Effort to obtain N95 masks led to debacle
Blue Flame company pressured state into $450M deal for COVID-19 gear at start of pandemic
Just days after Gov. Gavin Newsom put California under a stay- at- home order to slow the coronavirus outbreak, executives at newly formed company Blue Flame began aggressively pressuring state officials to buy 100 million masks and wire nearly half a billion dollars in prepayment, text messages and emails obtained by The Sacramento Bee show.
T he communications, ob - tained through a Public Records Act request, show Blue Flame co-founder John Thomas sent more than 100 emails and texts over a weeklong period to officials at the state’s Department of General Ser v ices, urging them to hurry to secure a deal and send the money before another country bought the masks instead.
“Not to ramp up pressure but literally minutes matter on me being able to lock down this inventory,” he told a California official in one message.
Lifesaving N95 masks were in critically short supply at the time and needed by health care workers treating COVID-19 patients. At a March 23 news conference, as officials were in talks with Blue Flame executives, Newsom said the state needed to find 1 billion gloves, 500 million N95 masks and 200 million shields to prepare for a surge in infections.
“In order to procure that, it’s
going to take a heroic effort,” Newsom said. “Many of us are competing for the same limited supplies. And as a consequence of that, people are tripping over themselves to make deals.”
Reflecting the urgency, a state contracts official told Thomas the department was exploring options to “circumvent the law” and provide an upfront payment to secure the masks.
T he state ultimately struck a deal with Blue Flame that week and authorized a $456 million upfront payment for 100 million N95 masks, which are thought to be the most effective in preventing coronavirus spread.
That deal fell through when Blue Flame’s bank called California officials to raise concerns about the transaction. Blue Flame is now suing the bank, alleging it interfered with the deal and damaged the company’s reputation.
S e vera l gover n ment agencies reportedly are investigating Blue Flame, including the Department of Justice and the state of Maryland. The U.S. House Energ y and Commerce Committee also has opened an inquiry.
In response to questions from Congress, the company has admitted that it has not been able to secure all the supplies it has promised clients, but argues that its executives have tried to secure equipment as quickly as possible and provided refunds for goods they couldn’t deliver. Democratic representatives in Congress have held it up as an example of what went wrong in the early days of the coronavirus outbreak when states competed against one other to buy pandemic supplies.
The emails and text messages illustrate the pres
sure state officials were unworried about shipping deder to secure deals quickly, lays if we wait to order.” and they reveal some of the Later that night, Thomas tactics used by executives at texted Wong asking if the Blue Flame. governor’s Office of Emer
The records indicate gency Services or the state Thomas first exchanged controller could “find a way emails with a Department to authorize pre-payment in of General Services official an emergency?” on March 20 after he was Wong texted back the connected with the departnext morning. ment by an official in the “We’re researching altergovernor’s Office of Emernative options but it’s hard gency Services. to circumvent the law,” he
Thomas and his associsaid. ate, Mike Gula, both Repub“Right that little thing,” lican political operatives Thomas responded. with no experience selling At the time, while govprotective equipment, had ernments and hospitals recently begun forming were scrambling to get supBlue Flame as a medical plies amid a global shortsupply company, intending age, it was common for to sell masks and other supmanufacturers to require plies during the pandemic. upfront prepayments. Cali
The day he was introfornia paid nearly half a bilduced, Thomas emailed lion dollars upfront to anBill Simonson, an official at other manufacturer, BYD, the Department of General for N95 masks in a different Services, about mask prices deal about the same time, and Blue Flame’s inventory. representing a 50% prepay
Thomas texted Michael ment.
Wong, a contracts admin“Under standard operistrator at the department ating procedures in a nonin the evening on March emergency environment, 22, saying he had “whatthe state relies on various ever COVID supplies you Government Codes for statneed and can get them to utory authority for advance you quickly.” payments,” Department of
He told Wong that CaliGeneral Services spokesfornia must prepay for N95 woman Monica Hassan masks and said “shipping wrote in a statement. “In is going to get jammed up light of the unprecedented so I really need to place orCOVID pandemic and the ders asap.” emergency proclamation,
State government conthe state exercised its distracts usually move slowly cretion, on a case by case through a process manbasis, to determine the need aged by the Department of for advance payments when General Services designed acquiring PPE needed to to ensure taxpayers aren’t protect Californians.” ripped off. A state agency Thomas emailed Wong in will put out a request for the evening on March 23, proposals, receive bids and saying California needed pay only after a product is to order 100 million N95 delivered. But during the masks with a 75% upfront pandemic, state officials payment or his “lead manneeded to secure supplies ufacturer” would sell to the fast .United Kingdom instead.
