U.S. Denies It Diverted A-12 Navy Jet Funds : * Lawsuit: The Justice Department says no money was taken from the canceled program--nor was such a charge made in a secret court filing.

A high-ranking Justice Department official said Friday that government funds were not diverted from the A-12 Navy attack jet program to fund intelligence activities during the Reagan Administration--challenging an assertion by sources close to a $1.3-billion lawsuit that has been filed over the program.

Assistant Atty. Gen. Stuart M. Gerson, who heads the civil division of the Justice Department, declined to say what was involved in the classified portion of the lawsuit filed against the government last year by General Dynamics Corp. and McDonnell Douglas Corp., the nation’s two largest defense contractors.

But in an unusual on-the-record comment about pending litigation, Gerson insisted that Count 2 of the suit--which is being kept secret by a federal court here--does not contain an allegation that money was diverted from the ill-starred program to intelligence activities.

Further, he said, no diversion for intelligence activities had in fact occurred.

On Wednesday, The Times reported that sources close to the case said the two defense contractors alleged in Count 2 that the government diverted funds from the now-canceled A-12 program and possibly used the money for intelligence activities during the Reagan Administration.

“It is not an allegation, and it is also not true,” Gerson said.

He said he had decided to speak out because “the public ought not believe that the program had been diverted to fund a secret intelligence effort. . . . I’d like to see (the case) freed of the taint of scandal.”

Secretary of Defense Dick Cheney previously dismissed the allegation of a diversion of A-12 funds as “ludicrous on its face.”

Meanwhile, a House Armed Services Committee source said Friday that the Navy had sought to reprogram excess funds that developed as a result of delays in A-12 development. Those funds, he said, may have been transferred to other classified programs.

General Dynamics and McDonnell Douglas were not entitled to the money because they failed to meet schedule deadlines, the committee source said. He added that the Navy was following routine procedure in seeking congressional permission to “reprogram” the extra funds into other Navy accounts.

Gerson said he could not discuss whether funds from the A-12 account had been diverted to other programs.

In agreeing to begin negotiations last week to settle the massive suit, Gerson said the government was responding to a move by the two defense contractors. But he added that the settlement efforts do not reflect weakness in either the government’s case or that of the defense contractors.

Gerson said a closed hearing was held Thursday in the case in a huge, safe-like room on the Justice Department’s sixth floor--a secure facility usually reserved for the super-secret sessions of the Foreign Intelligence Surveillance Court. The case is being heard by Judge Robert H. Hodges Jr. of the U.S. Court of Claims.

If the Navy prevails in the case, it could reclaim $1.3 billion in progress payments. If the contractors win, they could recover all incurred costs, now estimated at about $1.6 billion.

Times staff writers John Broder, Melissa Healy and Robert L. Jackson in Washington contributed to this story.