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EXHIBIT 3
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Lawmakers told bankers flagged California's Blue Flame deal | CalMatters
https://calmatters.org/health/coronavirus/2020/05/blue-flame-deal-masks-investigation-wire-transfer-lawmakers-oversight-ma/
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An Assembly oversight committee hears testimony about California's aborted Blue Flame mask deal and
weighs ideas on how to better vet coronavirus medical supply contractors. Photo by Rich Pedroncelli, AP
Photo
CORONAVIRUS
Lawmakers told half-billion dollar Blue
Flame mask deal thwarted by suspicious
bankers
BY LAUREL ROSENHALL , MAY 11, 2020
UPDATED SEPTEMBER 17, 2020
IN SUMMARY
An Assembly oversight committee hears testimony about the aborted
Blue Flame mask deal and weighs ideas on how to better vet coronavirus
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Lawmakers told bankers flagged California's Blue Flame deal | CalMatters
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medical supply contractors.
Amid a global shortage of face masks that could help stem the spread of the
coronavirus, California officials received an intriguing call on March 23. The
caller said he had access to 100 million coveted N95 masks that were sitting
at the Port of Long Beach. He’d sell them to the state of California for $4.76
each — a bargain compared to other vendors asking between $6 and $12 at
the time.
That was the picture painted by Mark Ghilarducci, director of the Governor’s
Office of Emergency Services, as he explained to lawmakers today why the
state wired nearly half a billion dollars to Blue Flame Medical LLC, then
quickly walked back the deal. Ultimately, he said, banks involved in the large
wire transfer called state officials and alerted them that the transaction
seemed suspicious, and the state got its money back.
“Of the multiple checks and balances, this was one that was identified
ultimately by the bank,” Ghilarducci said. “The bank’s normal vetting process
caught it, reported it to the state.”
California’s frenetic Blue Flame deal with a politically connected mask
supplier was first reported last week by CalMatters.
Today’s hearing of the Assembly accountability and administrative review
committee provided a glimpse into California’s scramble to obtain medical
supplies for a state of 40 million people. As the pandemic mounted, states
found themselves competing with each other and the federal government for
limited stock, amid supply chains from China that were disrupted by the
coronavirus outbreak there.
State lawmakers pressed officials on why it took an intervention by banks to
catch a possibly fraudulent transaction and heard suggestions for potential
changes to state law to improve the process for vetting vendors during an
emergency.
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Lawmakers told bankers flagged California's Blue Flame deal | CalMatters
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“The sense of urgency and panic, trying to get supplies, rushing to compete
with the federal government and other states, created the need for
expediency which colored the normal processes in selecting and vetting
approved vendors,” state Treasurer Fiona Ma told the panel.
“The need to take immediate action and to produce immediate results
impacted the normal careful and deliberate checks and balances that are in
place.”
Ma’s office wired nearly $457 million to Blue Flame on March 26 — a 75%
down payment on a $609 million deal — after being assured by other state
departments that the company was vetted, she said. But then, Ma said, two
banks involved in the wire transfer contacted her office because they had
suspicions. One said the transaction seemed like it might be fraudulent, and
the other said the recipient was a Washington, D.C., lobbyist who had only
opened a bank account the day before.
Public records show Blue Flame incorporated on March 23, the same day
Ghilarducci said state officials received a pitch from the company. The supply
company was founded by Mike Gula, a Republican fundraiser in Washington,
D.C., and John Thomas, a Republican strategist in Southern California. The
identity of the individual who contacted the state March 23 on behalf of Blue
Flame was not revealed at the hearing, though Ghilarducci said the caller
presented himself as a California resident who was an owner of Blue Flame.
Ghilarducci said the state still has not canceled its order from Blue Flame
and that “it remains open pending an investigation.” The Washington Post
reported last week that the U.S. Department of Justice opened an
investigation into the company focused at least on its deals with the states
of Maryland and California.
While Ghilarducci and Ma emphasized that no taxpayer money was lost in
California’s Blue Flame deal because the state got all its money back,
Assemblyman Adam Gray pointed out that the potential problem was
“caught by the bank, after we’ve gone through several government steps.”
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“That leaves us all with the questions that there may be room for
improvement there on our part, in our process,” said Gray, a Democrat from
Merced.
The normal rules for doing business with private vendors — advertising the
call for proposals, getting multiple bids — were waived when Gov. Gavin
Newsom declared a state of emergency due to the pandemic. That’s
intentional, as the government tries to speed up to respond to life and death
circumstances, Helen Kerstein of the nonpartisan Legislative Analyst’s
Office told lawmakers.
“In the trade-off between how robust the vetting is and how quickly the state
moves, it can go toward quicker and a little bit less robust than the typical
procurement and there is certainly a reason for that,” she said.
Lawmakers could consider adding more oversight to the procurement
process, Kerstein said, by requiring review from law enforcement (something
California started doing after the Blue Flame deal fell apart); by requiring
that the Newsom administration notify lawmakers when they spend money
from the state’s disaster relief fund, or by requiring that the governor’s aides
make contracts available for lawmakers to review.
“The Legislature has an interest in getting timely consistent information on
these contracts to make sure the funding is appropriately spent,” Kerstein
said.
Newsom angered many lawmakers by withholding the contract with BYD for
a month after it was signed. The Chinese company had entered into a $1
billion deal with BYD for N95 masks after the Blue Flame deal collapsed.
Ghilarducci said the contract was not made public, or even available to
lawmakers for review, because the marketplace for masks and other
protective gear was so chaotic they feared imperiling delivery by making
details known to other potential buyers.
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Lawmakers told bankers flagged California's Blue Flame deal | CalMatters
https://calmatters.org/health/coronavirus/2020/05/blue-flame-deal-masks-investigation-wire-transfer-lawmakers-oversight-ma/
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Laurel Rosenhall
laurel@calmatters.org
Laurel covers California politics for CalMatters, with a focus on power and
personalities in the state Capitol. In 2020, she was included in the
Washington Post’s list of outstanding state politics reporters.... More by
Laurel Rosenhall
© 2021 CALIFORNIA, EXPLAINED.
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BYD returned $247.5 million to the state last week because it did not meet
the agreed upon deadline for certifying that its N95 masks meet federal
health and safety standards. The state still hasn’t received any N95 masks
from BYD, but surgical masks from the company have begun arriving in
California. Newsom said today that they have already been distributed to
child care centers, grocery stores, farmworkers and other worksites.
“We are making real progress in terms of being able to procure the (personal
protective equipment) and distribute the PPE and that will allow us to move
forward with additional announcements on the stay-at-home order and
meaningful modifications to our economy over the course of the next days
and weeks and months,” Newsom said.
“I have real confidence in our team and how they’ve conducted themselves,
and as I’ve said on multiple occasions, I’ll repeat it: it was the Wild, Wild West
there a few months back. I hope we don’t develop amnesia about the world
we all were living in.”
CalMatters investigative and data-driven reporting is supported by the
Inasmuch Foundation, previously known as the Ethics and Excellence in
Journalism Foundation.
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