Felony Counts Dropped : EIP Settles Suit Alleging Unlawful Foreign Sales

EIP Microwave has settled a federal lawsuit that accused the Newport Beach firm of illegal overseas sales of high-technology equipment.

Under the terms of the settlement, the U.S. Justice Department agreed to drop all three felony counts pending against EIP. The company agreed to plead guilty to a misdemeanor violation, which carries a $1,000 fine, and to pay $28,000 to cover the costs of the government’s investigation.

The settlement comes at a critical time for EIP. In March, the firm was temporarily suspended from receiving Pentagon contracts as a result of the pending federal case. About 20% of EIP’s fiscal 1987 sales of $18.8 million came from defense contracts.

“If we had not settled, it would have created enormous problems for the company,” Edward P. Davis, a San Jose attorney representing EIP, said Thursday. If the case had gone to a lengthy trial, Davis said, EIP might have been forced into bankruptcy because of legal expenses and the loss of government contracts.

EIP’s legal expenses in the case will exceed $100,000, Davis said.

Still Suspended

EIP, a manufacturer of microwave test and measurement equipment, remains on the Pentagon’s list of suspended contractors. But Davis said the company is confident that the ban will be lifted, now that the firm no longer faces criminal charges. The Commerce Department has placed restrictions on EIP exports pending its own investigation of the matter, he said.

EIP was indicted in December on charges that it illegally shipped microwave measurement instruments to England, when it knew that the equipment was actually destined for a third country in which such shipments were restricted.

The equipment shipped to England included 10 so-called mixer assemblies, components of electronic devices used to test microwave equipment in commercial and military applications.

The indictment also alleged that in a separate transaction, EIP had failed to file the required customs documents when it exported equipment to Thailand in September, 1985.

In its agreement, EIP pleaded guilty to making false statements on its export documents regarding the destination of the mixer assemblies.

Approval Required

Davis said the shipment to England involved about $2,300 in spare parts used for servicing microwave testing equipment. The government claimed that EIP officials knew the goods were actually destined for Kuwait or Iran. Exports of high-tech goods to either of those Middle East countries require special government approval, Davis said.

“Neither we nor the government knows where the shipment actually ended up,” Davis said. “We thought we were selling to a company in the United Kingdom.”

Davis said the British firm, HDC Consultancy, which no longer exists, originally asked EIP about buying the mixer assemblies for a third-party customer in Kuwait. At the time, an EIP employee expressed concern that the equipment might actually be destined for Iran, although it wasn’t clear why the employee believed that. Because of the employee’s suspicions, EIP didn’t respond to HDC’s inquiry, Davis said.

Six months later, HDC placed an order for the equipment but made no mention of a customer in Kuwait. “There was no reference to sending the shipment anywhere other than the United Kingdom,” Davis said. “EIP’s people treated it as a shipment to the U.K.”

Davis claimed that federal prosecutors’ willingness to settle the case on a misdemeanor charge “is a recognition that this was more an administrative foul-up (by EIP employees) than a criminal act.” He accused the government of “overreaching” by filing the charges in the first place.

Assistant U.S. Atty. Samuel Wong in San Jose, who handled the government’s case, said he disagreed with Davis’ assertions but declined to elaborate on the reasons.

Wong said he couldn’t discuss why the government decided to settle the case. “We thought it was the best thing to do,” he said.