Paisley Tied to Anti-Submarine Warfare Secrets

James E. Gaines, a high-ranking Navy official named in the massive Pentagon fraud case, is suspected of passing secret information about a highly sensitive anti-submarine warfare project to his former boss, Melvyn R. Paisley, after Paisley left the Navy Department to become a private defense consultant, The Times has learned.

Federal agents sought documents related to the project, managed by the Boeing Co., and Gaines’ involvement in it last month when they searched Paisley’s Virginia home, according to the warrant for the search. Paisley, who once worked with Gaines at Boeing, served as an assistant secretary of the Navy from 1981 until last year and has been identified as a principal target of the Pentagon fraud probe.

Smuggling of Data Claimed

Gaines is the Navy’s deputy assistant secretary for acquisition management, international programs and congressional support.

The Times has reported that investigators believe Gaines smuggled classified documents out of the Defense Department and allowed Paisley and his wife to copy them. But the Boeing anti-submarine program is the first to be identified as a specific project that investigators believe was tainted by the suspected arrangement between Gaines and Paisley.

Investigators believe Gaines passed along secret information about the program to Paisley, who was working as a consultant for United Technologies Corp., the parent company of one of the bidders competing for the project. Agents are also looking for evidence that Paisley may have given Gaines paintings or other gratuities, documents show.

The documents targeted in the Paisley search warrant disclose information about bids submitted to Boeing by defense electronics companies competing for a subcontract to build training simulators for a new-generation reconnaissance airplane being developed for the Navy by Boeing. The warrant does not make clear whether the documents sought by the FBI were actually found at his house in McLean, Va.

Known as the “P-3C Update IV,” the Boeing project is one of many multimillion-dollar defense contracts that federal agents are examining as part of the expanding Pentagon procurement investigation, according to the federal documents.

Boeing has not been linked to the Defense Department scandal, and a spokesman said Thursday that the company would have no comment on the latest disclosures about the investigation.

“I have no idea what the investigators are looking at, except to the extent that I read their unattributed statements in the newspaper,” said Gaines’ attorney, Michael Schatzow. “In terms of comments about specific activities of Mr. Gaines, I have no comment,” he added.

“We deny it,” said Robert Plotkin, one of Paisley’s lawyers. “Gaines didn’t give it to him, and Paisley didn’t accept it.”

However, sources familiar with the case said federal agents believe that Gaines, whose Pentagon office was searched by FBI agents last month, passed information about rankings and bids in the P-3 program to Paisley.

$244-Million Contract

The Navy last August awarded Boeing a $244-million contract to design a sophisticated new electronics system for the P-3 submarine reconnaissance airplane. The system is the fourth update of the electronic devices used to detect, track and attack enemy submarines from the air. Boeing’s initial engineering contract is expected to lead to production contracts worth billions of dollars, several defense industry sources said.

The subcontract to build the training simulators has not yet been awarded, and it may be years before work on the entire system is completed.

Gaines worked for Boeing for 29 years before going to work for Paisley at the Navy Department in 1985. According to Navy records, Gaines was under orders to disqualify himself “from taking any action in connection with matters involving” Boeing because he maintained financial interests in the company through his pension benefits.

However, Gaines traveled last October to Boeing’s Seattle office, where he was briefed over a three- or four-day period on the new anti-submarine warfare system, according to an expense report Gaines filed with the Navy and an interview with a Boeing spokesman. “Our records show he was briefed on the P-3 system,” Boeing spokesman Harold Carr said.

Schatzow, Gaines’ attorney, said the trip was made with the full knowledge of Gaines’ superiors at the Navy, and the fact that Gaines recorded it on his expense report supports that view. A Navy spokesman who was asked to explain the circumstances under which Gaines took the trip said the service would have no immediate comment.

Gaines’ visit took place during the weeks when Boeing was preparing and distributing specifications for the training simulator subcontract.

FBI Looks for Bids

In the Paisley search warrant, the FBI said it sought to recover “information relative to the P-3 Update IV program, including . . . rankings and bids of competitors.” Specifically, investigators said they were looking for bids submitted by the Singer Co, Raytheon Co., CAE Industries Ltd., The Marconi Co. Ltd., and ISC Systems Corp., five of the six competitors for the simulator contract.

Agents did not look for the bid submitted by the sixth competitor, Norden Systems Inc., a subsidiary of the Hartford-based United Technologies Corp. But they did seek “calendars, notes, memoranda and other documents” pertaining to Paisley’s meetings with Norden executive John Dunphy.

Reached Friday at his Long Island, N.Y., office, Dunphy said he knew Paisley but refused to discuss whether he had ever talked about the P-3 program with Paisley. Dunphy said he was not aware he had been named in the warrant to search Paisley’s house.

Staff writer Ronald J. Ostrow contributed to this story.