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UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES OF AMERICA

Plaintiff,

v.

HEON SEOK LEE,

Defendant.

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Case No. 12-cr-109

Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER

The defendant, Heon Seok Lee, was indicted by a grand jury on five counts of wire fraud in 

violation of 18 U.S.C. § 1343 and three counts of smuggling mislabeled goods into the United States 

in violation of 18 U.S.C. § 545 and 19 U.S.C. § 1304. Lee now moves to dismiss the indictment 

based on his assertion that the grand jury testimony was false or misleading. For the reasons set 

forth herein, that motion [82] is denied. 

Legal Standard

A federal court’s supervisory power over a grand jury is limited, and a federal court can 

dismiss a grand jury indictment because of misconduct before the grand jury only where that 

misconduct constitutes a violation of one of those “few, clear rules which were carefully drafted and 

approved by [the Supreme Court] and by Congress to ensure the integrity of the grand jury's 

functions . . .” United States v. Williams, 504 U.S. 36, 46, 112 S.Ct. 1735, 118 L.Ed.2d 352 (1992) 

(quoting United States v. Mechanik, 475 U.S. 66, 74, 106 S.Ct. 938, 89 L.Ed.2d 50 (1986) (O’Connor, J., 

concurring in judgment)). A district court’s supervisory power may not be used to meddle in the 

grand jury’s decision by reviewing the sufficiency of the evidence underlying an indictment. Costello 

v. United States, 350 U.S. 359, 364, 76 S.Ct. 406, 100 L.Ed. 397 (1956). 

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It is well established that the government may not knowingly present false testimony or fail 

to correct testimony that is known to be false. Napue v. Illinois, 360 U.S. 264, 269, 79 S.Ct. 1173, 

3 L.Ed.2d 1217 (1959). That general obligation extends to testimony presented to a grand jury, and 

its violation may warrant dismissal of the indictment. United States v. Hogan, 712 F.2d 757, 762 

(2nd Cir. 1983). However, a district court may not dismiss a grand jury indictment based on such 

misconduct unless the errors in the proceeding prejudiced the defendant. Bank of Nova Scotia v. 

United States, 487 U.S. 250, 254, 108 S.Ct. 2369, 101 L.Ed.2d 228 (1988). Prejudice exists when the 

alleged violations have a substantial effect on the grand jury’s decision to indict or when it is “quite 

doubtful” that the decision to indict was uninfluenced by the violation. United States v. Brooks, 125 

F.3d 484, 498 (7th Cir. 1997). 

Discussion

The “Buy American” provision of the American Recovery and Reinvestment Act (ARRA) 

provides that:

None of the funds appropriated or otherwise made available by this 

Act may be used for a project for the construction, alteration, 

maintenance, or repair of a public building or public work unless all 

of the iron, steel, and manufactured goods used in the project are

produced in the United States. 

Pub. L. 111-5, § 1605. 

The EPA, adopting OMB guidance, has stated that “in the case of a manufactured good that 

consists in whole or in part of materials from another country, [the good must be] substantially 

transformed in the United States into a new and different manufactured good distinct from the 

materials from which it was transformed.” (Dkt. 85-1) (citing 2 C.F.R. § 176-160(a)).

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 1 Lee contends that the interpretation of ARRA is governed by the Federal Acquisition Regulation. See 70,002.125 

Federal Acquisition Circular 2005-45, Cont.Cas.Fed. (CCH) P 700002.125. The Federal Acquisition Regulation, 

however, only governs the acquisition of supplies and services by federal executive branch agencies, and thus has no 

bearing on this case. The allegedly false certifications were directed towards the EPA, and thus it is the EPA’s guidance 

that governs. 

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During the grand jury proceedings, Agent Lambert testified as follows:

Q: Turning back to the American Recovery and Reinvestment Act. 

There's a specific provision in there, Section 1605, that requires that 

goods purchased with ARRA funds be made in the United States; is 

that correct?

A: Correct.

Q: And is it correct that ARRA required substantial transformation 

to occur in the United States?

A: Correct.

Q: And have you reviewed guidelines from the EPA regarding the 

requirements for substantial transformation?

A: I have.

Q: Does simply testing an item in the United States meet the 

requirements of substantial transformation?

A: It does not.

(Dkt. 84-1, p. 8). Joel Schomo, a former KTurbo employee, testified “While I was employed at 

KTurbo I gained experience and did research on what substantial transformation meant. While I 

was employed at KTurbo I knew that testing or simple assembly of United States—in the United 

States did not amount to substantial transformation.” (Dkt. 84-2, p. 9). 

And finally, former KTurbo employee Kim Woelfer testified:

Ms. Woelfer: Part of the ARRA requirements were substantial 

transformation. You couldn't bring a South Korean blower over 

complete. What you could do was send all the parts over and have 

U.S. workers assemble it in the U.S. and substantially transform it 

from the raw parts into a finished unit. That met the requirements 

for funding. 

