Hughes Admits Illegally Dealing in Defense Data

Hughes Aircraft Co. pleaded guilty in federal court Friday to two felony charges of trafficking in secret Pentagon budget documents and agreed to pay $3.7 million in fines and costs.

Hughes, based in El Segundo, Calif., became the fourth major defense contractor convicted in a continuing investigation into illegal trading in stolen Pentagon papers among military suppliers. GTE Corp., Boeing Co. and RCA Corp. earlier pleaded guilty to similar charges and paid large fines.

The case is part of a six-year investigation, dubbed Operation Uncover, into defense contractors who trade secret Defense Department documents to win competitive advantage.

U.S. Atty. Henry E. Hudson, who is leading the inquiry, with assistance from the Defense Criminal Investigative Service, said that other major contractors are likely to be charged soon.

Knowledgeable sources said that Raytheon Co. and Grumman Corp. are among the targets of the investigation and are expected to sign plea bargains soon. Officers of those companies refused to comment on the case.

Hughes is the latest in a long list of major defense contractors that have been convicted of or pleaded guilty to serious federal charges in the last year. A virtual Who’s Who of military suppliers has been swept up in Operation Uncover, a similar but unrelated inquiry dubbed Ill Wind and other, independent investigations of such firms as Northrop Corp., which recently was fined $17 million for falsifying test data on weapons programs.

“I think that both the Ill Wind investigation as well as this investigation into the trafficking in classified documents have heightened the awareness of people in corporate board rooms that there are rules of fair play by which procurement must be conducted,” Hudson said in an interview.

In its plea agreement with federal prosecutors, Hughes admitted that it had acquired numerous classified Pentagon planning documents from 1978 through 1985 and filed them under false titles to conceal them from government auditors.

The reports included five-year defense spending plans, the defense policy guidance and acquisition planning papers. All were stamped “Secret” and many bore the notation, “Not Releasable to Contractors/Consultants.”

Prosecutors said that the documents had been obtained for the company by Frank J. Caso, who retired last year as a marketing executive at Hughes’ Missile Systems Group in Canoga Park. Caso remains under investigation for his role in the scheme, government investigators said. He could not be reached for comment.

Hughes executives said that the company regrets its actions but noted that it did not bribe any government officials to obtain the reports, it did not profit from them and has not acquired any such documents since 1985.

Prosecutors said Hughes volunteered information about its role in the conspiracy to trade secret documents with other defense industry figures and cooperated fully in the investigation.

“It’s wrong and it can’t be justified,” company spokesman Richard H. Dore said. “The company has a pretty good ethics program in place to try to make sure that things like this don’t occur.”

Dore said that the guilty plea and fine were not expected to have a material impact on the firm’s earnings or operations.

Hughes, which was acquired by General Motors Corp. in 1985, is the nation’s ninth-largest defense contractor, with $3 billion in Pentagon contracts in the fiscal year that ended last September. All the offenses occurred before GM bought the aerospace concern.

The company was specifically charged with “conveyance without authority” of the five-year defense plans prepared for 1983 and 1984. It said Hughes obtained the documents through an unnamed third party.

Michael J. Costello, a senior official of the Defense Criminal Investigative Service, said that Caso, the Hughes executive named in the company’s guilty plea, was involved in a “tightly knit group” of contractor executives who swapped bootleg Pentagon documents among themselves.

He said that the price of entry into the group was a valuable internal Defense Department document, which was then copied and distributed to the other members.

Costello said there may have been no more than a dozen individuals and companies involved in the conspiracy. Although scores of valuable government planning documents were acquired from Pentagon sources and exchanged among the contractors, investigators have found no evidence that any money changed hands, he said.

Costello said that the Defense Criminal Investigative Service had stepped up the pace of its investigation because the statute of limitations will expire in September for several of the major target firms. He said that the investigative service has increased manpower devoted to the inquiry by 40% and shifted computer capacity to processing data uncovered in the investigation.

In November, Boeing pleaded guilty to two similar charges and was ordered to pay fines totaling $5.2 million. Former Boeing executive Richard Lee Fowler was convicted in December of 39 counts of conspiracy, conveyance without authority and fraud and sentenced to two years in prison.

Last month, RCA Corp. pleaded guilty to two felony counts of illegal traffic in Pentagon documents and agreed to pay $2.75 million in fines. One former and one current RCA employee each pleaded guilty to felony charges of participating in the scheme.

Although similar in nature, Operation Uncover is not related to the Ill Wind investigation of corruption in Pentagon weapons buying. More than 30 companies and individuals have been convicted or pleaded guilty to crimes in the Ill Wind inquiry, which focuses on bribing Pentagon officials for inside information on military weapons procurement.