A Fearful Fix Grips Figure in Kickbacks

Rex Niles knew how to do it right. You wanted dinner in a classy place. Rex knew just where to go. A weekend skiing? Rex had a condo up at Mammoth; no problem. Having a little trouble paying the bills this month? Rex would handle it.

By the time authorities reeled in Rex Niles--the biggest fish snagged in the most sweeping investigation ever into defense industry kickbacks--the Southern California high-tech sales representative had fast friends throughout the industry and subcontracting commissions approaching $1 million a year through his Woodland Hills company, Rex Rep.

“Rex was a high-roller type, very flashy in his appearance and mannerisms,” recalled Ralph Guerin, a purchasing supervisor at Pioneer Magnetics Inc., who admitted accepting at least $100,000 in kickbacks from Niles. “He had a nice home, expensive cars, an exciting social life. . . . I liked Rex on a personal level, and I was very impressed by his knowledge of the electronics industry and his apparent success,” Guerin said before he went to prison.

Millions in Payments

Government officials estimate that Niles had handed over millions in under-the-table payments to employees of leading contractors in exchange for lucrative subcontracts before he secretly turned government witness--and began an undercover campaign with the FBI to sting the crooked buyers who had depended on his largess.

Niles’ work as an informant led to the conviction of 19 industry buyers and supervisors on fraud, tax evasion and kickback charges, and Niles retired in triumph in April of 1987, lauded for his “unprecedented cooperation,” into the Federal Witness Protection Program.

But in the way stories have of not ending the way they are supposed to, Niles isn’t working somewhere in the Northwest as a salesman, under a new name, with a new identity, as the scenario had called for.

Instead, he is living in a suburban home outside Los Angeles, sleeping under a makeshift foil tent fashioned to block the microwaves he believes are killing him. By night, he scrutinizes the heavens above his back yard for a sign of the mini-nuclear reactor that he says is generating the X-rays that pierce his skull.

Bizarre Assertions

Niles, the man federal prosecutors once dubbed their “goose that laid the golden egg,” has contacted agencies from the FBI to foreign consulates claiming the government is bent on murdering him, and his bizarre assertions have already prompted some defense lawyers to consider filing new appeals for the men Niles helped to convict.

“I think the government came down on him too hard. I think they overreached, and made him do much more than he originally agreed to. They kept pressuring him until he cracked,” said Jerry Webb, an Encino attorney whom Niles has hired to bring suit against the government.

Niles’ story, told in a series of interviews and audiotapes, is about a middle-aged salesman’s metamorphosis from businessman to secret agent, from back-yard barbecues to life on the run.

It is perhaps one of the more unpredictable sagas from a controversial program that has swept more than 5,100 federal witnesses into new lives, a program that is designed to elicit testimony against murderous criminal organizations but which sometimes leaves new victims in its wake.

“Here’s a man 50 years old who has spent the majority of his life in the electronic industry,” said Jerry L. Newton, Niles’ former attorney. “By doing what he was doing, he had burned all his business relations, terminated all social relationships and was living the life of a double agent.”

Used to Doing Favors

Like scores of others, Niles had become comfortably accustomed to exchanging favors with his colleagues as a cost of doing business. His job, as an agent for a number of manufacturers of custom parts, was to make sure that his clients’ products were selected for purchase by larger contractors.

“The buyers had realized over the years that they had something that was of value to give--a contract--and it was very much like an auction,” Niles said. “It was who did the most for me last night, and or who’s going to do the most for me this weekend?”

In the 19 cases in which he secretly tape-recorded meetings with buyers, Niles usually offered 4 1/2% of his own 10% commission to make sure that his client got the contract.

But it was only after it had become clear that defendants in an earlier kickback crackdown at Hughes Aircraft had identified him as a key player that Niles walked into the U.S. attorney’s office one afternoon in the summer of 1985.

“From the moment I was in the case, I knew the guy was extremely valuable,” said former Assistant U.S. Atty. Fred Heather, who prosecuted the wave of cases that came to be known as “Operation DEFCON.” Niles put his vast contacts to work, spending up to 14 hours a day secretly tape-recording his transactions.

