SEC Probes 1984 Northrop Payment to South Korean
The Securities and Exchange Commission has initiated an investigation into Northrop’s payment of $6.25 million in 1984 to a South Korean strongman in an effort to sell jet fighters, according to the firm’s proxy statement issued late Thursday.
The firm also disclosed in the proxy that it severed a consulting agreement with former Chairman Thomas V. Jones during 1990, even though it must pay Jones $540,000 over the next two years.
Disclosure of the SEC investigation is the first official confirmation that the agency is probing the Northrop deal. Last year, the agency declined to answer congressional allegations that it had failed to investigate the matter.
Since 1988 federal grand juries in Los Angeles and Honolulu have been investigating allegations that the deal violated the Foreign Corrupt Practices Act and an SEC consent decree entered into by the company and Jones in 1975 stemming from previous foreign payments.
The $6.25-million payment ostensibly was to build a luxury hotel, but the money disappeared shortly after Northrop wired its funds to a bank account in Hong Kong controlled by the late Korean political operative Park Chong Kyu.
Northrop asserted that the hotel deal was a legitimate venture to help the firm sell its F-20 jet fighter to South Korea and that it was defrauded by Park and his associates.
The hotel was never built. Northrop never sold any F-20s. And the money remains unaccounted for.
The firm filed suit to recover the funds, but in two separate cases arbitrators found that Northrop’s payments “were not intended for the purpose of building a hotel and that Northrop was not entitled to recoup these monies,” according to the proxy statement.
Former Northrop consultant James Shin alleged that the payments were actually part of a sales promotion fund for the F-20--an action that, if true, would violate provisions of the U.S. Foreign Corrupt Practices Act. Northrop has also sued Shin.
Northrop spokesman Tony Cantafio said, “The government has been investigating this for several years without any conclusion.”
It was unknown why Northrop terminated Jones or whether the termination was related to the SEC and grand jury probes. In 1988, Northrop’s board issued a reprimand to Jones for his conduct in the Korean affair.
The proxy disclosed that Jones--who stepped down as Northrop chairman in January, 1990, and was succeeded by Kent Kresa--was paid $394,000 in fees and $35,769 in business expenses during 1990.
Jones will be paid $300,000 in 1991 and $240,000 in 1992. Jones remains on the board.
