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Rockwell Agrees to Conditional Guilty Pleas on Overbilling AF

Times Staff Writer

Rockwell International Corp. agreed Wednesday to enter conditional guilty pleas to two felony counts charging that the company conspired to defraud the Air Force by overbilling on contracts for the NAVSTAR satellite navigation system.

The agreement, reached on the eve of trial on the charges in Los Angeles federal court, leaves the company open to a fine well in excess of $500,000 and the possibility of suspension from future government contracts.

But the agreement also allows Rockwell to retain the right to withdraw its guilty pleas should the company prevail on appeal in its claim that it never should have been prosecuted for wrongdoing that its own company officials voluntarily disclosed to the government.

U.S. Atty. Robert C. Bonner said Wednesday that the Justice Department will seek a “very substantial fine” when the company is sentenced on the charges.

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‘Underscore the Efforts’

“I think it’s necessary in order to underscore the efforts of the U.S. attorney’s office and the Justice Department in the area of procurement fraud to the industry generally and, of course, hopefully to get the attention of the defense industry,” Bonner said.

In a hearing scheduled for 1:30 p.m. today, Rockwell is expected to plead guilty to one count of conspiracy to defraud the U.S. government in connection with the NAVSTAR global positioning system and one count of criminal contempt.

The contempt count stems from a 1982 court injunction prohibiting the company from submitting false claims to the government, an order issued in response to a government suit accusing the company of fraudulently shifting costs to the space shuttle program.

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As part of the Department of Defense’s voluntary disclosure program, a Reagan Administration effort to encourage contractors to report suspected fraud, Rockwell lawyers turned over evidence of the alleged double-billing, repaid the amount of the overbilling and fired one of the employees involved in the scheme.

U.S. District Judge Consuelo Marshall has already rejected the company’s motion to dismiss the indictment on that basis, and Bonner predicted that Rockwell’s appeal will be unsuccessful as well.

“The Defense Department’s voluntary disclosure program requires that a company make a full disclosure of its fraudulent activities before, and I underscore before, any government investigation or audit has started,” Bonner said. “In this case, an investigation into possible mischarging and defective pricing with respect to the contract in question had started fully 10 months before Rockwell made any disclosure to the government.”

In a prepared statement, Rockwell said Wednesday that the company has maintained it never should have been indicted and has also “consistently agreed” that the two employees who were also indicted in the case, Donald Carter, former material division director at the company’s Satellite Systems Division in Downey and Seal Beach, and Robert Zavodnick, 46, former manager of major subcontracts for the division, “violated company policies and procedures.”

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“When the company discovered what had occurred, it conducted an intensive internal investigation, disciplined the employees involved, offered full restitution to the Air Force, and disclosed the results of its investigation to the government,” the company’s statement said.

Zavodnick, a Fountain Valley resident, pleaded guilty in September. Carter, 60, of Temecula was acquitted last month.

Bonner denied that the acquittal prompted the government to accept a plea bargain in the case, noting that the company has agreed to plead guilty to the most serious charges in the indictment and faces a potentially unlimited fine on the contempt count.

Rockwell said it agreed to the plea in order to proceed with the appeal on the voluntary disclosure issue and “to avoid a costly trial for both the company and the federal government.”

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