Defense Firm in L.A. Target of Two Probes

A San Fernando Valley-based weapons manufacturer is a subject of two federal investigations into possible defense procurement fraud, according to federal agents, one involving its ties to the Pentagon and the other involving its work with subcontractors.

The first investigation into the Marquardt Co. of Van Nuys began more than two years ago and focuses on its ties to Victor D. Cohen, 52, an Air Force deputy assistant secretary overseeing tactical warfare systems.

Federal investigators based in Southern California say allegations of an improper relationship between Marquardt officers and Cohen first arose in 1985 and have since become part of the nationwide Pentagon procurement investigation, code-named Operation Ill Wind.

One of the areas of inquiry, the investigators say, is a $17-million government award to Marquardt to build a facility to produce casings for cluster bombs, large devices that spew out as many as 250 mini-bombs when the case opens. The award was made to the company in 1985 after strong lobbying by Cohen.

Cohen’s Pentagon office was searched and sealed by the FBI on June 14. Among the items sought by investigators, according to a Washington attorney who formerly represented Cohen, were records of any Cohen dealings with Marquardt.

A week later, Cohen was one of six Defense Department officials stripped of sensitive contracting duties by Defense Secretary Frank C. Carlucci.

“About two years ago, we received allegations of improprieties regarding Cohen and a number of defense contractors, including Marquardt,” said one federal investigator in Los Angeles who asked not to be identified. “Some hard-core evidence was developed about a number of companies. It was decided at that time that the case should be centralized in Washington.”

Allegations of Kickbacks

The second investigation centers on allegations that Marquardt officers received cash kickbacks for awarding what some sources call vastly inflated contracts on the cluster bomb to several machine shops in California and Nevada, according to federal agents.

This investigation began six weeks ago and has become part of DEFCON, a probe of defense subcontractors handled jointly by the FBI, the Internal Revenue Service and the Defense Criminal Investigative Service, an investigative unit of the Department of Defense.

DEFCON, which is confined to Southern California, began four years ago after allegations surfaced of widespread bribery, bid-rigging, payoffs and kickbacks in the middle-management level of the defense industry. So far, federal prosecutors have recovered more than $50 million in fraudulent payments and won 97 defense industry convictions.

“Information received regarding Marquardt is being looked at as part of Operation DEFCON,” said Rodney Hansen, special agent in charge of the Defense Criminal Investigative Service office in Southern California. “It’s in the beginning stages. I really can’t comment anymore than that.”

Surprised by Probes

Marquardt President Frank X. Marshall said he was surprised to hear that the firm is the subject of two federal investigations.

“Absolutely not, and I sure as hell would know about it,” Marshall said. “I have no idea what you are talking about.”

When told that the allegations included Marquardt officers’ receiving cash kickbacks for awarding inflated contracts to outside firms, Marshall responded:

“Jesus, don’t tell me that. That is the first time I have ever heard that. It is unbelievable. I must live in another world.”

Nevertheless, federal investigators said they are pursuing allegations of subcontractor kickbacks. Among the areas they are interested in are allegations that a $350,000 job on the cluster bomb was inflated to $1 million and awarded to a machine shop. Out of the inflated profits, the machine shop allegedly kicked back a part to Marquardt, investigators said.

A source familiar with the alleged scheme said subcontractors ostensibly competing on a job actually agreed to inflated bids knowing that they would not get the contract this time but would be in line for future ones.

“It didn’t take long for subcontractors to learn the game, to figure out who’s who as far as the contract goes and then collude price-wise,” the source said. “Each took a piece of the pie.”

Employees Questioned

A number of current and former Marquardt employees said in interviews that federal agents had questioned them recently about the $17-million award for the cluster bomb facility, allegations of subcontractor kickbacks and about Cohen and his possible ties to former Marquardt President Ken Woodgrift.

Woodgrift was promoted in 1986 to chairman of a division of Marquardt’s parent company, International Signal & Control Group, a Lancaster, Pa.-based electronics company that had nearly $600 million in sales last year.

Woodgrift did not return phone calls. The Times gave an International Signal spokesman a list of questions to ask Woodgrift, but the spokesman refused to say if Woodgrift had seen it.

“We know of no investigation of ISC or Marquardt,” said Joe Pospichal, the spokesman. “We feel you are fishing.”

“It would be meaningless for us to comment at this point,” he said, adding that he was speaking only for the company and not for any officer of the company.

Marquardt, which employs 1,100 workers and became part of International Signal & Control Group in 1983, was founded in 1944. It quickly distinguished itself as a producer of propulsion engines used for rockets and, later, for satellites and the space shuttle program. Over four decades, the company has received a number of government commendations.

Complaints to Lawmaker

Complaints about the firm and the role of Cohen first surfaced in 1985. In March of that year, a Lakeland, Fla.-based company complained to Rep. Andy Ireland (R-Fla.) that the Air Force deputy assistant secretary had prevented it from competing for the $17-million award to build the cluster-bomb production plant.

