A Strange Whistle-Blowing Case : Ex-Hughes Ethics Boss Supports Lawsuit Against the Company

Tom Peirce was the ethics boss at a major division of Hughes Aircraft--until he quit after being unable, he says, to get to the bottom of fraud allegations surrounding the B-2 bomber program.

Since then, Peirce has become an advocate for the woman making the allegations, going so far as lending her money to file a lawsuit against Hughes and testifying on her behalf in a workers’ compensation case against Hughes.

The Hughes case illustrates the often complex and confusing relationships that have evolved in the whistle-blower arena under the federal False Claims Act, which allows individuals to sue a company on behalf of the government and share in any damages awarded.

The case is unusual because an employee responsible for policing the ethics of the corporation retired and then sided with a company critic.

If the allegations against Hughes are borne out, it will raise serious questions about the effectiveness of ethics officials--who have been hired by aerospace companies in response to earlier allegations of wrongdoing.

Peirce, the ethics administrator at Hughes’ radar systems group in El Segundo, said he first heard of the fraud allegations raised by the woman, Linda Lujan, in 1988 and investigated them for more than a year before he voluntarily retired in April, 1989.

Lujan claims that Hughes inflated the cost of the B-2’s radar by billing expenses to it from other defense programs. Lujan left Hughes a month before Peirce under a stress disability claim; she says she later suffered a nervous breakdown because of her experience. In February, Lujan filed a sealed lawsuit under the False Claims Act in U.S. District Court in Los Angeles.

Hughes Aircraft officials have declined comment on the case, saying that Lujan’s charges officially remain secret. But company officials are aware of Lujan’s general allegations, because they resemble those made in a 1989 suit filed by William Schumer, the former Hughes director of contracts for the B-2.

Schumer, who still works at Hughes, alleged that Hughes created a secret illegal plan to pool research costs on four radar programs, driving up the government’s B-2 costs by $40 million.

Even before Schumer filed his case, Peirce said he requested an internal audit of Lujan’s allegations, because he was concerned that he was not getting satisfactory answers.

Whether he made those concerns known before his retirement is less clear. In a 1990 deposition in Lujan’s workers’ compensation case, Peirce testified that he met all of his career objectives at Hughes and was not unhappy in his job as ethics administrator. Now, Peirce says that he quit Hughes because of his inability to obtain satisfactory answers about the Lujan case.

Lujan’s claims are based on certain B-2 contract “charging” numbers that she believed were being improperly used. Peirce asked that dozens--perhaps as many as 100--of the account numbers be audited.

The resulting audit examined only one such account number and found about $70,000 in improper billings had occurred on the B-2 program, according to a copy of the audit report shown to The Times by Lujan’s attorney, David G. Geffen.

The audit report, dated Dec. 12, 1988, recommended that the $70,000 be redistributed to the proper programs, but Peirce and Lujan say they are not sure if that was ever done.

Among other documents Geffen has is a handwritten note entered into Lujan’s investigative file by Peirce’s successor, Joseph Savroni. Savroni wrote that Hughes management was concerned that Lujan’s stress disability leave “will be (a) precursor to (a workers’ compensation) suit, whereby (the Department of Defense) may get involved--backdoor via her lawyer and eventually threaten our commonality system for some charges.”

Asked about his involvement in Lujan’s case, Peirce said he does not stand to derive any benefit from her lawsuit.

Peirce acknowledged that he loaned Lujan $25,000 to pay her attorney fees. In addition, Peirce has testified that he paid Lujan a finder’s fee in selling his home in Malibu and additional money to pay a tuition bill.

“I thought the company gave her a dirty deal,” he explained.

“I kept trying to prove that this was legitimate, and I couldn’t do it,” Peirce added. “I had a lot of pride in Hughes. I was with the company a long time. This was just one of those things that shouldn’t have happened.”