Pentagon Data Seized by FBI in Fraud Probe

The FBI, investigating major fraud and bribery allegations involving large defense contractors across the country and at least two top military officials, seized records Tuesday at offices in the Pentagon and at the plants of several defense firms, including some in California.

Search warrants were executed as part of “a two-year nationwide investigation regarding possible widespread fraudulent activity within the Department of Defense’s contracting process,” FBI officials said.

Pentagon offices that were searched included those of James Gaines, director of acquisition management for the assistant secretary of the Navy for research and development, and Victor D. Cohen, an aide to the Air Force’s deputy assistant secretary for research, development and logistics.

A search warrant was also issued for Melvyn Paisley, a former Navy official and now a Washington consultant to some aerospace firms. Paisley left the Pentagon last year after serving six years as assistant Navy secretary for research, engineering and systems, a key acquisition post under former Navy Secretary John F. Lehman Jr.

The FBI said the investigation is focusing on allegations of fraud and bribery “on the part of defense contractors, consultants and U.S. government employees.” It said also in a statement that searches took place in California, Connecticut, New York, Ohio, Pennsylvania, Arkansas, Minnesota, Maryland, Florida, Texas, Missouri, Virginia and the District of Columbia.

Major Firms in Probe

Government officials said that major defense firms involved in the investigation include Northrop Corp., Teledyne, McDonnell Douglas, United Technologies Corp., Litton Data Systems and Unisys.

Henry E. Hudson, the U.S. attorney in nearby Alexandria, Va., who is directing a grand jury inquiry into the matter, refused to discuss the case. Paisley also refused to comment, and attempts to reach Gaines and Cohen were unsuccessful.

However, a congressional source with knowledge of the inquiry said that some defense contractors “are suspected of conspiring among themselves to fix prices on a number of contracts,” as well as to commit bribery and fraud.

Although many of the contracts allegedly involved electronic gear, the source said that they were of various types with no common denominator linking the companies through a single weapons program.

The Defense Department refused to comment on the case and government officials refused to say how many offices had been searched at the Pentagon. But sources said that FBI agents entered the offices of key Air Force and Navy acquisitions officials throughout the day and that at least one office--that of Cohen--had armed military guards posted outside its door.

One official who requested anonymity said the FBI’s seizure of documents from offices inside the Pentagon was an extraordinary measure. Although not every Pentagon office that was searched included employees who were under suspicion, this official said, the FBI action illustrated the gravity of the matter.

No Arrests Made

Some federal employees might be considered material witnesses rather than suspects, he said. The FBI stressed that no arrests were made as a result of the searches and that no one has yet been charged with any crime.

Members of the Naval Investigative Service said that they were cooperating with the FBI and that the case began two years ago “based on information provided by a former Department of the Navy employee.” It was learned, however, that the broad investigation was not being limited to Navy contracts and includes other military services.

Law enforcement sources said the investigation involves the alleged selling of information by Pentagon officials to defense contractors through consultants to the contractors. Reportedly, the data enabled the firms to set bids at amounts that would ensure their obtaining military contracts.

A Northrop spokesman said the firm was served with a search warrant at its Ventura division, where drone jets and aerial targets are produced. McDonnell Douglas confirmed that FBI agents showed up at its St. Louis headquarters to obtain records “related to the work of a consultant to McDonnell.”

The company said it is cooperating with the FBI and that it “believes that its relations with the consultant have been entirely proper.” McDonnell, which produces F-15, F-18 and AV-8B jet fighters for the Air Force, Navy and Marine Corps, refused to identify the consultant.

A Teledyne representative confirmed that its electronics unit in Newbury Park, Calif., was served with a search warrant. The company makes avionics equipment, including identification systems that can determine whether a ship or airplane is “a friend or foe.”

Ralph Vartabedian reported from Los Angeles and Robert L. Jackson from Washington. Staff writers Melissa Healy and John Broder in Washington and William Overend in Los Angeles contributed to this story.