Close Business Associates

The men Niles was meeting--in coffee shops, in living rooms, in cars, with microphones strapped to his chest or hidden in a glove compartment--were some of his closest former business associates. One was his daughter’s ex-boyfriend. Some were relatively powerful men who were facing an end to lucrative careers and the prospect of jail time because of Niles’ work.

Gradually, the worry started. “He would say, ‘I’m ruining a lot of lives,’ ” his attorney, Newton, recalls. “ ‘And it’s not just these guys. Some of them have sons and daughters and brothers and sisters.’ ”

Prosecutors conceded that Niles may indeed have had reason to fear retribution. And so it happened that Niles and his son, Chad, who had worked for his father as a courier, bid goodby to friends (Niles had divorced a few years earlier), turned in their drivers’ licenses, credit cards and Social Security cards and set off with two suitcases in hand to commence their new lives.

By then, all the men he had fingered had either entered guilty pleas or were about to. Niles himself, who had originally agreed to plead guilty to two felony counts, said he was led to believe that he had escaped indictment because of his cooperation.

The story was put out that Niles had moved to Europe and died of cancer, and it was Rex Scott Powers who got on a plane last February with his son. But trouble surfaced almost as soon as they arrived in Clarks Summit, Pa.

Only Account Available

(Because the witness protection program is so secret, Niles’ account is the only one available to tell of his year in hiding. Program officials would not even confirm that he was enrolled as a protected witness.)

As Niles describes it, he and Chad were installed in a bleak motel room with no way of leaving because they had no identification or credit cards with which to rent a car.

Although their supervising marshal assisted them in getting a driver’s license, Niles said he waited weeks without word on when he would get an official name change or access to the $25,000 he had brought with him into hiding. The government, he said, was providing about $1,300 a month to meet day-to-day expenses.

“Please note that all the new location contacts who the witness will be forced to talk to or do business with or be served by are pre-programmed ahead of time: They are told that the witness is different . . . but should be tolerated. You get a terrible reaction from toleration,” Niles said.

He began having trouble sleeping. First, he would find himself awake for a few hours in the middle of the night. Then he began lying awake all night, sleeping only when dawn came.

Got No Information

Still, there was no word on when they would receive their formal name change and a chance to move to the Pacific Northwest. “There were times when Joe (their marshal contact) was gone for two weeks straight, and we wouldn’t hear from him for two weeks,” Niles said.

Niles began writing letters inquiring about the status of his new identification. They went unanswered, he said. Agents began refusing to take his phone calls.

By mid-June, when their money finally cleared, Niles and Chad hit the highway and returned to Los Angeles, sending letters ahead resigning from the program they said had left them in a state of “suspended animation.”

U.S. Atty. Robert C. Bonner, he said, was “furious,” and immediately put him back to work on some continuing investigations and began pressuring him to appear on CBS’ “60 Minutes” to discuss Operation DEFCON. When he refused, fearing such exposure, Bonner, he said, began talking about the two felony counts to which he had agreed to plead guilty.

Indeed, the decision to prosecute Niles after all came as a surprise to some in the government. But William Fahey, who heads the Justice Department’s major frauds section in Los Angeles, said officials had never agreed not to charge Niles.

Not Appropriate

“We did give him the additional benefit of reducing his potential jail exposure to something less than he had originally agreed on,” Fahey said, “but . . . I didn’t feel that it was appropriate for a man who was so instrumental in a pervasive kickback scheme that permeated the industry to be completely forgiven.”

Bonner admitted that Niles was asked to appear on “60 Minutes,” but he denies there was ever any pressure applied. “I would say within a week it became clear . . . that this was the last thing in the world he wanted to do, and . . . I told him that’s absolutely fine,” Bonner said.

Niles eventually pleaded guilty to two felony counts and received probation, but by that time he was maneuvering to get back into the witness protection program--this time with the promise that he would go to the Northwest and receive a complete new identity within 90 days.

Chad Niles had left by then. “He told me he had to get away from me because I was going to have a lot of problems,” Niles recalled. “That intimidated him. He wouldn’t even give me his address or phone number.”

