

From January to August 2020, Tolley transferred nearly $12 million from the ARCNet account to SP Global’s business account. These funds were used to cover business payroll, expenses, and to discharge debts that Burns and Tolley had personally guaranteed. Some of the diverted funds were used for personal expenses, including luxury purchases and credit card bills. For instance, Tolley wrote checks to himself totaling at least $115,000, and both Burns and Tolley spent over $300,000 on personal credit card payments.

Consequences for Subrecipients

The diversion of funds had significant repercussions for the subrecipients contracted under ARCNet. By mid-2020, SPGI was unable to pay these subrecipients for the work they had completed. In one instance, a $3,000 check to a subrecipient bounced due to insufficient funds, triggering concerns that ultimately exposed the fraud.

Despite the growing financial crisis, Burns attempted to placate the Air Force by falsely claiming that accounting issues were to blame for the missed payments. Burns and Tolley assured the Air Force that payments would resume once new investors were secured, but no such investments ever materialized. As a result, subrecipients were left unpaid, and the ARCNet initiative faced significant setbacks.

Legal Action and Sentencing

Both executives have now pled guilty to theft of government property. Tolley entered his plea on July 10, 2024, and is scheduled to be sentenced on November 14, 2024. Burns pled guilty on October 3, 2024, and will be sentenced on January 30, 2025. Both face up to 10 years in prison, though federal sentences are often less than the maximum penalties. The final sentences will be determined by a federal district court judge, who will consider the U.S. Sentencing Guidelines and other legal factors.

U.S. Attorney Jessica D. Aber for the Eastern District of Virginia, Brigadier General Amy Bumgarner of the Office of Special Investigations for the U.S. Air Force and Space Force, and David E. Geist, Acting Special Agent in Charge of the FBI Washington Field Office’s Criminal and Cyber Division, made the announcement following the acceptance of the plea by U.S. District Judge Patricia Tolliver Giles.

The AFMC Law Office’s Procurement Fraud Division played a crucial role in assisting with the investigation and prosecution of the case. Assistant U.S. Attorneys Kenneth R. Simon Jr. and Russell L. Carlberg are leading the prosecution, with support from Assistant U.S. Attorney Maya D. Song and former Assistant U.S. Attorney Kimberly Pedersen.

The Larger Impact

The consequences of Burns and Tolley’s actions extend beyond their personal legal troubles. The diversion of government funds has delayed critical research in autonomous technology, harming both the Air Force and the private research institutions involved in the ARCNet project. Moreover, their actions have caused significant financial losses for the subrecipients who relied on the payments to complete their work.

This case serves as a reminder of the importance of accountability and oversight in government contracts, particularly when it comes to high-value projects that affect national security. By diverting funds intended for vital research, Burns and Tolley not only broke the law but also hindered progress in the development of critical defense technologies.

The U.S. government continues to take steps to address contractor fraud and ensure that public funds are used appropriately. The outcome of this case will likely serve as a cautionary tale for other contractors working on government projects, emphasizing the severe consequences of misappropriating federal funds.

This case underscores the importance of strong financial controls and transparency in handling government contracts, particularly those that involve cutting-edge technology and research. The U.S. Department of Justice and its investigative partners remain committed to holding accountable those who seek to profit at the expense of taxpayers and critical government programs.