Government Seeks $5-Million Fine Against Rockwell

Federal prosecutors said Tuesday that they will seek a $5-million fine against Rockwell International Corp. for overbilling the government on a sophisticated satellite navigation contract.

In a sentencing report filed in Los Angeles federal court, the U.S. attorney’s office said the stiff fine is intended “to send a message of unparalleled clarity to all defense contractors that fraud on the government--and the lies and deception that go with it--will not be tolerated as simply a cost of doing business.”

One of the two employees indicted in the case, Robert L. Zavodnik of Fountain Valley, was sentenced Tuesday to a year’s probation.

Prosecutors did not seek a jail term in the case, citing Zavodnik’s cooperation in the investigation after his guilty plea and the fact that his boss, Donald Carter, was acquitted at trial in December. Zavodnik claimed that Carter told him to cover up the overbilling.

Rockwell entered a conditional guilty plea last month to two felony charges in an indictment charging the company and the two employees with overbilling the Air Force by nearly $450,000 on contracts for the $1.2-billion NAVSTAR global positioning system.

As part of the plea agreement, Rockwell admitted that it was in contempt of an earlier court order stemming from a previous overbilling case but reserved its right to appeal the present conviction by arguing that it had uncovered the new fraud itself and sought to correct it.

Assistant U.S. Attys. George B. Newhouse Jr. and Stephen A. Mansfield urged U.S. District Judge Consuelo B. Marshall to impose a fine commensurate with Rockwell’s profits on the NAVSTAR project, which are projected at $176 million through the nearly 10-year life of the production contract. A hearing is scheduled for Friday.

Rockwell’s overall net profits last year totaled $812 million.

“The point is, if the government is going to have an impact in cases like this, dealing with multimillion-dollar projects, you’re going to have to have multimillion-dollar fines,” Newhouse said.

Government prosecutors said an earlier admission in which Rockwell acknowledged shifting costs from the NAVSTAR project to the space shuttle project also warrants a substantial fine.

“These sanctions will ensure that limited investigatory resources and court time need never again be used to prosecute the conduct of this large, publicly held corporation, which has no business now or ever standing as a convict before the bar of this court,” the government said in its sentencing report.

Rockwell has maintained that top-level corporate officials had no knowledge of the double-billing scheme, which occurred at the company’s Satellite Systems Division in Downey and Seal Beach. When evidence of wrongdoing on the part of employees at the division came to light, they said, Rockwell corrected it and reported it to the federal authorities under the government’s voluntary disclosure program.

Stung by the subsequent indictment, Rockwell reserved the right to appeal the guilty plea on the basis of allegations that the government acted improperly by indicting the company for conduct the company had voluntarily disclosed.

Government prosecutors say the company reported the overbilling long after government auditors began asking questions about it. Prosecutors also said in their sentencing report that there is evidence that at least some higher-level employees at Rockwell, including Global Positioning System program manager James R. Eyman, knew about either the overbilling or the cover-up. Eyman, who has not been charged, has denied any knowledge or participation in the scheme.

“If the cover-up were truly hatched by Carter and Zavodnik acting alone, to serve some unarticulated interest of their own,” the government’s report said, “why would they tell their superiors exactly what they were doing, both in oral reports and written memoranda?

“The only rational conclusion that can be drawn from the evidence is that corporate officials at Rockwell knew about the deception, knew that the auditors were being told lies and approved, if not directed, that course of action. There simply is no other credible explanation.”