Whistle-Blower in GE Scandal Gets $13 Million

A U.S. District Court on Friday awarded a former General Electric Co. employee $13.4 million for his efforts in exposing a scandal involving the sale of U.S. military jets to Israel in the 1980s.

The award by U.S. District Judge Carl B. Rubin is apparently the largest ever under the False Claims Act, a federal statute designed to encourage whistle-blowers to reveal fraud against the U.S. government.

It is the latest turn in a complex international scandal that was brought to light by Chester A. Walsh, a former GE employee who first learned of improper behavior by officials of his own company and the Israeli military in 1984.

“It’s a vindication of Walsh’s role as a whistle-blower,” John R. Phillips, Walsh’s attorney, said Friday. “He had to overcome a lot of obstacles and hurdles to do the things that he did. It’s been a long and painful process for him.”

In July, GE pleaded guilty in the same U.S. District Court in Ohio to criminal fraud charges, agreeing to pay $69 million in criminal and civil penalties in the massive fraud and bribery scandal. Company officials admitted diverting $40 million in U.S. military aid intended for Israel.

Walsh’s role as whistle-blower began when he was stationed in Israel for GE in the mid-1980s and began collecting documents pointing to the diversion of U.S. funds. He later smuggled information out of the country to Switzerland, where he was reassigned by GE, and also to the United States.

In December, 1990, Walsh wore a wire to get added evidence of wrongdoing from three other GE employees.

Walsh filed his own suit against GE, alleging that employees in GE’s aircraft division in Cincinnati, together with Israeli Brig. Gen. Rami Dotan, falsified documents to misdirect the $40 million originally meant for the purchase, maintenance and support of F110 engines for F-16 fighters.

In 1991, Dotan pleaded guilty in an Israeli court to bribery, accepting kickbacks and other misdeeds. In August, 1991, the U.S. Justice Department joined that case.

“Mr. Walsh brought us the only information we had,” according to earlier testimony by FBI special agent Steven Kosky. He added that the data became key building blocks in the government case against GE.

Despite such kudos, the relationship between Walsh and the government grew strained more recently. Friday’s court ruling settled a dispute between Walsh, now a Florida resident, and the Justice Department over dividing up the $59.5 million in civil fines recovered from GE. Under the whistle-blower’s statute, Walsh as plaintiff was eligible for as much as 25%.

In awarding Walsh almost $13.4 million, just below the maximum allowable, the federal court noted that “the bottom line appears to be that the United States of America will realize at least a $4-million ‘profit.’ ”

In addition to the recovery from GE, the U.S. government also has recovered $6.1 million from secret foreign bank accounts.

Walsh plans to share his award with Taxpayers Against Fraud, a Washington organization that supports whistle-blowers and which served as a co-plaintiff in the case.

“Today’s award is a total vindication for Chet Walsh and whistle-blowers everywhere,” said Scott Armstrong, executive director of the group.