Lawsuits Put Military Contractor on Defensive
Titan Corp. is big on secrecy. Some say too big.
The San Diego-based defense contractor is prized in industry circles for its large roster of workers with security clearances, folks entrusted to keep mum.
“We’re proud of that,” said Gene Ray, Titan’s board chairman, president and chief executive.
Lately, Titan finds itself with extra incentive to button lips. The 12,000-employee, information-technology company is entangled in controversies over the suspected bribery of foreign officials and a report placing one of its Arab-language translators at the scene of prisoner abuses in Iraq.
“I’d rather just not comment on it,” Ray said.
Silence aside, a look at Titan offers a lesson in how contractors can thrive on their ability to swiftly respond to the government’s crisis-mode needs -- with the help, critics say, of generous campaign contributions.
It also provides a primer on how things can suddenly go wrong.
Titan’s troubles have clouded its proposed acquisition by Lockheed Martin; a $1.8-billion merger awaits the outcome of two federal investigations into the alleged bribes.
A Titan shareholder vote on the transaction is set to be completed today, and Wall Street analysts predict the buyout eventually will happen.
But some shareholders have filed lawsuits against Titan, contending that Ray and other executives either concealed their knowledge of the purportedly illicit payments -- or, if in the dark, breached their fiduciary responsibilities by not preventing them.
The suits note that Lockheed lowered its merger bid by $160 million after an internal audit of Titan triggered the bribery inquiries.
“We do not believe there is merit to those lawsuits,” said Ray, 66, speaking from his San Diego home.
Meanwhile, Titan’s business in Iraq has heightened the debate over the Pentagon’s increasing dependence on contractors for sensitive and often dangerous missions.
To date, the only direct Titan connection to the abuses at Iraq’s Abu Ghraib prison is an employee, Adel Nakhla, who was named in Army Maj. Gen. Antonio Taguba’s report on the mistreatment of detainees. Nakhla translated for military police officers implicated in the abuses, according to the report.
A Titan spokesman said the government has not told the company that any of its workers is a suspect in the Abu Ghraib investigation. Titan has dismissed Nakhla, but has not disclosed the reason. Nakhla could not be reached for comment.
Titan has other problems in Iraq. The Army has withheld about $3 million in payments for Titan’s translators because of a review of “deficiencies” in the firm’s labor accounting practices, which Ray said have been corrected.
A far greater cost has come in lives. At least 16 Titan translators have been killed in Iraq.
“We’re very saddened by the loss of life,” Ray said. He declined to talk about the deaths in detail, saying to do so would imperil more translators. “They’ve put themselves in harm’s way,” he said.
Ray is a former Pentagon physicist who founded Titan in 1981 with Albert Knauf Jr., who also spent time at the Pentagon, and industry veteran John McDougall.
The start-up scored contracts with the Reagan administration’s Strategic Defense Initiative, the so-called Star Wars program that had sought to build a space-based, missile-intercepting system.
Titan also supplied the military with software for satellite communications, radar and other applications and did business with civilian agencies.
After the end of the Cold War led to cuts in defense spending, Titan and its competitors diversified into the private sector. Titan tried to establish commercial markets in information technology, telecommunications and the use of electronic irradiation to sterilize food and medical products.
Most didn’t pan out, and the sterilization venture pitted Titan against consumer organizations, such as Public Citizen, which contended that irradiating meat, fruit and vegetables posed a health risk.
Public Citizen’s battles with Titan and its subsidiary SureBeam turned ugly. The company accused the organization of distorting the science behind irradiation. In late 2001, after Titan had partially spun off SureBeam, Public Citizen charged that someone attempted to smear two of its advocates by anonymously sending information on their personal lives to media outlets.
The material was never linked to Titan -- Ray said the firm had nothing to do with it -- but Public Citizen energy and environment Director Wenonah Hauter still harbors suspicions.
“It was just nastier with Titan,” she said. Public Citizen has also criticized Titan’s no-bid, $38-million contract with the U.S. Postal Service to irradiate mail for anthrax spores. The contract followed the 2001 anthrax letter-taintings that killed five people.
Because the eight SureBeam machines delivered under the contract could not sanitize large volumes of mail at high speeds, they were transferred to other government agencies and Idaho State University.
Public Citizen maintains that the anthrax contract was a boondoggle.
Ray denied that, saying the eight machines worked well but were “just too small” for what the Postal Service required. Titan also gave the Postal Service a stronger machine, valued at $14-million, at no cost.
In any event, SureBeam went bankrupt after its spinoff, and Titan aggressively refocused on the defense trade, cashing in on the post-Sept. 11 boom in national security contracts.
“[Titan] can move very quickly, depending on where the money is,” said Deborah Avant, a George Washington University political science professor who studies security trends.
Peter Singer, a Brookings Institution expert on the military’s privatization push, said of Titan: “You find out the government has a need, and you approach the government and say, ‘We could do this for this amount.’ It’s a ‘virtual organization,’ so to speak.”
Titan’s revenue swelled last year by 28%, to $1.8 billion -- almost double its 2001 tally of $974 million. Also up sharply are contributions by Titan’s political action committee and employees to congressional and presidential candidates, party groups and other PACs, an analysis by the nonpartisan Center for Responsive Politics shows.
In the 1999-2000 election cycle, Titan-related campaign money totaled nearly $36,000. The figure jumped to more than $270,000 for 2001-2002. The total for the current election period is about $252,000.
Since 2001, close to 90% of the donations have gone to Republicans.
University of Texas economist Ken Flamm, a former Pentagon official for technology and procurement policy, said contractors typically consider contributions a business expense.
“While it can’t guarantee you anything, it can’t hurt,” he said. “Is it sort of morally questionable? Yeah.”
Ray said the contributions merely reflected Titan employees’ desire to have “good representation” in Washington.
Titan’s biggest earner in 2003 was the roughly $112-million contract with the Army for 4,200 translators. The linguists work in Iraq, Afghanistan and at the U.S. base at Guantanamo Bay, Cuba. Many have security clearances, as do an estimated three-quarters of Titan’s employees.
The Titan translators are reluctant to talk about their duties, said Torin Nelson, a former civilian interrogator for the military who worked with the interpreters and is a witness in the Abu Ghraib investigation.
“If you’re trying to work with any Titan people, you’re going to run into stone walls,” Nelson said from a conference in Washington. “A lot of them are not answering any questions. They didn’t see anything, hear anything -- that sort of thing.”
Nelson said he did not observe Titan employees abusing prisoners. “I set them straight beforehand on what they could and couldn’t do,” he added.
The translator contract has bombarded Titan with media calls, but the company’s chief headache comes from its business with foreign customers, which accounts for less than 2% of its revenue. The overseas enterprises include those targeted in the bribery investigations by the Securities and Exchange Commission and Justice Department.
Lockheed has made settlement of the civil and criminal probes a condition of the merger, with a June 25 deadline. The Maryland-based aerospace giant’s executives have said they are confident Titan will reach an agreement with the government.
Titan has set aside $3 million to cover costs incurred in the investigations and possible penalties under the Foreign Corrupt Practices Act.
And if those legal woes aren’t enough, Titan is defending itself on a second front in San Diego. Class-action lawsuits filed in state and federal court seek unspecified damages to compensate shareholders for the reduced value of the stock and the Lockheed buyout. Ray declined to discuss the specific allegations in the suits but said Titan has always protected the interests of shareholders.
“Sure, you’re always surprised when things don’t go as planned,” he said. “That’s part of life.”