The small Florida subcontractor, Sooner Defense, told Ireland that Cohen was insisting that the $17-million award go to Marquardt without competitive bidding.

Once Marquardt built the production facility, the firm would be in a position to win more than $100 million a year in cluster bomb work, Marquardt employees said.

Sooner argued that Cohen rushed to permit the award of the contract to Marquardt in an effort to beat an April 1 start of a new federal procurement law designed to increase competition. In response, Rep. Ireland, whose district includes Lakeland, persuaded then-Secretary of the Army John O. Marsh to delay the award to Marquardt pending an investigation by Ireland’s office.

But, within days, Cohen began calling Sooner and Ireland’s office urging that the award to Marquardt be allowed to proceed, according to a report prepared by Ireland’s staff and made available to The Times.

Cohen told Sooner President Edward J. Geoghegan that he was confident that Sooner could be awarded subcontracts by Marquardt if it withdrew its objections, the report stated. Cohen subsequently arranged for the president of Marquardt to telephone Geoghegan to discuss arranging such a deal.

Firm Drops Protest

After Cohen made a personal visit to Geoghegan three weeks later, Sooner dropped its protest of the award to Marquardt. Sooner has never done work for Marquardt on the cluster bomb or any other contracts, a spokesman said.

Marquardt completed construction of the 88,000-square-foot cluster bomb production plant in mid-1986, and the government then equipped it with $17-million worth of machinery and tools. It is one of only two facilities in the country to make cluster bomb casings.

Some people familiar with the company still have not determined how the government decided to locate the plant at Marquardt’s Van Nuys facility.

“The thing that puzzles me and other employees to this day is, how did we get the contract for the building on a sole-source basis,” said one employee, who asked not to be identified. “Why were we so special that we got $17 million? You just don’t go pick one guy and say, ‘Go for it.’ ”

The answer, said Marquardt President Marshall, is that the company has an outstanding reputation in manufacturing missile warheads and bomb dispensers.

He said he did not know why Cohen was so insistent that Marquardt receive the award. He said he had met Cohen only once--a 10-minute visit during a trip to Washington--and the meeting had had nothing to do with the cluster bomb facility.

“For all I know, because of the nature of the importance of this program, Mr. Cohen, Dr. Cohen, knew the importance of the program and felt the Marquardt company had demonstrated its qualifications and did not want to go through that experience of competing unnecessarily,” Marshall said.

Earlier Probe Cited

Cohen’s former attorney, Seymour Glanzer, said Cohen’s dealings with Marquardt were the subject of an earlier investigation by federal agents in Los Angeles. He said agents found nothing that merited prosecution.

But federal investigators said Cohen has never been cleared and continues to be a focus of their efforts.

Gene Kechter, who manages subcontracts for Marquardt, said FBI agents met him six weeks ago for a cup of coffee a few blocks from the plant, began asking questions about the $17-million award and asked if a relationship existed between former Marquardt President Woodgrift and Cohen.

“I told them I don’t have any information on what the higher-ups are doing with anybody,” Kechter said. “I’m not privy to anything they do.”

“I think this is much to do about nothing,” he added. “I think there’s some little outfit down in Florida that’s raising a big bitch about nothing.”

Craig Parrott, a former buyer at Marquardt, said FBI agents questioned him four weeks ago about Cohen and Woodgrift and about possible kickbacks from subcontractors to Marquardt purchasing officers.

“They were interested in anything I had about Cohen and any Marquardt officials,” Parrott said. “I told them I didn’t know much.”

Contract Awards Questioned

Bud Grant, 67, another former Marquardt buyer, said that, once the cluster bomb facility was built, he and several co-workers questioned the way the firm awarded work on the bomb casings to various subcontractors. Grant said he and other buyers normally sent out job specifications to a list of subcontractors they had selected. The company would then choose the subcontractor who could provide the best service or product at the lowest price.

But, in the case of the cluster bomb work, Grant said, all the bids on the second and final phase of the multimillion-dollar program were taken away from buyers who regularly processed them and were instead handled personally by Leo Zovak, the director of purchasing.

“During the 29 years I was there, I never have seen that done before,” said Grant, who retired from the company in February.

“This was very unusual. It just wasn’t done like that. The buyers usually participated.”

About half of the machine and tooling shops selected by Zovak had to be replaced, Grant said, because they either did not have the capability to do the work or had a history of not meeting shipping schedules. At that point, Grant said, other shops unknown to the buyers suddenly came in with unsolicited bids. In some cases, these firms were awarded parts of the work.

“I am not sure how they even found out we were looking for someone,” Grant said.

When Zovak was questioned by reporters at his house in Bel Air, he refused to discuss purchasing procedures used in the cluster bomb contract.

“I will comment when the time comes,” he said.

Staff writers Jim Schachter and Gregory Crouch contributed to this story.