Director of NASA, 3 Others Indicted : Present, Ex-General Dynamics Aides Accused in Weapons System Overruns

The head of the National Aeronautics and Space Administration was indicted with three top officials of General Dynamics Corp. Monday on charges of conspiring to defraud the Defense Department of $3.2 million in a government contract for a tank-mounted anti-aircraft weapons system.

The seven-count federal grand jury indictment issued in Los Angeles charged that NASA Administrator James M. Beggs participated in the alleged conspiracy while an executive vice president of General Dynamics before he was approved by the Senate on June 26, 1981, as President Reagan’s appointee to head the nation’s space program.

U.S. Attorney Robert C. Bonner, announcing the indictments at a news conference, said that the General Dynamics officials illegally juggled company financial records to recoup millions of dollars in non-reimbursable cost overruns on a $39-million contract to build two prototype units of the weapons system.

Proclaims Innocence

Estimating that General Dynamics illegally recovered $3.2 million from the Defense Department as a result of the alleged scheme, Bonner described the indictments against the four present or former company officials and General Dynamics itself as part of a continuing “crackdown on U.S. defense contractors who are pillaging the U.S. treasury.”

There was no immediate comment from the White House or NASA on whether Beggs, 59, of Bethesda, Md., will remain as head of the space agency, but NASA did release a statement from Beggs proclaiming his innocence.

“From what has been reported to me by my attorneys, I can state that I am innocent of any criminal wrongdoing and I intend to vigorously defend the case,” Beggs said. “I am confident that, after all the evidence is aired, I will be exonerated.”

The announcement of the indictments, following an 18-month investigation of General Dynamics’ billing practices by Justice Department lawyers, the FBI and a Defense Department investigative task force, was the latest in a series of scandals involving the nation’s third largest defense contracting company, headquartered in St. Louis.

For the first time, the allegations of financial wrongdoing leveled at the giant defense company focused on the company’s Pomona Division, a giant arm of General Dynamics with an 11,000-member work force where research and development of the mobile anti-aircraft system were conducted during a three-year period from 1978 to 1981.

Pomona Division

Indicted with Beggs, who was the corporate official in charge of the Pomona Division before quitting his job with General Dynamics in July, 1981, were Ralph E. Hawes Jr., 54, of Claremont; David L. McPherson, 45, of Alta Loma, and James C. Hansen Jr., 53, of Upland.

Assistant U.S. Atty. J. Stephen Czuleger, assigned to prosecute the case with Justice Department fraud specialist Randy I. Bellows, said that Hawes was general manager of the Pomona Division and McPherson and Hansen directed the anti-aircraft project during the time of the alleged conspiracy.

Hawes is now general manager of the Valley Systems Division of General Dynamics in Cucamonga, where McPherson is employed as a vice president for research and engineering and Hansen directs the company’s Stinger missile program.

Responding to the indictments, Peter Connolly, a General Dynamics spokesman in St. Louis, read a prepared statement defending the company and its executives and criticizing the government for filing criminal charges.

“General Dynamics and four of its highly respected present and former employees were indicted today for cost-accounting judgments which were made more than five years ago,” Connolly said. “The company and the individuals intend to contest these charges vigorously.

‘Highly Sophisticated’

“The issue is a highly sophisticated regulatory and accounting matter which should be resolved in a civil forum, not in a criminal case. General Dynamics knows that the individuals involved were honest in their judgments and acted in complete good faith.”

According to the indictment, the Army formally awarded a fixed-price, $39-million contract to General Dynamics in 1978 for the manufacture of two prototype units of a Division Air Defense (DIVAD) gun system to be mounted on tanks for use against enemy aircraft and helicopters. The contract was increased to $41 million in September, 1980, but did not provide for reimbursement in the event of any cost overruns.

However, the indictment charged, General Dynamics internally projected substantial cost overruns on the DIVAD contract, recording actual losses on its own books of nearly $7 million in 1978 and $6 million in 1979. It never reported those figures to the Defense Department, the government said.

Instead, according to the indictment, General Dynamics and the individual defendants conspired to defraud the government by “fraudulently mischarging” work and expenses required under the prototype contract to other government-funded accounts, which enabled the company to recoup some of its losses.

This allowed General Dynamics to reduce its non-reimbursable losses by $3.2 million, Bonner said.

Similar Contract

(A similar prototype contract for a DIVAD system was also awarded to the Ford Aerospace & Communications Corp. in 1978, and Ford ultimately was awarded the contract over General Dynamics. However, the Ford version of the anti-aircraft system, known as the Sgt. York, was canceled by the Pentagon last August.)

The defendants are charged with one count of conspiracy to defraud the United States and six other charges of making false statements in connection with the alleged conspiracy. The maximum penalty on each count is a five-year prison term and a $10,000 fine.

None of the defendants were taken into custody. Bonner said that Beggs and his three co-defendants will be allowed to remain free pending arraignment in Los Angeles next week. He said the government will seek personal recognizance bonds of $5,000 each at that time.

Resignation Sought

A call for Beggs to resign was made by Sen. Charles E. Grassley (R-Iowa), chairman of a defense procurement subcommittee. He said that Beggs should “step aside” in the same manner that former Labor Secretary Raymond J. Donovan did after he was indicted on New York state charges of construction fraud in 1984.

The indictments followed a series of financial scandals surrounding General Dynamics involving charges of overbilling the government. Earlier this year, a Pentagon spokesman said that a team of auditors had concluded that the Defense Department had paid a total of $244 million in excess overhead claims to the giant defense contractor.

Halt to Payment

Defense Secretary Caspar W. Weinberger in March ordered a halt to the payment of more than $437 million in billings from General Dynamics as the result of the controversies surrounding the company’s financial activities. The government lifted the freeze a few months later, saying that the company had strengthened its internal auditing controls.

As head of the U.S. space agency for the last four years, Beggs has spearheaded the Reagan Administration’s campaign to build a permanent manned laboratory in space, now regarded as NASA’s No. 1 priority. Beggs also has pushed hard for foreign involvement in U.S. space projects, especially the space station.

“Most people are happy with his tenure,” said one NASA official who knows him well.

“He is extremely bright,” said one colleague. “He’s a quick study.”

Beggs is a graduate of the Naval Academy and the Harvard Graduate School of Business Administration. He has held a number of positions in government and private industry. A former executive of Westinghouse Electric Corp., Beggs also served as undersecretary of the Department of Transportation from 1969 to 1973.

Contributing to this article were Times staff writers Lee Dye and Ralph Vartabedian in Los Angeles and Ronald J. Ostrow in Washington.