WASHINGTON — A company created just six weeks ago by a pair of Republican operatives collected hundreds of millions of dollars in payments from desperate state and local governments for coronavirus supplies, but is now facing a federal criminal investigation and a rising chorus of complaints from customers who say their orders never arrived.
The company, Blue Flame Medical, had boasted that it could quickly obtain coveted test kits, N95 masks and other personal protective equipment through a Chinese government-owned company with which it had partnered, according to documents obtained by The New York Times.
The company was started by a pair of Republican political consultants, Mike Gula and John Thomas, who did not have much experience in the medical supply field. Mr. Gula’s fund-raising firm has been paid more than $36 million since 2008 by a range of top Republican politicians and political committees, while Mr. Thomas has served as a general consultant to a number of campaigns.
Mr. Thomas had asserted in an interview in late March that the connections the pair made through their work in politics helped them find suppliers and connect to customers, such as large medical systems and law enforcement agencies around the world, including in the Middle East.
The company’s pitch — which was accompanied by endorsements from a well-connected Chinese businessman who is an associate of Mr. Thomas’s — struck a chord with government agencies scrambling to obtain lifesaving supplies as the severity of the pandemic was becoming apparent.
Orders came in from state governments, local police departments and airports in California, Florida and Maryland.
But things have not gone as planned.
The state of California quickly clawed back a $457 million payment for 100 million masks, as first reported by CalMatters. Other state and local agencies that paid Blue Flame say the supplies never arrived, or that orders were only partially filled.
The Justice Department is pursuing a criminal investigation into the company, according to people familiar with the investigation, which was first reported by The Washington Post.
Some of the company’s clients are requesting refunds or threatening their own investigations.
Blue Flame’s lawyer, Ethan Bearman did not respond to questions about the complaints, the demands for refunds or the federal investigation.
“We have spent close to $5,000 on unfilled items and we need to have it all refunded,” wrote Daniel Lynch, a commander with the Melbourne Police Department in Florida, in an email to Blue Flame officials this month after spending weeks waiting for purchased masks, face shields and surgical gowns.
“At this point, if you do not refund the City of Melbourne this money, I will consider it theft/fraud, and move this to a different direction,” Commander Lynch wrote in an email obtained under open records laws.
Representatives for the Maryland State Police also said they had not received supplies ordered from the company in late March. And separately, the Maryland Department of General Services had moved to cancel a $12.5 million contract for masks and ventilators, and asked state law enforcement officials to investigate, as first reported by The Wall Street Journal.
The willingness to pay huge sums to an unproven company reflects a desperate clamor to obtain vital equipment at a time of relatively limited supply. And Blue Flame’s inability to quickly make good on its promises underscores the logistical challenges and uncertainty surrounding a private production chain largely influenced by an unpredictable Chinese government and shrouded in concerns about profiteering.
New York State paid a Silicon Valley electrical engineer $69.1 million for 1,000 ventilators on the recommendation of the Trump administration, which passed along the proposal after it had been flagged by a supply-chain task force assembled by President Trump’s son-in-law Jared Kushner.
But the engineer had not been vetted, and did not deliver a single ventilator. New York is now seeking to recover the money.
State and local agencies “were in a very difficult position, trying to vet companies that were nontraditional suppliers or third parties,” while at the same time “scrambling and quite frankly competing with each other to get access to either stockpiles or a reliable supply chain,” said Louis Grever, the executive director of the Association of State Criminal Investigative Agencies.
“There was some real fear here about whether or not these third-party vendors and suppliers were legitimate, whether or not they truly had access,” said Mr. Grever.
He circulated a price sheet from Blue Flame to state law enforcement agencies across the country after the company was recommended to him by a law enforcement consultant named Laura S. Milford and her husband, James Milford, a former deputy administrator at the U.S. Drug Enforcement Administration.
In an email sent to Mr. Grever, Ms. Milford wrote that Blue Flame had “teamed with” the Miami-based intelligence and security firm V2 Global, which indicated in promotional materials that its coronavirus response team included her husband, as well as Kevin McAleenan, Mr. Trump’s former acting Homeland Security Secretary.
While Blue Flame had incorporated just two days before Ms. Milford had sent the email, she called the company “a prominent aggregator” of “masks, travel kits, COVID-19 test kits and Personal Protective Equipment important to the Coronavirus response.”
After circulating the price sheet, Mr. Grever said, he almost immediately received inquiries from local and state law enforcement agencies in Arkansas and Florida interested in doing business with Blue Flame, and referred them to Ms. Milford, who served as a liaison to Blue Flame.
“I’m going to be honest with you, I felt like I was misled about what the nature of the company was,” Mr. Grever, a former F.B.I. official, said, adding that Ms. Milford suggested Blue Flame’s partners had experience in the business.
In an email, Ms. Milford suggested Blue Flame misled her about its capabilities. The company, she said, “purported to being able to provide Personal Protection Equipment (P.P.E.) at a time of high demand and crucial need when suppliers were extremely hard to find, if at all.”
She said she is not in business with Blue Flame and “was merely generating awareness of a potential P.P.E. supplier to agencies who would perform their own due diligence.” She added that “it seems that Blue Flame became unresponsive during the vetting and procurement process with some agencies.”
In a pitch deck for potential customers obtained by The Times, Blue Flame said it had partnered with a Chinese company called Great Health Companion to procure personal protective equipment directly from Chinese manufacturers in a way that met all Chinese laws and export rules.
Great Health is a subsidiary of a Chinese state-owned company called Hakim Unique Internet Company that includes nearly 200 companies around the world, according to the deck. The deck included a letter from Henry Huang, who is listed as Hakim’s “CEO of Healthcare” and the founder and chairman of Great Health Companion Group and a longtime associate of Mr. Thomas, the Blue Flame co-founder.
Mr. Huang, a dual American-Chinese citizen, said in an email that he had an “existing relationships with Blue Flame Medical’s leadership prior to the pandemic,” and that Hakim and Great Health contracted with Blue Flame “to assist their COVID-19 procurement efforts in China.”
Blue Flame promised customers it could deliver “volume orders” within “7‐12 days after the initial order is placed.”
After Maryland state officials complained about the delay in their $12.5 million order for 1.55 million N95 masks and 110 ventilators, Blue Flame said it had been held up because Chinese officials had intervened, preventing the shipment arranged by Great Health Companion Group, according to a person familiar with the situation.
In an April 22 email intended to allay concerns of Melbourne police contracting officials, Marc T. Serrio, Blue Flame’s chief financial officer, wrote, “As you may have seen in the news, there have been significant disruptions in the supply chain coming out of China, and unfortunately we are not immune.”
Mr. Serrio added, “While we strive to fill all orders in the most timely fashion, we are truly sorry to report that we are unable to do so with your order,” explaining that the company would refund the department for some purchases.
Nearly two weeks later, the department was still seeking a refund of some funds, according to its spokesman, Marcus Claycomb, who said in an email that the department “will absolutely consider” referring the matter for investigation or potential charges against Blue Flame.
“Clearly this hindered our ability to get necessary Personal Protective Equipment to our personnel in a timely manner,” Mr. Claycomb said.
Mr. Bearman, Blue Flame’s lawyer, had issued a statement to The Times earlier in the week about the dispute with the state of Maryland, saying Blue Flame “fully intends to honor that contract.” The statement said the company “is devoted to getting masks and ventilators to the people in Maryland who so desperately need them.”