Wong told Thomas he He told Wong that Califorwould need to “figure out nia would have 48 hours the prepayment issue” and to inspect and reject the asked to speak the next masks for a refund. morning. Thomas followed up with
“We can supply you anya text to Wong seven minthing you need at the best utes later, saying the situaprices, speed and capaction was “urgent.” ity I promise,” Thomas reWong said he could not sponded. “I’m just getting prepay for 100 million masks
and pressed for documentation about the products.
“Not to rush,” Thomas told Wong in another message, “BUT I literally have my inventory locked and cannot hold it for much longer without giving them $”
It’s not clear from the text messages and emails where exactly the masks were located while Thomas was communicating with California officials. Thomas and his lawyer did not return requests to discuss the messages.
On March 26, state officials tried to wire the $456 million payment to Blue Flame. A top executive at the bank called State Treasurer Fiona Ma’s office that day to say the Blue Flame bank account had been opened just the day before by a political operative.
Ma declined to comment for this report because her office is named in the complaint Blue Flame filed against the bank, but she told The Sacramento Bee in May that the Chain Bridge Bank official told her office the bank was not comfortable completing the money transfer.
A f ter the dea l fell through, Thomas continued to text, email and call state officials for weeks, offering a “workaround” so that the payments could go through and promoting deals on masks and other protective gear.
The deal with California was critically important for Blue Flame, which was so new it had not even filed for incorporation when it began communicating with state officials, according to a lawsuit the company filed in June against Chain Bridge Bank.
In the complaint, a lawyer for the company wrote that the Blue Flame’s founders incorporated on March 23 “to enter the potential transaction in California.” It opened its bank account at Chain Bridge “in anticipation of reaching an agreement with California.”
“In addition to causing
California to breach its contract and cease doing business with Blue Flame, Defendants’ wrongful actions have led to a torrent of negative press reports falsely suggesting that Blue Flame’s business is a fraud, causing other Blue Flame customers to walk away from transactions and resulting in great harm to Blue Flame’s business and the personal and professional reputations of Blue Flame and its principals,” the company said in its complaint filed in the Eastern District Court of Virginia.
Chain Bridge Bank denies those allegations, according to a response the company filed in court Sept. 29.
Meanwhile, several investigations have been launched into the company, including one by the House Energy and Commerce Committee.
Committee Chairman Frank Pallone Jr. and Rep. Diana DeGette, who chairs the Oversight and Investigations Subcommittee, said they launched the inquiry in May out of concern because of “numerous reports regarding Blue Flame Medical LLC’s failure to deliver on contracts with state and local governments to provide critical medical supplies.”
In response to questions from the committee, a lawyer for Blue Flame wrote
that it was unable to fill all the orders it made because of challenges securing equipment in an extremely competitive marketplace at the start of the pandemic. The company says it refunds clients for equipment it can’t deliver.
As of June 22, the company told Congress it had delivered more than 100,000 N95 masks and KN95 masks, the Chinese version of an N95, to its clients. It also had delivered 150,000 nitrile gloves, more than 20,000 sterile gowns, 1,600 face shields and 37 ventilators.
Pallone, D-New Jersey, and DeGette, D- Colorado, pointed to Blue Flame as a “troubling example” of what happened early in the pandemic, when states turned to “unproven suppliers.”
The Washington Post reported in May that the Department of Justice was also investigating Blue Flame, according to two anonymous sources. The department, which typically does not confirm ongoing investigations, did not respond to a question about the investigation.
Ma r yla nd’s at t or ney general also was prompted to investigate Blue Flame after state officials said the company didn’t deliver ventilators and masks on time, according to The Baltimore Sun.