Court Affirms Prosecution of Rockwell Case : Litigation: Appellate jurists uphold a judge’s ruling, holding that the company admitted overpricing only ‘when it knew an indictment was forthcoming.’

A federal appeals court in San Francisco on Thursday affirmed a judge’s finding that the government lawfully prosecuted Rockwell International for overcharging on a satellite navigational system made in Seal Beach.

Rockwell was fined $5.5 million after pleading guilty in 1989 to defrauding the government on the system, known as NAVSTAR. The aerospace giant nonetheless sought a dismissal of the indictment, claiming that the prosecution was spawned by Rockwell’s own admissions of overpricing.

But the 9th U.S. Circuit Court of Appeals on Thursday found that a government audit had already discovered that the Air Force was overcharged by $446,000 on the system before Rockwell made a voluntary disclosure in the case.

In affirming U.S. District Judge Consuelo Marshall’s decision that prosecutors acted properly in the case, the panel found that Rockwell admitted the overpricing to the appropriate authorities only “when it knew an indictment was forthcoming.”

At the time, the fine on Rockwell was the largest ever levied in a defense-fraud case.

In the 1988 indictment, prosecutors said that although Rockwell obtained reimbursements from a subcontractor for unexpected repair costs on the $1.2-billion NAVSTAR global-positioning system, it billed the Air Force for the same costs in 1983. The satellite network is designed to help military and civilian users locate precise positions for navigational purposes.

After government auditors spotted a discrepancy in billings for the system in 1985, Rockwell acknowledged “irregularities” to the auditing agency, which referred the matter to the Department of Justice for criminal investigation.

Rockwell claimed that, under the provisions of the Justice Department’s Voluntary Disclosure Program, which was established in July, 1986, the company was protected from prosecution for its voluntary disclosures.

Prosecutors welcomed the appellate ruling Thursday, saying it showed Rockwell never intended that the military find out about the overcharging and admitted its transgressions only after they were discovered by auditors.

The ruling “validates the prosecution’s contention that if you want the fire department to come to your house, it’s a mistake to call the dog pound,” Assistant U.S. Atty. George Newhouse said.

Newhouse said Rockwell was forthcoming about the extra charges only “on the eve of the indictment.”

A Rockwell spokesman said the company would have no comment until after it had reviewed the ruling.

Rockwell, which is based in El Segundo, plans to move its headquarters to Seal Beach next year.