Informant in Fraud Case Pleads Guilty

A Simi Valley salesman, who went from a target in a sweeping federal crackdown on corruption in the defense industry to star informant, pleaded guilty Monday to two felony charges.

Rex Blaine Niles, 49, wore a hidden microphone to record negotiations with others in the defense-materials business, providing evidence that led to indictments against 19 salesmen and purchasing agents, Assistant U.S. Atty. William C. Price said.

Niles pleaded guilty Monday before U.S. District Judge J. Spencer Letts in Los Angeles to one count each of paying a kickback on a government contract and aiding in the filing of a false income tax return.

Sentencing was set for Dec. 17. Under the terms of his agreement with investigators and prosecutors, the federal government will recommend that Niles be sentenced to no more than three years in prison, Price said.

Niles became enmeshed in Operation DEFCON, a probe launched early in 1986 by a task force of investigators from the FBI, Internal Revenue Service, Defense Department and U.S. attorney’s office into what they described as widespread payment of bribes and kickbacks in the defense industry.

Niles, “aware that he was a target of the investigation . . . came into our office and discussed his involvement and agreed to cooperate,” Price said.

The negotiations that Niles recorded led to indictments in July, 1986, against 19 purchasing agents and suppliers from defense contractors--including the Hughes Aircraft Co., Rockwell International Corp., Airesearch Manufacturing Co. and Magnavox.

Niles, who owned a sales company named Rex Rep, represented manufacturers seeking contracts to build parts for other firms, which in turn had contracts to build and sell hardware to the Defense Department, including the B-1 bomber, Cruise missiles and the F-15 and F-16 jet fighters.

Niles’ usual commission was 10% of the contract he won for his client firm, Price said. However, the prosecutor said, Niles in turn kicked back 45% of his commission--4.5% of the total contract--to employees of the second firm, who had awarded him the contract.

“That means the government’s prime contractor is paying more for the parts than it should,” Price said. “You can legally pay commissions, but not to employees of a firm who are already under an obligation to get the parts for less and pass on the savings to the government.”

All 19 men indicted on evidence provided by Niles pleaded guilty. Fifteen were sentenced to terms ranging from probation to five years in prison. The others await sentencing.