Teledyne Unit Is Target of U.S. Pricing Probe

Federal agents are conducting a major civil and criminal investigation into allegations of overcharging against Teledyne Systems, a Northridge subsidiary of Teledyne, which announced earlier last week a plan to spin off a large portion of its operations.

The existence of the investigation was confirmed by five knowledgeable sources in the defense industry, legal and investment communities. Teledyne has been named in at least one subpoena issued by a grand jury, two sources said.

Teledyne spokesman Berkley Baker declined to confirm or deny the existence of the investigation, saying the company would not discuss such matters unless the government had commented first.

Even if the company had received a criminal subpoena, Baker said, it would not disclose if it felt that the allegations lacked merit or would not affect shareholders.

It could not be determined which Teledyne contract is involved in the investigation, but the Air Force is believed to be heavily involved in the investigation.

Military Computers

Teledyne Systems produces defense electronics systems for aircraft and spacecraft. Its major products include general purpose military computers, navigation systems and radar jamming equipment.

Teledyne does not report the sales of its various divisions, but the Northridge unit is believed to be one of the firm’s largest defense contracting operations.

In March, Teledyne pleaded guilty to fraud and conspiracy charges against its Teledyne Electronics unit in the Ill Wind investigation of corruption in military procurement, which is separate from the current federal investigation at Teledyne Systems. The firm agreed to pay fines and reimbursements of as much as $8.4 million.

In April, two Teledyne executives were convicted of criminal conspiracy and wire fraud in the same case. A third executive was found innocent.

Information about the federal probe at Teledyne Systems came to light after Teledyne announced earlier this week that it is considering a plan to spin off its insurance and finance subsidiaries, a deal that would pare 20% of the firm’s annual revenues.

When the insurance spinoff was announced, securities analyst Robert M. Hanisee of Seidler Amdec Securities said he viewed the move as an effort by company Chairman Henry Singleton to protect his personal wealth by placing his stock holdings in the care of more than one company.

Earlier Spinoff Cited

One source knowledgeable about the federal probe questioned why Teledyne has not disclosed the probe at a time when the publicly held firm is involved in a potentially sensitive financial transaction. Moreover, the source questioned whether the spinoff was at least in part prompted by the investigation.

Baker, however, noted that Teledyne had spun off an insurance subsidiary in 1986, showing that “there is a historical basis for this.”

Baker added that, in the Ill Wind investigation, Teledyne did not comment until after the Justice Department announced that it had obtained a search warrant for one of the company’s facilities.

In the current case, the government has not acted in open court or filed any unsealed legal papers. Officials at the U.S. Attorney’s Office in Los Angeles declined comment.

The investigation was reportedly prompted by the filing of a civil case against Teledyne under the federal False Claims Act, which allows individuals to sue a contractor on behalf of the government. Such cases are sealed for an initial period of time.

“In this case, the government has not said anything, but some other people have. Now, we aren’t going to say anything about it,” Baker said.

“Suppose there is nothing to it,” Baker said.

The Federal Bureau of Investigation reportedly is reviewing voluminous Teledyne contracting records going back to 1986. In addition to the FBI, the Air Force Office of Special Investigations is involved in the investigation. One legal source said Air Force investigators have a chart detailing the investigation at a field office in Redondo Beach.

Internal Investigation

The Los Angeles law firm Latham & Watkins is representing Teledyne and has had a large contingent of attorneys at the Teledyne Systems subsidiary in recent weeks, sources said. At least some of Teledyne’s contracting officials have agreed to testify for the government.

A defense industry attorney in Los Angles said Teledyne is currently arranging for a major internal investigation that would include not only its systems division but virtually all of the firm’s far-flung operations.

Teledyne is the nation’s 36th largest defense contractor, with sales to the Pentagon in fiscal 1988 of $470 million. Total 1988 revenues for the firm were $3.5 billion.