Two former executives of Roller Bearing Industries (RBI, USA; now a division of Greenbrier, USA) have been indicted by a federal grand jury on charges filed by the U.S. Attorney's Office in Louisville, Kentucky. Federal charges filed against Michael Paul and Daniel Conway include mail fraud and conspiracy.

click here to read the joint FBI / DOJ press release
In our research and experience at eBearing, the co-conspirators' positions within RBI are what make their indictment unique, possibly in the history of the U.S. bearing industry. During the time of their alleged fraud, Mr. Conway was President of RBI, and Mr. Conway was Vice President and Director of Operations.

Wheelset rail bearings are large, expensive, and can be in service for many years. Due to their high cost, most railroads send them out for potential reconditioning by certified bearing reconditioning companies such as RBI. Or RBI buys used rail bearings (known as "dirty bearings") directly, reconditions and then sells them itself. Rail bearing reconditioning follows a set of strict quality standards set up and enforced by the Association of American Railroads. AAR's 5251R9N7 standards include everything from spalling to backface wear to backing ring fillet radius, all the way to proper delivery lubricant quality.

They key to Conway's and Paul's scheme is the fact that, disassembled, many rail bearing components do not meet the minimum standards for reconditioning, and must be scrapped.

Allegedly, Mr. Paul, in his position as President, and Mr. Conway, in his position as VP and Director of Operations, were able to intercept components which RBI could not service and were marked for scrap. Those components were then rerouted to two outside companies, RS Material and GRD Enterprises. RS and GRD were owned by friends and family of Mr. Paul and Mr. Conway. RS and GRD then cleaned up and reconditioned the scrap components.

Those cleaned-up components were then shipped back to RBI. At that point, Paul and Conway allegedly had RBI pay RS and GRD for the components as though they were complete "dirty bearings." In total, Paul and Conway rebilled 11,516 components as dirty bearings, and RBI paid out $1,263,000 to RS Material and GRD Enterprises.

Paul and Conway then received a portion of the $1,263,000.

However, the scheme went even further. Paul and Conway then saw to it that the components from RS and GRD were mixed in with and essentially disappeared into RBI's own reconditioned components inventory. They were then all used to recondition complete bearings which were eventually sold to RBI customers.

The case was investigated by the FBI and the U.S. Postal Inspection Service. The U.S. Attorney's office said, "In the event of a conviction, the maximum potential penalties are 40 years’ imprisonment, a $500,000 fine, and supervised release for a period of three years."

The activity allegedly occurred while RBI was a division of SKF. Under the indictment, it is not clear if the activity extends to the period prior to SKF's acquisition. SKF acquired RBI in 2001, and Greenbrier Rail Services acquired it from SKF in April of 2008.

2000 article: SKF acquires RBI
2008 article: Greenbrier acquires RBI from SKF