California Controller Betty Yee Lands in Hot Water Over Failed COVID PPE Contracts

In the early days of the pandemic, California Governor Gavin Newsom authorized no-bid contracts in an attempt to quickly procure personal protection equipment for medical professionals. At least three of those contracts have resulted in lawsuits.

The state controller of California, Betty Yee, is in hot water after text messages revealed in a lawsuit between the Blue Flame Medical LLC and its bank showed abnormal involvement of Yee in the medical start up company’s procurement of a no-bid contract with the state.

Three no-bid contracts between the state and companies promising masks in the early days of the pandemic failed spectacularly, but it is the one with Blue Flame Medical LLC that is getting the most attention because of its connection with Yee.

Blue Flame obtained a $600 million no bid contract to provide 100 million N95 masks to the Golden State, intended to provide medical and essential workers with the protection they needed during the COVID-19 outbreak.

The company was awarded a massive $457 million downpayment, more than 76% of the total contract. But when California sent the payment to Blue Flame’s bank, Chain Bridge flagged it as potential fraud. Blue Flame had just opened the account the day before.

That set off a chain of lawsuits, with Blue Flame suing financial institution Chain Bridge, Chain Bridge suing California’s bank JP Morgan Chase and JP Morgan Chase in turn suing California for damages it spent in unraveling the fiasco.

Before the deal fell apart, Yee played a significant role in helping the medical start up secure its deal with the state of California.

In a text message to Blue Flame co-founder John Thomas, Yee promised to pressure Governor Gavin Newsom to approve the contract. “Got it. Will press governor’s folks,” Yee wrote in response to a text from Thomas thanking Yee for her help.

Yee also discouraged Thomas, who is also a Republican strategist, from disclosing how much the company would be profiting from the deal. “If you share info with State, it may ... become a matter of public record and make headlines,” Yee told Thomas after he asked if he should reveal the company’s profit margin to ease concerns about price gouging.

Blue Flame was set to make $134 million from the deal while charging the state a 20-30% markup.

After the bank flagged the transaction as potential fraud, Yee asked Thomas to “cease to keep me in the loop; it is not helpful,” telling him that he has a “credibility problem” that he needed to solve.

The state controller is not supposed to vet contracts, just cut checks for contracts already made, something that the office’s chief counsel Rick Chivaro pointed out in his deposition.

“[Yee] was merely trying to ensure that we had the face masks that we needed and other PPE to protect the nurses and the doctors that were handling these COVID cases.” Chivaro stated. “Her job was not to vet Mr. Thomas in any way, shape or form.”

Yet her involvement before the contract’s signing also goes against her job. The state controller is only supposed to work with companies to iron out the final details of payment, not help negotiate deals. Yee was introduced to Thomas through her political fundraiser, according to Chivaro.

Two other no-bid contracts for masks in California have also resulted in failures and lawsuits. Alabama firm Bear Mountain was contracted immediately after Blue Flame, but California canceled the contract after Bear Mountain missed its initial deadline and then, according to the state, only provided 2% of the order. Bear Mountain is suing the state of California, claiming it canceled the deal without warning.

Santa Clara-based firm Advoque Safeguard promised to provide California N95 masks at the cost of $2.25 each, at a time when the state was paying $5 to $12 to other providers; however, its masks failed to meet federal regulations and had to be recalled. Advoque Safeguard agreed to pay back $18.7 million to California but has yet to make any payments. Three companies are suing Advoque Safeguard, saying the company also sold them faulty masks.

Yee does not appear to be involved with negotiations of the Advoque Safeguard or Bear Mountain contracts.

When the state lawmakers demanded an explanation of the Blue Flame contract, it resulted in a lengthy public session explaining the situation but Yee’s name was never mentioned. Yee was elected to controller in 2014 and won her reelection bid in 2018. There is an election coming up for the position in November of this year but Yee will not be running due to term limits.