Paradyne Target of U.S. Fraud Suit : Firm, Officials Charged Over Social Security Contract

Paradyne Corp., eight of the computer company’s present or former officials and one Social Security official were indicted Thursday on charges that they conspired to win a $115-million contract with the Social Security Administration.

The 14-count, 45-page indictment alleged conspiracy to defraud, bribery, false statements, perjury and obstruction of justice to win the 5-year-old contract to computerize Social Security’s field offices.

The contract was the largest ever awarded by Social Security.

Prosecutors accused Paradyne of faking a computer demonstration during the bidding process by showing equipment that was neither fully developed nor Paradyne’s.

When Paradyne couldn’t develop the computer in time for the demonstration, it used one manufactured by another company but presented it as its own, the prosecutors said.

U.S. Atty. Robert Merkle said the indictment alleges that the company didn’t have the equipment it said it had, wasn’t in a position to furnish the equipment and caused delays of more than a year in its installation. It also alleged that the equipment experienced failures once it was installed.

“It was a significant loss to taxpayers,” Merkle said. “The contract was in excess of $100 million.”

The defendants, he said, will be allowed to turn themselves in for arraignment sometime next week.

Paradyne still holds a contract with Social Security for servicing the equipment, a contract renewed in 1984.

Merkle said it was his understanding that the equipment had been upgraded over the years and was performing satisfactorily.

Misleading Social Security

“The basic dispute does not involve the ongoing performance of the equipment but rather Paradyne’s 5-year-old bid to the Social Security Administration,” said James L. Slattery, a Paradyne vice president and general counsel.

He said he had not seen a copy of the indictment but believed that Paradyne was charged with misleading Social Security.

“The company regards the charges as outrageous and so lacking in foundation as to be ludicrous,” Slattery said.

Indicted were Paradyne Corp. of Largo, Fla., a manufacturer of data-communications products; John D. Applegate, 47, of Dallas, a former Paradyne vice president; Kenneth M. Barry, 56, of Danbury, Conn., former director of the Office of Data Communications at Social Security; Verney L. Brown, 55, Saratoga, Calif., former senior vice president for operations at Paradyne, and Frank A. Dolan, 54, of Alexandria, Va., director of federal marketing at Paradyne.

Also indicted were Cletus L. Gardenhour, 46, of Clearwater, Fla., senior vice president and general manager of the telecommunications division at Paradyne; George B. Pressly, 54, of Treasure Island, Fla., a vice president at Paradyne; F. William Siegrist, 50, of Largo, Fla., vice president of special products at Paradyne; Jorge O. Suarez, 43, of Fort Lauderdale, Fla., a former director of advanced development and engineering at Paradyne, and Robert W. Wiggins, 56, also of Clearwater, president and chairman at Paradyne.

The government alleged that the conspiracy began in June, 1980, and continued until the present.

In September, two days before a civil trial on separate fraud charges on the contract brought by the Securities and Exchange Commission, Paradyne settled out of court.

The SEC had accused the company of lying to get the lucrative contract to computerize Social Security field offices.

In the settlement, approved by U.S. District Judge William Castagna, the company neither admitted nor denied wrongdoing but pledged to follow all SEC regulations in the future.