AUSA: Okay. And if they came over complete - -

Ms. Woelfer: That was a violation of the ARRA agreement.

(Dkt. 84-3, p. 33). 

Lee contends that Lambert’s testimony was false because, although Lambert testified that 

ARRA requires that goods purchased with ARRA funds be “made” in the United States, the actual 

text of the Act requires only that manufactured goods be “produced” in the United States. Lee, 

however, fails to argue how this distinction is meaningful, let alone how it is material or prejudicial. 

Accordingly, this Court holds that that statement is not a ground to suppress the indictment. See 

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United States v. Turcotte, 405 F.3d 515, 536 (7th Cir. 2005) (“In this circuit, unsupported and 

undeveloped arguments are waived.”). 

Lee primarily contends that Lambert, Schomo, and Woelfer’s testimony was false because, 

although all three stated that testing a product did not constitute a “substantial transformation,” 

there is no bright line rule establishing that testing a product cannot constitute a substantial 

transformation. While it is true that no bright line rule explicitly states that testing a product does 

not cause a substantial transformation, it is also readily apparent from the applicable regulatory

guidance that testing a product, absent more, could not constitute a substantial transformation 

because it does not result in “a new and different manufactured good distinct from the materials 

from which it was transformed.” See, e.g., Customs Service Decision 80-227, 14 Cust. Bull. No. 49 at 

19-20 (1980) (holding that testing and marking imported components did not effect a substantial 

transformation). Indeed, under the EPA’s guidance even simple assembly operations are inadequate 

to result in a substantial transformation. Thus, the witnesses’ statements that testing an item in the 

United States could not constitute a material transformation absent additional transformative 

activities were not false or misleading. 

Lee contends that Woelfer’s testimony that blowers assembled abroad could not satisfy 

ARRA was misleading because completed goods “assembled” abroad could still satisfy ARRA if 

they underwent an activity constituting “manufacturing” in the United States. Lee’s argument, 

however, misinterprets the testimony. Woelfer’s testimony, which was in response to a grand juror’s 

question, was responding to the facts of this case (in which Lee allegedly represented that a product 

would be assembled in the United States from foreign components but instead imported completed 

products that were assembled abroad). Woelfer was not stating that, as a blanket rule, imported 

goods assembled abroad could never satisfy ARRA’s requirements. His testimony thus was not, as 

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Lee appears to assume, a general statement of the law, and therefore was not false or misleading 

when properly taken in context. 

Lee further contends that Woelfer and Schomo’s testimony was misleading because it 

implied that their statements were statements of established law and not their opinions as to what 

constituted ARRA compliance. To the contrary, in context both Woelfer and Schomo’s statements 

clearly signaled that their interpretation of the law was their own. Schomo, for instance, prefaced his 

testimony about the substantial transformation requirement by stating that he was testifying about 

what he “knew” while he was employed at KTurbo. Similarly, Woelfer repeatedly prefaced her 

comments about ARRA with cautionary language explicitly stating that she was describing her 

understanding of the law. And neither Schomo or Woelfer, both engineers by trade, gave any 

indication that they had specialized knowledge or skill that would lend their interpretation of the law 

any authoritativeness. Even if Woelfer and Schomo’s testimony had been misleading, moreover,

Lee has not plausibly alleged how he would have been prejudiced given that Woelfer and Schomo’s 

statements of the law were not in-and-of themselves false or misleading and mirrored Lambert’s 

description of ARRA’s requirements. 

Lee also contends that certain statements made by Schomo and Lambert falsely implied that 

KTurbo contracted directly with the cities where KTurbo blowers were to be installed. This, Lee 

contends, is significant because sub-recipients which receive ARRA funds directly from 

municipalities are subject to different requirements than vendors who sell products that are used in 

federal programs. This distinction is irrelevant, however, because the distinction between subrecipients and vendors was never placed at issue before the grand jury and has no bearing on the 

truthfulness of the allegedly fraudulent certifications at issue in this case. 

Finally, Lee contends that the aforementioned misleading testimony about “substantial 

transformation” calls into question his indictment for smuggling because it impacts the “country of 

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origin” and “ultimate purchaser” analyses under 19 U.S.C. § 1304. Because the witnesses’ 

statements about the meaning of “substantial transformation” were not false or misleading, they 

have no bearing on the validity of Lee’s indictment for smuggling mislabeled goods into the United 

States. 

Conclusion

For the foregoing reasons, the defendant’s motion to dismiss the indictment [82] is denied. 

SO ORDERED.

SHARON JOHNSON COLEMAN

United States District Court Judge 

DATED: September 6, 2016

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