WASHINGTON — The Justice Department has opened a criminal investigation into Blue Flame Medical, a firm created by two well-connected Republican operatives who started selling COVID-19 supplies this spring as the virus spread across the country.
Prosecutors are focused on at least two contracts that the firm signed for medical masks and other equipment with Maryland and California, according to two people familiar with the matter who spoke on the condition of anonymity because of the sensitive nature of the matter. Both states ultimately canceled those contracts.
An attorney for Blue Flame, Ethan Bearman, has said the firm acted in good faith with the states. He declined to comment about the Justice Department investigation.
Last weekend, Maryland terminated a $12.5 million contract for personal protective equipment (PPE) with the firm after state officials said the company had failed to deliver masks and ventilators as promised.
California had separately hired the firm to provide 100 million face masks, according to two people familiar with the transaction. That contract, which was first reported Wednesday by the California news website CalMatters, was then abruptly canceled, and the state scrambled to get its $457 million deposit back. The funds were returned the same day.
Bearman had no comment on the California contract, which drew the attention of the Justice Department when it was suddenly canceled.
A Justice Department spokesman declined to comment Wednesday.
Michael Ricci, a spokesman for Maryland Gov. Larry Hogan, a Republican, confirmed Wednesday in an email that the state government has received subpoenas from federal prosecutors seeking information about the canceled Blue Flame contract. Asked what law enforcement officials are seeking, Ricci replied, “Federal investigators have asked us not to disclose that information.”
State officials said Blue Flame Medical failed to deliver masks and ventilators as promised. The matter was referred to Maryland Attorney General Brian Frosh, a Democrat, last week for review.
“After directing Maryland’s attorney general to investigate this company last week, Governor Hogan is encouraged to hear that there is an ongoing federal investigation as well,” Ricci said.
A person familiar with the inquiry said that while the Justice Department is studying the transactions, there has been no indication so far that charges will be filed.
Blue Flame received a down payment of nearly $6.3 million from Maryland in early April — after promising to provide, within a few weeks, desperately needed PPE for front-line medical personnel dealing with the novel coronavirus.
Bearman said in a statement Tuesday that the complaints from Maryland were puzzling. “Blue Flame Medical is devoted to getting masks and ventilators to the people in Maryland who so desperately need them,” he said. The company “fully intends to honor that contract” to supply 1.5 million masks and 110 ventilators by June 30, Bearman said.
A letter sent to the firm on April 30 by Danny Mays, Maryland’s director of procurement, revealed deep frustration.
“Despite numerous requests for information and order status, Blue Flame Medical has yet to deliver any items under this order, or provide any pertinent data as to a pending shipment,” Mays wrote. “As Blue Flame Medical LLC has failed to honor its delivery commitment under the terms and conditions, [the Department of General Services] is now formally requiring Blue Flame Medical to cure this deficiency.”
Bearman acknowledged that delays have occurred in filling the order, but he said such problems have become commonplace this spring during the chaotic rush to locate masks and other PPE.
The April 1 purchase order, obtained by The Washington Post, identifies June 30 as the delivery deadline — but that is only because June 30 is the end of the current fiscal year, Ricci said. The agreed-upon shipping date for the masks and ventilators was April 14, according to a Blue Flame invoice obtained by The Post.
In a phone interview Wednesday, Maryland state Sen. Jill Carter, a Baltimore Democrat, said the incident highlights a need for greater oversight over purchases that state officials are making to curb the pandemic’s spread. Carter noted that many minority businesses and small firms have reached out to the Maryland Emergency Management Agency about possibly supplying the state with tests, protective equipment or testing materials, but have not heard back.
“My question was always, what is the process for vetting companies and determining who would be used?” Carter said, adding that it is clear that at least one of the firms selected could not perform. “The only solution is that there has to be some oversight. It shouldn’t be up to the one agency. There should be a cross-section of folks, from the minority business community, the local business community, the medical community.”
“I understand we need to act quickly. I don’t want to stall the process,” she added. “But the process isn’t working this way. We’re not getting the supplies.”
Blue Flame was started in late March by Michael Gula, a Republican fundraising and lobbying consultant in Washington, and John Thomas, a California political consultant.
Before entering the medical supply business, Gula was known in GOP circles for his political fundraising skills. His firm has raised campaign money for Sens. Patrick Toomey of Pennsylvania, Steve Daines of Montana, Ron Johnson of Wisconsin and dozens of other influential Republicans. He startled some longtime clients in March when he announced he was quitting the fundraising world during an election year to start the medical supply business with Thomas.
Thomas recently worked as a strategist and fundraiser for Republican Don Sedgwick, who sought to run against Rep. Katie Porter, D-Calif., but lost in the March primary.
The two Republican consultants incorporated their firm in Delaware on March 23 and a week later received the contract from Maryland.
Porter last month asked the Inspector General’s Office at the Department of Health and Human Services to look into the company as the office reviews complaints of price gouging and poor quality control by inexperienced distributors. In her letter, she expressed concern that Blue Flame “is potentially creating a costly and burdensome middleman from which states and localities must now purchase supplies.”
Gula contacted a staffer he knew in Hogan’s administration to make a pitch for the sale, according to a Maryland official familiar with the matter who spoke on the condition of anonymity to discuss a sensitive legal matter. Gula started using that staffer’s name on a reference sheet to seek contracts with other states, the official said. The staffer referred the matter to the chief legal counsel for Hogan, Mike Pedone, on April 9.
Pedone then referred the matter on Friday to the Maryland Attorney General’s Office, the official said.
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The Washington Post’s Erin Cox, Alice Crites and Devlin Barrett contributed to this report.