Teledyne Is Facing Indictment : Defense: A company unit could be suspended from government contracts over allegations of testing fraud.

Teledyne has been told that it will be indicted next week on charges that it falsified testing on sophisticated defense electronics components in one of the nation’s biggest defense-fraud cases, a congressional source said Wednesday.

Teledyne executives were scheduled to meet today with officials of the government Defense Logistics Agency to discuss a possible contracting suspension as a result of the anticipated indictment, according to a staff member of the House Energy and Commerce Committee.

The Los Angeles-based firm last year was charged in a $250-million civil suit involving the same matter. The suit alleged that its Teledyne relays division in Hawthorne sold commercial-grade electronic relay devices to the military but certified them as having met more rigorous military standards.

The firm has been discussing a possible settlement of the criminal allegations and the civil suit, but has been unable to agree to financial terms, according to the source.

The Defense Logistics Agency could suspend the division from receiving new contracts. A similar suspension against the entire corporation is possible, but unlikely, the congressional staff member said.

Another Teledyne division in Los Angeles is facing a separate major civil suit and related criminal investigation, this one involving allegations that it inflated prices when bidding for government contracts.

A company spokesman said Wednesday that he did not have any information about the indictment anticipated in U.S. District Court in Los Angeles. But, he added, “any action that would be initiated by the government would have to be announced by them before we would comment.”

The Teledyne relays division was raided last year by federal agents after the civil suit was filed. The alleged infractions occurred between 1983 and 1990, a period when Teledyne reportedly shipped 9 million suspect relay devices, according to the committee staffer.

A subsequent investigation found that many of the devices failed to meet tough military standards. As a result of that probe, Teledyne was “decertified” as a supplier for the most sophisticated relays, a type of electronic switch.

The government investigation found that the firm charged the military $15 for relays that were certified to have met military tests, when in fact they were worth $6.20 because they were never tested, according to the House committee source.

The civil suit was filed under the federal False Claims Act by former Teledyne employee Emil Stache. The Department of Justice joined in pressing the case last April.

Stache alleged in his suit that shortly after he was hired as a quality control manager, he “discovered that the machines on which Teledyne was ostensibly conducting” quality tests were “not even turned on in a manner that would indicate if a relay had failed the testing.”

Afterward, Stache conducted legitimate tests that revealed failures of the parts, but was told by his superiors to destroy the records, the suit alleges.

Stache said in an interview last year that some of the relays were made in India and Mexico, a contention supported by officials at the Defense Electronics Supply Center in Ohio. Such foreign sources would be in apparent violation of Pentagon rules.