Cubic Settles Bribery Suit by Shareholders
Cubic Corp. has agreed to settle a multimillion-dollar shareholder suit that alleges that executives at the San Diego-based defense contractor used defense-industry consultants to bribe federal officials in order to win lucrative contracts.
The proposed settlement includes $1.2 million for plaintiffs’ attorney fees but no monetary award for Cubic shareholders who initiated the suit in 1988. The settlement also calls for Cubic to adopt “business ethics initiatives” designed to teach employees, executives and board members about the “ethical considerations of defense contracting.”
The proposed settlement, which Cubic described in a recent letter to its shareholders, is scheduled for review by U.S. Magistrate Harry R. McCue at a Dec. 17 hearing in U.S. District Court in San Diego. Disgruntled shareholders filed the lawsuit in August, 1988, shortly after federal investigators searched an office in Cubic’s San Diego-based Defense Systems division during the “Ill Wind” probe into defense procurement fraud.
No charges have been brought against Cubic or its executives as a result of that continuing investigation, and the company acknowledges no wrongdoing in the settlement that now must be approved by a U.S. magistrate. However, Ill Wind has resulted in 39 convictions of defense executives and consultants elsewhere in the country. Defense contractors and consulting firms have agreed to pay $24.4 million in fines, and federal investigators said last month that Ill Wind might eventually produce as many as 100 convictions.
Cubic spokesman Jerry Ringer declined to comment on whether the Ill Wind investigation would bring charges against Cubic executives, or if the company is seeking a settlement with the federal government.
However, the proposed civil settlement mentions the “possibility of a compromise disposition of civil or criminal liabilities” resulting from the Ill Wind investigation. And, last month, federal investigators predicted that Cubic would soon reach a settlement that would end the investigation.
In a case not related to the Cubic investigation, William M. Galvin, a consultant who was on Cubic’s payroll for several years during the 1980s, received a 32-month prison sentence after pleading guilty to bribing two government procurement executives. The Cubic shareholder suit alleges that Galvin took money from Cubic executives and gave it to Defense Department officials “in return for secret information” that the company used to win contracts.
Although the shareholder suit first sought unspecified compensatory and punitive damages, the proposed settlement does not include any monetary award for shareholders. On Wednesday, spokesman Ringer declined to talk about terms of the proposed settlement, and attorneys for the shareholders who filed the suit were not available for comment.
However, the proposed settlement notes that the agreement was driven in part by the “unavailability of insurance coverage to satisfy a judgment” against Cubic. The proposed settlement is designed to eliminate the “expense, inconvenience and distraction” of having the lawsuit go to trial, a development that could damage the value of Cubic’s stock, according to the proposed settlement.
Despite the lack of monetary award, the settlement is “fair, reasonable and adequate” for Cubic’s shareholders, according to the document.
Under terms of the proposed settlement, Cubic agrees to have a “distinguished professor of corporate law” speak to its board of directors about “a director’s obligation to shareholders.” Videotapes of the speech would be shown to future board members. Cubic would also stage “regular presentations” to its employees about “ethical considerations in government contracting,” according to the document.
Times staff writer John Broder in Washington contributed to this story.
