Corruption Inquiries Put Teledyne in Perilous Spot : Contracts: Autonomy granted to divisions is blamed for hundreds of millions of dollars in potential liabilities.

On an otherwise quiet workday in 1989, an unmarked truck backed up to the front door of the Teledyne Systems plant in Northridge and a cavalry charge of several dozen FBI agents stormed down the hallways, flashing badges.

The G-men, armed with dollies and handcarts, began loading file cabinets onto the truck. Secretaries cried and supervisors protested as agents grilled employees.

Amid the chaos stood Harry Halamandaris, president of the Teledyne division, white as a ghost, muttering “Oh my God” and shaking in the realization that his career and company were under attack.

According to court documents, the federal agents had come to seize the company’s secret books, an elaborate color-coded double accounting system allegedly used to bilk the government on defense work. On some contracts, the operation was raking in profits of 40% on sales, a civil suit charged.

It was the beginning of a startling series of legal setbacks for the low-profile Century City-based company. Today, Teledyne, once a high-flying conglomerate that was the darling of Wall Street, is in “big, big trouble,” according to a government attorney.

A rash of civil and criminal cases has triggered a major review by the Pentagon to determine whether Teledyne is beset by a pattern of corruption, a Defense Department official disclosed. Such a finding could lead to a temporary suspension from future contracts for the company, though blanket suspensions have been rare in the past. So far, only the Teledyne Relays unit in Hawthorne is suspended.

Although Teledyne is not among the Pentagon’s largest contractors, ranking 37th, it has an important place in the defense arsenal. It is the world’s largest producer of zirconium, critical to nuclear weapons and conventional ordnance. It is also a key supplier of high-power microwave amplifiers for electronic warfare gear. And its compact jet engines power the Pentagon’s most lethal cruise missiles.

Its legal woes seem nearly as diverse as its product line. In a broad Pentagon investigation of defense contracting fraud, known as the Ill Wind scandal, two Teledyne subsidiaries have pleaded guilty to federal felony charges related to buying influence and to phony testing of electronic switches. The Justice Department has also joined in the prosecution of three civil fraud suits and is investigating a fourth case alleging that the firm hired a former Egyptian general to pay bribes for foreign business.

And in what could prove to be the most serious case yet, a federal grand jury is gathering evidence for a possible indictment charging that the firm’s Wah Chang Albany unit illegally exported zirconium for Iraqi cluster bombs between 1984 and 1988 through a Chilean arms dealer, according to a federal civil suit in Miami disclosed Monday by The Times.

In addition, separate federal grand juries have issued subpoenas against Teledyne Ryan Aeronautical, Teledyne Neosho and Teledyne Electronics, according to the firm’s annual report issued last week. The firm has also conceded under a voluntary Pentagon disclosure program that it violated federal rules in three other cases.

How is it that a company best known for making retail shower heads and dental appliances has ended up with a longer rap sheet than some of its much larger rivals? Federal investigators are still trying to unravel exactly what went wrong at Teledyne. And company officials seem overwhelmed by what has hit them.

Teledyne executives declined to be interviewed, as did Halamandaris--who was reassigned to a nondescript job after the raid. Teledyne has never denied the allegations outright, though officials have taken exception to assertions that the company is unethical. In company financial statements, it acknowledges that it “does not possess sufficient information” to estimate its potential losses.

“We would just like to let this thing cool down,” Teledyne spokesman Berkley Baker said.

Not much chance of that, according to federal officials. The company is facing hundreds of millions of dollars in potential legal damages that could wipe out its entire net worth--the first time the government has had to grapple with whether to bankrupt a supplier of important equipment. Baker considers such speculation as overblown, unnecessarily damaging the firm’s reputation on Wall Street.

Investors fawned over the company in the 1970s, when during one seven-year period its earnings per share soared thirty-sevenfold, making its founder, Henry Singleton, a wealthy man. In the last four years, profits have plunged 91%.

Teledyne operates 63 companies across the United States with sales of $2.9 billion. It is that diversification that many experts blame for its current legal difficulties. Teledyne is a classic 1960s-style conglomerate, in which autonomous divisions are left relatively free to conduct their business, so long as they meet rigorous profit objectives.

The autonomy resulted in its corporate headquarters exercising less control than is typical at monolithic firms like Lockheed or Boeing, current and former Teledyne employees said in interviews. The system erected by Singleton, and left largely unchanged by his successors, appears to have gone awry since he retired as chief executive in 1986.

“Every division operates individually,” observed Everett Nash, a recently retired manager for quality planning at the firm’s controls division in Los Angeles. “But once one division has been subjected to scrutiny and criticism, the government in its infinite wisdom begins to look for problems everywhere.”

