GE Pleads Guilty, Is Fined $1 Million in Missile Fraud

General Electric Co., the nation’s fourth-largest defense contractor, pleaded guilty Monday to defrauding the government of $800,000 on a Minuteman missile project, was fined the maximum of $1,040,000 and agreed to repay the $800,000 in overcharges.

As a result of the guilty plea, the entire company could be barred for up to three years from bidding on new federal contracts. However, a Pentagon official said that GE likely will face few--if any--restrictions. The company’s re-entry systems division, where the wrongdoing occurred, currently is the only GE unit suspended from doing business with the government.

The Pentagon official, who declined to be identified, explained that the government depends too much on GE--sole supplier of “everything from missiles to light bulbs in the men’s room at the Supreme Court”--to bar it from future business. Besides, he added, the company gets credit for fighting only briefly the 108-count indictment that was returned last March by a federal grand jury in Philadelphia.

A final determination on GE’s contract-bidding status will be made by Air Force Secretary Verne Orr, who will act for the entire Department of Defense.

Rep. John D. Dingell (D-Mich.), who has led well-publicized House investigations of defense contract overcharges by General Dynamics Corp., questioned whether “a $1-million fine means much to a company such as GE, which did 4,000 times that amount of business with the federal government in just one year.”

But Dingell, lamenting that the “minimal fine” probably would not deter fraudulent overcharges by other contractors, agreed that the government cannot afford to severely punish large contractors like GE and General Dynamics.

“It’s nice in the abstract” to bar such wrongdoers from future business, he said, “but as a practical matter there’s no way it could ever occur.” Large contractors have “gotten such a huge portion of the defense business they literally control the purchaser, as opposed to being the other way around,” he noted.

Moreover, U.S. District Judge Louis C. Bechtle of Philadelphia said the maximum fine was “fully and clearly appropriate” in the GE case because the nation is dependent on GE’s defense contracts “just like a newborn baby is dependent on its mother.”

GE pleaded guilty to charges of making false statements and making and presenting false claims for payment to the Air Force to recover cost overruns on a $47-million contract to refurbish the Minuteman Mark-12A intercontinental ballistic missile. The plea came on what was to be the opening day of jury selection for trial on the charges.

Changed Its Plea

GE, which originally pleaded not guilty, said Monday that it changed its plea after a key former employee, Roy Baessler, had changed his grand jury testimony and admitted altering time cards to make it appear that huge cost overruns had occurred on the Minuteman project.

Edward S.G. Dennis Jr., the U.S. attorney for Philadelphia, said perjury charges against Baessler had been dropped but that perjury charges against Joseph Calabria, another GE manager, had been retained and that an investigation was continuing into the possible criminal activities of other GE officials.

GE attorney Henry S. Ruth Jr. told Judge Bechtle that GE “is criminally responsible for the acts of just a few of those. We accept that responsibility.”

Stringent Measures

According to the Associated Press, Ruth said the corporation will argue before the Defense Department that the wrongdoing took place five years ago and that the company has since instituted stringent measures to prevent similar occurrences.

The indictment charged GE with altering employees’ time cards without their knowledge, instructing employees to falsely report what contracts they were working on, having workers submit blank time cards that were filled in by managers and allowing the firm’s accounting department to transfer costs from one contract to another.

GE’s re-entry systems division, located in Philadelphia and in suburban King of Prussia, Pa., had a series of contracts with the Air Force to replace re-entry vehicles on Minuteman with a new, updated vehicle. The re-entry vehicle carries the nuclear warheads and the arming and fusing system that activates the warheads.