ATLANTA, Georgia (CNN) -- A Georgia military contractor tricked law enforcement agencies into buying faulty stun grenades, ultimately leaving three FBI agents injured, federal prosecutors announced Monday.

"Flash-bang" grenades were relabeled and sold to police after the Navy deemed them faulty, an indictment says.

Pyrotechnic Specialties Inc. is accused of relabeling and selling "flash-bang" grenades that the U.S. military rejected after its personnel were injured.

The company also mixed defective grenades with others that had been fixed "to camouflage the defective devices from receiving personnel" at the FBI, the indictment says.

Last week's indictment alleges that company officials bribed a federal official and paid for a visit to a strip club. The officials are accused of conspiracy, money laundering, mail fraud and defrauding the government. Watch how the grenades work »

The company, known as PSI, did not immediately respond to calls for comment.

The indictment names three company officials -- CEO David J. Karlson, sales representative F. Brad Swann and production manager Daniel Ramone -- as taking part in the conspiracy. The indictment does not say whether they still hold those titles.

PSI had a multimillion-dollar contract with the Defense Department to provide stun or "flash-bang" grenades, referred to as "MK141 diversionary charges" in the indictment.

From 1996 to 2007, the Navy awarded three contracts to PSI for the MK141, according to the indictment.

The devices are designed to produce a bright flash and loud bang, disorienting their targets. They're considered nonlethal weapons, though they can be dangerous.

The indictment alleges, "On or about March 2003, a flaw in the original Navy design of the MK141 diversionary charge became apparent."

A plastic piece would sometimes crack, which "could result in a hazardous situation to those in close proximity."

"Improper detonation could, and did, cause serious injuries to personnel using the device," according to the indictment.

The indictment says that the Department of Defense issued a "stop work order" on the devices, and PSI "developed a procedure to correct the defect" that cost about $3.72 per unit.

PSI officials later engaged in a scheme to sell the defective devices by claiming that they had met the department's standards, the indictment alleges.

The defendants sold and attempted to sell the devices "to the Department of Defense and to federal law enforcement agencies, as well as to state and local law enforcement agencies," the indictment says.

At one point, some of them prematurely detonated, "causing serious injuries" to three FBI agents who were on a SWAT team investigating a kidnapping, the indictment says, adding that the interior of their government vehicle was damaged.

"To further implement the scheme and artifice to defraud, the defendants provided gratuities and additional compensation to a Department of Defense employee," the indictment adds.

The devices were sold to more than a dozen FBI offices between 2003 and 2004, as well as to the San Rafael Police Department in San Rafael, California, and the Orange County Sheriff/Coroner's Department in Santa Ana, California, the indictment says.

The Department of Defense said it could not comment because the case is under investigation.

"Our understanding is that the Naval Criminal Investigative Service is supporting the FBI in this investigation," Lt. Geraldine Carey of Marine Corps Systems Command said in a written statement.

Carey added that it is "against DOD policy to discuss matters under investigation prior to the requested official or government agency receiving a formal report."

According to the company's Web site, PSI supports "the U.S. and many foreign military services with custom compositions, pellets and devices." Automotive airbag products are atop the list of commercial products it manufactures, according to the Web site.

The company employs 160 people at its manufacturing facility near Byron, Georgia, the Web site says. E-mail to a friend

CNN's Scott Zamost and Abbie Boudreau contributed to this report.

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