Executives plead guilty to diverting $12M from Air Force contract

ALEXANDRIA, Va. - Two executives at a contractor for the U.S. Air Force (USAF) pled guilty to theft of government property after diverting over $12 million from an Air Force contract to pay for unrelated personal and business expenses.

According to court documents, Thomas D. Burns, 74, of Gainesville, and Daniel B. Tolley, 63, of Purcellville, founded SP Global, Inc. (SPG) in 2012. Burns served, at various times, as Chief Executive Officer, Chairman of the Board, and President. Tolley served, at various times, as Chief Technology Officer, President, and a member of the Board of Directors. In 2016, SPG incorporated SPG Institute, Inc. (SPGI).

On Dec. 20, 2017, the United States Air Force (USAF) issued a Request for Information to initiate a collaborative research consortium for developing autonomy technologies, the Autonomy Research Collaboration Network (ARCNet). SPGI bid on and was ultimately awarded the project for over $196 million.

SPGI's payment of subrecipients for work performed under the contract relied upon "advance payments" from the Air Force Materiel Command (AFMC), which allowed SPGI to pay for research efforts in a faster, commercial-like manner. SPGI was to receive 4% of each advance payment to cover ARCNet operations and overhead. Only Burns and Tolley exercised control over bank accounts belonging to SPG and SPGI, including the SPGI ARCNet account that received advance payments intended to be held in trust for payment to subrecipients. Between March 28, 2019, and June 23, 2020, the USAF and AFMC, through the Defense Finance and Accounting Service, made a total of $27,250,000 in advance payments to the SPGI ARCNet account.

SPG had previously accumulated large debts at high interest rates from a private lender in connection with its management of a prior government project and other business expenses. Those debts were personally guaranteed by Burns, Tolley, and their spouses. SPG also had spent large amounts of money on expanding its office space and maintaining staff. Burns repeatedly told SPG executives and directors that he had a "family trust" worth approximately $70 million that he could "break" at any time to make good on any debts. Burns never provided records to SPG to prove the trust existed, that it had the assets claimed, or that he had the legal right to "break" the supposed trust.

In light of SPG's revenue shortfalls and millions in personally guaranteed debts that were coming due in 2020, Burns and Tolley agreed to take "short term loans" exceeding the 4% overhead allowance from advance payments made to SPGI. Burns told Tolley and others that he could use his family trust to replace the government funds taken from SPGI, and that he preferred to take the money intended for subrecipients rather than breaking his trust due to potential personal tax consequences to him. Burns and Tolley directed SPG employees to list some of the transfers from SPGI to SPG as "short term loans," which SPG failed to secure against Burns' claimed assets.

From January 16, 2020, through Aug. 28, 2020, Tolley transferred $11,878,000 from SPGI bank accounts to SPG's business account. The converted ARCNet money was used to cover SPG payroll, SPG business expenses, to discharge personally guaranteed debts, and to pay tens of thousands of dollars to Burns and Tolley. For example, Tolley wrote checks from the SPG business account to Burns for $35,000 for "Repayment of Loan," to SPG subsidiaries totaling $111,027, and to his personal business venture in Wythe County for $7,500. On one occasion, Burns and Tolley directed a wire payment of $4,683,979.72 to a private lender to cover business loans that were personally guaranteed by Burns, Tolley, and their spouses.

Using money transferred from the SPGI ARCNet account to the SPG business account, Tolley wrote checks to himself totaling at least $115,000. Over $300,000 of the SPGI ARCNet account transfers to the SPG business account went to pay credit card bills for Tolley and Burns. On March 23, 2020, Tolley wrote a $150,164.56 check from the SPG business account to a private lender for loans he and Burns had personally guaranteed.

An SPGI senior employee, who was a former FBI Supervisory Special Agent, strongly advised against use of ARCNet funds from the USAF for SPG business, telling Burns and Tolley that they were not entitled to use ARCNet money for unrelated purposes. A week later, Burns executed a "personal guarantee" drafted by company counsel to personally repay $3,640,000 of ARCNet funds received from the USAF. Burns did not have the personal funds or trust assets to back this personal guarantee. The USAF was never consulted about this plan to convert the ARCNet funds to SPG for payment of previous debts and other expenses.

Beginning in July 2020, after the vast majority of Tolley's "short term loan" transfers, SPGI failed to pay subrecipients against submitted invoices. Near the end of September 2020, Tolley wrote a check for payment of a subrecipient in the amount of $3,000, for which the account had insufficient funds. The bounced check set off concerns that ultimately led to the discovery of the conversion of over $12 million of ARCNet funds for the benefit of SPG, Burns, and Tolley, at the expense of the government and subrecipients.

In a letter to the USAF dated Jan. 5, 2021, Burns falsely claimed the lack of payments was the result of "significant accounting issues" that would soon be fixed. Burns and Tolley also stated that subrecipients would be paid once investor money arrived from overseas. No investor money ever arrived, and subrecipients performed unpaid work and suffered losses. The ARCNet consortium was set back significantly due to the actions of Tolley and Burns.

Tolley pled guilty on July 10 and is scheduled to be sentenced on Nov. 14, 2024. Burns pled guilty today and is scheduled to be sentenced on Jan. 30, 2025. Each faces up to 10 years in prison. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Jessica D. Aber, U.S. Attorney for the Eastern District of Virginia; Brigadier General Amy Bumgarner, Commander 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 after U.S. District Judge Patricia Tolliver Giles accepted the plea.

The AFMC Law Office, Procurement Fraud Division provided substantial assistance in this case.

Assistant U.S. Attorneys Kenneth R. Simon Jr. and Russell L. Carlberg are prosecuting the case. Assistant U.S. Attorney Maya D. Song and Former Assistant U.S. Attorney Kimberly Pedersen assisted the prosecution.

A copy of this press release is located on the website of the U.S. Attorney's Office for the Eastern District of Virginia. Related court documents and information are located on the website of the District Court for the Eastern District of Virginia or on PACER by searching for Case Nos. 1:24-cr-215 (Burns) and 1:24-cr-148 (Tolley).