When he finally settled in Seattle--this time as Mark Rexford Parks--he checked into one of the city’s better hotels. This time, he said, he was unable to obtain even a driver’s license, and remained once again in the hotel room for days at a stretch.

Wouldn’t Let Him Sleep

The noises started again, he said. “You know, in the middle of the night, at 2 in the morning, when they wouldn’t allow me to sleep, when they were aggravating my conscious as well as my subconscious mind, I would hear what sounded like large groups of people down on the street--yelling, talking, and they would laugh and throw something that sounded like a bottle breaking on the street.

“So I would go to the window, or one time I was dressed because I couldn’t sleep, so I went down, and the street was absolutely empty. . . . “

Niles became convinced that the marshals had set up an elaborate speaker system around his room to confuse him with artificial sounds.

In intricate detail, he has worked out his theory of what happened. The marshals, he said, were attempting to make it appear as though he were crazy, setting him up in order to make off with his money. They kept him awake at night to minimize his resistance, he theorized.

“You know,” he reflected in one tape, “darkness always adds to any trouble. Especially fears: psychological, mental. Darkness always adds to the problem. Sounds are always louder in the dark.”

On Jan. 10, fearing that federal marshals were about to either kill him or hide him away in an institution, Niles caught a plane home.

Now, in urgent phone calls at all hours to the investigating agents who were his former colleagues, Niles has sought help for what he believes is an assault of microwaves and X-rays. He carries mirrors to fend off stray microwaves, and has fashioned a cap of aluminum foil to protect his scalp.

He has produced testimony from his sister, a Simi Valley woman who swears that helicopters have repeatedly circled over her home. An engineer measured 250 watts of microwaves in the atmosphere inside Niles’ house and found a radioactive disc underneath the dash of his car.

A former high school friend, Lyn Silverman, claimed that her home computer went haywire when Niles stepped close to it.

“In junior high he was class president, and one thing that is very evident to me is he is a very well read and a very intelligent person,” Silverman said. “All these different things that have happened to him, maybe his mind snapped, who knows? But our government is capable of doing things you wouldn’t believe.”

Story Hard to Believe

“This has been a very tough story to tell people,” Niles admitted. “They have a hard time believing it. . . . They wonder, how could I have this much audacity, and this much vanity, to think that I’m worth this kind of a push, this much manpower, equipment, airplanes, helicopters, at one point 14 lasers.

“It isn’t that I’m worth it. It’s because they’ve got so much to protect. They know the information that I’ve got.”

Bonner sighed: “I don’t know. He’s lost a screw someplace.”

Officials of the U.S. Marshals Service, which administers the witness protection program, declined to discuss Niles’ case specifically but said it is not unusual for witnesses to have difficulty adapting.

“It’s a difficult program on everyone concerned. It’s difficult on the deputies working with them, it’s difficult on the witness, it’s difficult on the family members,” said program spokesman Bill Dempsey.

There have been 15 suicides. But overall, about 75% of those enrolled are happy with the services, according to a recent survey, Dempsey said. Of about 40 lawsuits filed by former witnesses, none have resulted in judgments against the government, he said.

Legitimate Complaint

Newton, Niles’ former attorney, said he believes that Niles “had a legitimate basis to complain about the witness protection program. . . . He told me that certain representations had been made to him going in, and after he got in, they changed the rules on him.

“When he began to cooperate, neither he nor the government appreciated what it would lead to, how time consuming it would be, and how it would totally disrupt his life,” Newton said. “Whatever happened to him, and probably no one will ever know, it was apparently not at all what he’d bargained for.”

If he could do it all over, Niles might well have considered simply pleading guilty to whatever the government wished to charge him with and facing a penalty of “at worst a few months in prison,” as most of the DEFCON defendants he targeted have served, Newton said.

“That’s true,” Niles said. “Guys whose arms are so long they could do handstands without bending over--I mean, they took millions and millions of dollars--they got weekends at the YMCA. I put in my time, I did a good job--and I’m in a worse place now than when I started.”