General Electric Is Fined $10 Million for Defense Fraud

A federal judge fined General Electric Co. $10 million Thursday and sentenced two employees to prison for cheating the government on a contract for a battlefield computer system.

General Electric, which pleaded guilty to another defense fraud five years ago, also announced that it had agreed to pay the government $8.3 million to settle a civil suit stemming from the scheme and $11.7 million to settle unrelated civil charges involving different defense contracts.

The $10 million was the second-largest criminal fine in a defense contracting case, the government said. Northrop Corp. agreed to pay $17 million in February for falsifying records on parts for the cruise missile and Harrier jet.

“This is a sad commentary on the corporate character of General Electric” at the time of the fraud, 1982 to 1984, said U.S. District Judge Lowell Reed Jr.

Assistant U.S. Atty. Nicholas Harbist said GE had developed self-policing and disclosure safeguards to prevent similar fraud in the future.

“Their decade of deceit as government contractors has ended,” Harbist said.

GE is the nation’s second-largest defense contractor, doing about $6 billion a year in business with the government.

In May, 1985, GE pleaded guilty to illegally claiming cost overruns on Minuteman missiles and paid a $1.04-million fine.

The company was barred from defense contracting after the 1985 case, but the ban lasted only three weeks overall and just six months at the division where the violations occurred.

An Army spokesman, Maj. Pete Keating, said Thursday that a decision had not been made on whether the company would be banned again.

“Before we can make that determination, we would have to review the sentencing, the settlement agreement, plus matters that General Electric would present for consideration,” he said.

Two employees of the GE subsidiary involved in the fraud, Management & Technical Services Co., received prison sentences but remained free on appeals.

Gerald A. Leo, 52, of King of Prussia, Pa., was sentenced to 10 months in prison and fined $15,000. Leo, the former materials manager at the subsidiary, was convicted of four counts of mail fraud and one count of trying to deceive investigators.

James Badolato, 43, of Springfield, was convicted of one count of obstructing justice and one count of trying to deceive investigators. He was sentenced to five months in prison and fined $10,000.

The judge said both men have not accepted responsibility for their actions. He said Badolato had a “corporate mentality” that he felt “shields him somehow from responsibility.”

“They cannot make the claim that they are merely acting on behalf of the company,” the judge said.

Leo’s wife, Mary, sobbed as her husband was sentenced, then called out, “He never did anything!” She left the courtroom at the judge’s suggestion.

The case arose from a $246-million contract to make a computer system to monitor supplies in the field. GE and Leo were convicted of not telling the Defense Department when they found subcontractors to make parts at significant savings.

Badolato was convicted of misleading investigators and submitting false documents in a cover-up.

“This was not a one-shot deal,” Harbist told the judge. “This was a protracted and calculated effort to steal from the Department of Defense.”

He said the men were in a “corporate cocoon,” feeling “insulated and not responsible.”

Both men and the company were convicted in February.

Estimates from both sides of how much money the government lost ranged from $2.5 million to $8 million.