KNOXVILLE, Tenn. — Since 1965, when its technology put "jungle boots" on the feet of U.S. soldiers in the Vietnam War, Wellco Enterprises shod the military to the tune of billions of dollars with its "Made in the USA" footwear.
But when investment firms took over the North Carolina manufacturer amid an economic downturn in 2008, installed Vincent Lee Ferguson of Knoxville as its chief executive and moved its headquarters to Morristown, Tenn., Ferguson promised an "aggressive" push to turn the company around.
What he didn't tell his board of directors was that his plan was to farm out manufacturing to the Chinese and trick the U.S. government — and consumers — into believing the boots remained worthy of the standards and public good will its "Made in the USA" label promised, federal prosecutors allege.
Ferguson, 65, is accused along with four others, including three family members, of conspiring to rip off the U.S. Department of Defense to the tune of more than $8.1 million by marketing "Made in the USA" military-style boots to the government, to government contractors and to the general public that were actually manufactured largely in China and to a lesser extent in Peru and the Dominican Republic.
The indictment, unsealed last week in U.S. District Court in Greeneville, Tenn., charges the quintet of Wellco executives — Ferguson, the CEO; Matthew Lee Ferguson, 40, the senior vice president of sales; Kerry Joseph Ferguson, 35, the director of marketing; Matthew Harrison Martland, 32, director of distribution and logistics; and Stephanie Lynn Ferguson Kaemmerer, 44, operations manager — with one count of conspiring to commit wire fraud, seven counts of wire fraud, one count of "major fraud" of the government and one count of smuggling goods in the U.S.
Prosecutors say the plot spanned from December 2008 to August 2012, after two investment firms acquired Wellco and made it a subsidiary of Tactical Holdings Operation Inc., which moved the operation from Waynesville, N.C., to Morristown in 2009.
Assistant U.S. Attorney David L. Gunn wrote in a rare "speaking indictment" that lays out details far beyond the bare allegations necessary to file charges that Wellco had pioneered boot-making technology that allowed the military to design footwear to meet specific needs on the battlefield, beginning with the Vietnam War.
When Vincent Ferguson took the helm, the firm "was a major supplier of footwear" to the Defense Department, with sales to that agency topping $138 million from 2006 to 2012 alone, Gunn wrote. The firm also marketed to government contractors and the general public.
When the firm hit financial trouble and left the hands of the family of German immigrants who founded it, Ferguson, now chief of the newly-titled Tactical Holdings, "discussed with Wellco's board of directors his turnaround plan" that included a move to "aggressively pursue" sales to the Defense Department.
The indictment alleges Ferguson secretly shifted the manufacture of boot "uppers" to China and specifically instructed the Chinese to include the U.S. flag and the term "USA" on the labels before shipping them to Morristown, where the soles were then attached.
At the executives' instruction, Chinese manufacturers stitched a "tearaway made in China" label onto the boot uppers, which was then removed at the Morristown plant, Gunn wrote.
A few styles of boots also were manufactured using similar trickery in Peru and the Dominican Republic, the prosecutor wrote.
The indictment does not indicate how the operation drew authorities' attention but notes Wellco and holding company Tactical Holdings declared bankruptcy in 2014. Original Footwear Holding Inc. then bought the firm's assets, including the Morristown manufacturing plant. Original Footwear is a major supplier of footwear for police tactical units and is not alleged to have been involved in the conspiracy.
The five executives are out on $20,000 bond each. A trial is set for Nov. 1.