Given the extraordinary circumstances, the Governor issued an emergency order which permits the waiving of typical
- Date
- 2021-05-27
Summary
Document 157-10 in Case 1:20-cv-00658-LMB-IDD, filed May 27, 2021 and marked Exhibit 122, is a message titled Notes, sent October 26, 2020, in which a California state official recounts an emergency purchase of N95 masks. The notes state that the Governor's emergency order permitted waiving typical procurement requirements, including advance payments, and that a vendor requested 75% advance payment. They describe emails among DGS, SCO and STO about a $483M advance payment wire, holds placed on the transfer, and the author's authorization of the wire on the morning of 3/26. The notes then recount conversations with members of the CHP and with FBI agents about the vendor and the state's vetting process. The document is four pages.
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Case 1:20-cv-00658-LMB-IDD Document 157-10 Filed 05/27/21 Page 1 of 4 PageID#
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EXHIBIT 122
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Message
Sent: 10/26/2020 6:04:20 PM
Subject: Notes
On 3/24 at 8am, I received a referral for someone who might be able to help us procure critical medical supplies. This
person was John Thomas. I shared this info with Angela Shell, Procurement Officer to follow up. She later asked Michael
Wong to contact Mr. Thomas that day.
Mr. Thomas identified himself as a strategic sourcer with direct access to manufacturers in China. He was someone that
other resellers were coming to purchase and then sell to the state and other entities. He offered to sell l00M N-95
masks at a low cost (relative to the current market rate) and have the items shipped quickly to CA. As our focus was to
get N95s as quickly as possible, and the price was reasonable, our state procurement staff were very interested in Mr.
Thomas' offer.
Given the extraordinary circumstances, the Governor issued an emergency order which permits the waiving of typical
procurement requirements. Among one of the allowances with the emergency order is the use of advance payments to
procure goods. DGS does not approve advance payments outside of an emergency order. However, as we've been trying
to purchase goods during this event, many vendors of the most precious and hard to procure commodities demanded
wire transfers of funds up to 100% advance payment.
Unknown to me at the time was Mr. Thomas' request for 75% advance payment. However, Mr. Thomas provided
information that made our staff feel he was a credible buyer. He had an American-based company. He resides in CA. The
bank he proposed to wire funds, Cambridge Bank, was based in the US. This was considerably better than other terms
we received from other vendors, which were 100% advance payment to foreign banks by unknown vendors / partners.
On 3/25, there were a trail of emails between DGS, SCO, and STO regarding a $483M advance payment to be wired.
While I saw some of the titles of these emails, I did not read them as I was in meetings all morning and afternoon
(9:30am UCG call, follow up in person discussions, 11am meeting on hotel contracting strategy w/ Russ Buras, and then
an assignment to complete a budget spreadsheet from noon-2pm for our 2pm meeting on hospital bed surge). Many of
the emails from DGS, SCO and STO were shared during the 2pm meeting.
During the course of the 2pm meeting, I learned that the wire transfer for $483m had been approved for processing.
There was discussion about this as the cost for these n95s would represent half the amount of funds allocated internally
for the entire COVID-19 response. Accordingly, I called to confirm if the wire transfer had already happened. I was told
that all the approvals had occurred, and the wire transfer was in process and approved by the SCO and STO. To this end,
I informed Keely Bosler, Karen Finn, Yolanda Richardson and others at the meeting (which had now concluded) that we
need to bring Secretary Ghaly and Secretary Ghilarducci to confirm whether we should pursue this wire transfer. At
4:00pm, I emailed DGS, SCO and STO staff to hold off on the wire transfer as "we need to confirm within the
Administration".
The two secretaries were unavailable, so Ms. Bosler contacted Ms. Matosantos to confirm if we should pursue the wire
transfer. Given the criticality of purchasing N95s to save CA lives, Ms. Matosantos confirmed we should purchase and
notified Ms. Bosler, who notified me.
Once this decision was made, at 4:29pm, I emailed DGS, SCO, and STO staff that the wire transfer was approved.
I then learned that the wire transfer would not be able to happen until 8am the following day. Accordingly, at 5:59pm, I
asked the DGS, SCO, and STO staff to hold off on the wire transfer so I could get more information regarding the vendor
in question. I then went to another meeting which ended at roughly 7pm, and then I got dinner at the cafeteria and ate
at my desk. At that 7pm meeting, Angela Shell, Mitch Medigovich, and I were on a conference call with other vendors,
one of whom indicated that 3M could manufacturer N95s in the US at a low cost. They said they would confirm when
those masks could be manufactured and in what quantities. They would confirm this at a 7am meeting on 3/26 with Ms.
Shell.
DGS6516
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Since my procurement staff had already left for the evening, I did not have any additional information regarding Mr.
