Paradyne Settles With U.S. in Computer Case : Draws $1-Million Fine After Pleading Guilty to Fraud in Effort to Win Social Security Contract
Paradyne Corp. on Thursday pleaded guilty to a single count of conspiracy to defraud the government in connection with a $115-million computer contract for the Social Security Administration.
The firm agreed to pay a $1-million fine during a court hearing before U.S. District Judge William Castagna. As part of a plea agreement with federal prosecutors, six other charges in a 1985 indictment were dropped.
“This agreement neither admits nor proves that the government was defrauded by the company or any individual,” said James Slattery, Paradyne senior vice president.
Also Thursday, the company announced that Robert S. Wiggins resigned as chairman, president and chief executive. He will be replaced immediately by Vice President Jerry Kendall, the company said.
The charges stemmed from attempts by the Largo, Fla.-based data communications manufacturer to win a $115-million contract to revamp the Social Security Administration’s computer system in 1981 and 1982.
Computer Demonstration
The 1985 indictment alleged conspiracy to defraud, bribery, false statements, perjury and obstruction to win the mammoth 1981 contract to computerize Social Security field offices.
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 a demonstration, it used one manufactured by another company, but represented it as its own, prosecutors said.
The government alleged that a conspiracy began in June, 1980, and continued until the indictment was returned in December, 1985. Paradyne was suspended from bidding on other government work.
Earlier that year Paradyne settled, two days before a civil trial, separate fraud charges brought by the Securities and Exchange Commission, which accused the company of lying to get the lucrative contract.
‘Empty Box’
The 1983 SEC complaint alleged that when Paradyne couldn’t develop the computer’s brain in time for the showing, it used another company’s and presented it as its own. A scrambler, the government charged, was “nothing more than an empty box with blinking lights.” The SEC also contended that the equipment that was delivered didn’t work properly.
Paradyne vehemently denied the charges, insisting that it won the contract fairly and that the SEC didn’t understand the highly competitive computer industry. The “empty box” was intended to show how the final product would work, the firm said at the time.
