Northrop Discusses a Plea Bargain in Fraud Probe

Northrop has entered negotiations with the Justice Department on a potential plea agreement involving a number of criminal investigations of alleged defense fraud by the Los Angeles-based aerospace firm, The Times has learned.

If the two sides fail to come to an agreement on a guilty plea by Northrop, the Justice Department is expected to seek a criminal indictment in the near future, according to sources close to the investigation.

A federal grand jury in Los Angeles has been investigating Northrop in connection with at least five separate issues involving alleged defense fraud--including such diverse matters as alleged falsification of testing of cruise missile parts, irregular purchasing procedures on the MX nuclear missile project and foreign payments to South Koreans.

Seeking Overall Agreement

Northrop spokesman Tony Cantafio, asked about the matter Friday, said only, “We don’t discuss whether or not we’re having negotiations.”

Officials at the Justice Department and the U.S. Attorney’s Office in Los Angeles declined to answer questions about the plea negotiations or the possibility of an indictment. But one government attorney said, “The timing is very sensitive right now.”

Northrop is reportedly seeking an omnibus agreement that would clear up all of the outstanding issues under investigation. So far, the two sides have not been able to reach an agreement, however.

If the negotiations fail and the Justice Department seeks an indictment against the company or its officials, it is not known which matter the company would be charged with first.

The cases involving the MX missile have been under investigation the longest--in some instances for more than two years. Those cases involve allegations that Northrop falsified tests on a key component of the MX missile’s guidance system.

If Northrop is indicted, it could lead to a suspension or debarment proceeding by the Department of Defense, meaning that Northrop would not be able to receive new defense contracts. Indeed, securities analysts speculated Thursday that any plea negotiations that the company is having with the Justice Department most likely also involve the Pentagon.

Although neither Northrop nor its officials have been charged with criminal acts in any of the current cases, the company has been sued twice in the past two years by the Justice Department for civil fraud. On Thursday, it was disclosed that the Justice Department and two former Northrop employees are suing the aerospace firm for allegedly falsifying tests on nuclear-armed cruise missile parts. The case had been under a court-ordered seal since November, 1987.

The civil suit seeks $60 million in damages and a $3-million civil fine.

The Justice Department alleged that Northrop “systematically falsified test data,” which is unusually strong language for a civil matter. Moreover, one department official said there is a massive amount of evidence in the case.

Admission of Faked Tests

The previous civil suit against Northrop was also filed in 1987 and involves the allegations of falsification of testing on the MX missile’s guidance system, which are also under criminal investigation.

A criminal indictment or guilty plea has been widely expected for some time, especially since Northrop has all but admitted that its testing procedures were improper.

At a congressional hearing chaired by Rep. John D. Dingell (D-Mich.) in 1987, Northrop Vice Chairman Frank Lynch admitted that tests were faked and that information about the incidents had been reported independently by employees to the Air Force.

Asked why the employees did not take their complaints to management, Lynch told Dingell, “Unfortunately, the manager of the plant was involved in the falsification of the tests.”

The Justice Department has been very aggressive in pressing for criminal indictments in recent cases of defense contract fraud, even when defense contractors have fully disclosed incidents that were not condoned by management.

Northrop is also facing a difficult time with Dingell, who chairs a House panel that is investigating whether Northrop made political payoffs to Koreans in an effort to sell jet fighter planes to South Korea.

Earlier this week, it was disclosed that Northrop Chairman Thomas V. Jones and other company executives and directors have been subpoenaed by Dingell’s committee in the Korean matter.

That case is also under investigation by a grand jury in Los Angeles that has subpoenaed Jones, along with several former Northrop executives. But the case is believed to have been under investigation for less than a year and may be further from resolution than the other matters.