Thomas. So, I personally called him at 7:37pm and had a 33 minute discussion with him. I wanted to verify that he was
an American buyer, residing in CA, and that the company in question, Blue Flame Medical LLC, was one that he owned
himself. He confirmed all of this and confirmed that the bank where the wire transfer would hit was based in the United
States. He explained that he would provide a shipment schedule to me by the evening, provided references to his
credibility, including his relationship with CNA. He told me he had a direct line to a high quality Chinese manufacturer
and had given my staff additional information regarding his good standing. He also indicated that, as a good will
measure, he would have a jet bring 2 million N95s to CA within a week. In addition, he guaranteed the quality of his
shipments with a 48 hour cancellation if the product proved faulty.
I told my staff not to wire funds until I confirmed whether 3M could manufacturer and sell N95s to us on a timely basis.
At 7:04am, I called and left a voicemail to Ms. Matosantos to confirm once again Mr. Thomas' credibility. I did not
receive a return call. At 7:42, Ms. Shell called to tell me that the 3M manufacturer could not produce the masks in a
timely basis.
Accordingly, given I had received approvals the prior evening, received additional information and guarantees from Mr.
Thomas, did not have other viable options to purchase N95s with expedited shipment, and had an urgent need to
purchase an additional 400M N95 masks at the direction of Secretaries Ghaly and Ghilarducci, and had an 8am deadline
from the vendor to wire the funds, I authorized the wire transfer at 7:57am on behalf of the Administration.
I want to note that I believe all parties identified above did everything in their power and good judgment to protect the
health and safety of Californians while trying to make the most judicious decisions to protect the financial integrity of
the State of California.
On 3/26 at roughly 5pm, I talked to 2 members o f the CHP for roughly 15 minutes. They asked me about the vetting
process for emergency procurements. I told them that
On 3/27 at 11:15am, I received an urgent call from my assistant that the FBI wanted to talk to me. I immediately called
back. Todd Carter and his supervisor, Bill Murdoch, from the Long Beach FBI (562-577-8065) and I talked for roughly 10
minutes. They asked me if I was aware of the wire transfer. I told them I was. They asked what it was for, and I told them
it was for N95s. I also provided the larger context that we in the state have a very thorough procurement process with
competitive RFPs and strict terms and conditions, but given the circumstances, we've had to take those aside, especially
for our most critical medical supplies. We are doing things in hours that used to take weeks, so we are moving fast and
our vetting is limited. That said, I explained our informal vetting process - how we get inundated with referrals, those
referrals are reviewed by CalOES (Abby Browning's unit) in terms of their credibility, value of product, and scale offered).
CDPH then vets the actual product specs. Then our procurement staff negotiate with the vendor and ask questions to
determine their legitimacy.
Todd Carter asked if I was aware that the vendor just formed his company a week ago and the bank account was
established two days ago. I told him I was not aware at the time, but I am now aware. I told them that what made us
more comfortable was that the bank was a US bank, so in the event of fraud, people like him could investigate. Todd
Carter asked if I was aware that the money would then go to China. I told him I didn't know what would happen with the
money. He asked if I was ok with the money going to China. I told him its not a question of whether I am personally good
or bad with this; it's a question of whether the state of California needs medical supplies in an expedited manner to
mitigate the loss of life. He asked me if I was aware that the money was going to China. I told him the vast majority of
N95s and other medical supplies are manufactured in China.
Todd Carter said that the FBI has all these resources available to prevent fraud. I said it would be great to have access to
that and asked that h e provide whatever guidance he can regarding the ways we as a state can protect ourselves from
fraudulent vendors. He said he would look into it.
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Todd Carter or Bill Murdoch then alluded to the fact that the Chinese company was already under investigation. I didn't
have much to say in response other than to thank them for investigating and helping to ensure that taxpayer dollars are
used appropriately.
I then told them that the vendor, John Thomas, is calling me repeatedly and asked for advice on how I should proceed.
They told me that I should tell him that this is being reviewed and that we're very busy. He said I should not mention
that there is an FBI investigation going on. I told them, in full disclosure, that I talked to the vendor yesterday since he
called me repeatedly. I told him that, since the wire transfer did not go forward, that if he wanted to pursue this further,
then I would elevate and there would be many questions about why the wire didn't go forward and this would be
investigated. I did not bring up anything about a criminal investigation, so I told Todd Carter this. He thanked me for the
context.
I asked what I should do now that the vendor still has a contract with us, and he keeps calling me about payment
mechanisms. Todd Carter said that would be up to us.
I told Todd Carter that everyone here is working extremely hard in the best interest of the state to save lives. I asked
that he not make public anything now. Todd Carter said this is an ongoing investigation so they could not divulge any
information publicly at this time. If the case was prosecuted, this would be made public.
DGS6518
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