GE Accused of $10-Million Defense Fraud

In one of the largest defense procurement indictments in recent months, a federal grand jury in Philadelphia Tuesday charged General Electric Co., the nation’s third-largest defense contractor, with defrauding the Defense Department of $10 million.

If convicted, the Connecticut-based defense firm could face criminal fines of almost $72 million in the case, which involves a battlefield computer system used by the Army and Air Force and purchased between 1979 and 1984.

Charges Called Unfair

General Electric called the charges “unfair and overreaching” and said that the $72-million penalty figure cited by the government is “sensationalized and grossly inflated.”

In the indictment, the grand jury accused a GE subsidiary, Management & Technical Services Co., of filing 132 false claims with the Army.

Justice Department officials said that there will be additional indictments of defense suppliers.

“This is another example of the (Justice) Department’s dedication to prosecuting defense procurement fraud,” said Theodore S. Greenberg, deputy chief of the department’s fraud section.

In Philadelphia, Assistant U.S. Atty. Nicholas C. Harbist, who coordinated the investigation, said the indictment alleges that, in negotiating the Army computer contract, General Electric and two employees of the subsidiary firm submitted pricing data to the Pentagon that overstated the cost of materials to be used.

Cover-Up Alleged

The indictment charges that the Management & Technical Services Co. employees, Gerald A. Leo and James Badolato, who were named as defendants, concealed cost savings from Army contract negotiators and later covered up the scheme during a Defense Department audit.

The scheme defrauded the government of $10 million, the indictment says. But it added that that figure would have risen to $22 million “if the scheme had not been discovered” by the Defense Contract Audit Agency during a later audit.

Leo and Badolato, former materials manager and subcontracts manager, respectively, of the GE subsidiary, could each face fines of as much as $1,276,000, the Justice Department said.

General Electric, in its statement, said that the two employees “have steadfastly maintained their innocence and intend to defend themselves despite governmental pressure and overtures to plea-bargain.”

Last year, the subsidiary accounted for less than 1% of GE’s sales, which totaled $39.3 billion, GE spokesman George Jamison said.

Previous Fraud Case

The GE statement said that the company conducted a thorough reexamination of its government contracting procedures four years ago after an alleged fraud episode involving the same subsidiary.

“GE believes it has one of the most complete and effective programs of self-policing and voluntary disclosure in the defense industry,” Jamison said.

The General Electric case follows by five weeks the Pentagon’s decision to suspend all future business with the Illinois-based Sundstrand Corp. after the firm agreed to pay a record $115 million in fines for padding Defense Department bills. Justice Department sources said, however, that the General Electric case is not related to a widespread fraud investigation involving the use of consultants to compete improperly for Pentagon contracts.