Government officials believe Teledyne did not exercise enough control over its units. Although the corporation agreed to set up a corporate ethics program after its electronics subsidiary in Newbury Park and three executives pleaded guilty in 1989 in the Ill Wind scandal, prosecutors say it dropped the ball.

“Certainly, there wasn’t an effective ethics program,” said assistant U.S. Atty. Julie Blackshaw. “It is very surprising they are still in as much trouble as they are--in light of Ill Wind and all the promises of ethics programs.”

Blackshaw said the firm’s failure to properly test electronic switches at its relays unit, for example, was a flagrant violation that involved a vice president and dozens of other employees. The government alleged that testing was done improperly on 9 million switches that went into virtually every type of aircraft, missile and electronic system.

Experts at Sandia Labs, the Navy and the Defense Electronics Supply Center are still trying to determine whether those weapons might be at risk. In the meantime, the Pentagon has issued an industry alert warning of the untested switches.

Since its founding in 1961, Teledyne has been among the most reclusive of the nation’s big industrial firms. Although Singleton has retired, the company continues his style of reticence. Company Chairman George A. Roberts has never been interviewed, Baker said. Few securities analysts attempt to follow the company because they have so much difficulty getting information.

The company’s critics say Teledyne executives, while not arrogant about their current difficulties, seem naive about what is confronting them. Many big guns appear trained on Teledyne.

The House Energy and Commerce Committee, chaired by Rep. John Dingell (D-Mich.), has been scrutinizing the firm for more than a year and plans to call public hearings. The company is being sued by former employees represented by three powerful private law firms specializing in whistle-blower cases and the Justice Department has joined forces with those firms.

Its total legal costs are unknown, but a government auditor said the firm submitted documents showing it was paying $2 million per month in legal fees after the Teledyne Systems raid.

The public defense of Teledyne has been left to Baker, a one-man public relations department at the firm’s headquarters on Avenue of the Stars in Century City. Baker said the relays case was an “embarrassment,” but takes issue with the company’s critics.

“We come out as an unethical company and, doggone it, we are as ethical as they come,” he said.

Baker asserted that the company has an active ethics program and provided a copy of the firm’s 17-page conduct code, along with its government contracting guidelines manual that measures four inches thick.

But Marianne Gendron, a quality control engineer at its Los Angeles Controls unit, said she was never given any ethics training. Gendron has alleged in a whistle-blower suit that Teledyne Controls improperly tested and inspected thousands of parts in an illegal accounting “override” system.

Gendron also alleged that a Teledyne vice president provided illegal “loans” to a government official at the Defense Contract Management Command, which oversees quality control at the plant. The defense command later dismissed the official, a government spokesman said.

While Baker declined to discuss individual cases, he did say that Teledyne’s 63 subsidiaries “are pretty well left alone to do their thing, though they must abide by company ethics rules.”

“You have to have some blind faith that guys are doing that,” Baker said. “How do you audit that? We are spending a lot of money and effort now to make sure everybody has the word, but even if they have the word that doesn’t ensure they will do the right thing. All you need is one or two people who don’t do the right thing. That doesn’t excuse it.”

Teledyne Systems was typical of the autonomy with which Teledyne units operate.

Halamandaris was an intense boss, driven to meet profit objectives and impatient with subordinates who would bust their budgets on contracts, according to whistle-blower Klaus Kirchhoff, who sued the operation.

Even though Halamandaris is just slightly more than five feet tall, he was active in high school sports in Utah and wasn’t about to be intimidated in the corporate world, a government auditor said. Department reviews were held as often as every two months and Halamandaris, though well regarded by his employees, did not take lightly lame excuses for mistakes that cost the company money.

When the space shuttle Challenger blew up and the Air Force needed a rush order of Titan missiles to keep launching spacecraft, Halamandaris demanded $125 million for an order of electronic black boxes crucial for the missiles. A government audit determined that the boxes were only worth $75 million, but Halamandaris resisted lowering the price for a year until the Air Force caved in, according to defense officials.

Halamandaris personally reviewed every contract bid submitted by the company, an unusual level of oversight. Often, he would send instructions to his pricing department to increase proposal prices, according to allegations contained in a federal suit.

When Kirchhoff joined Teledyne Systems as a pricing specialist in 1989, he was amazed to find that Halamandaris was keeping two sets of books--a set of white binders for government eyes and a set of green binders that showed how much bids were being inflated.

Kirchhoff considered the whole thing blatantly illegal and blew the whistle, triggering the FBI raid. Government attorneys assert that Teledyne’s bids were fraudulently inflated and that the firm violated the False Claims Act.

An attorney close to the case said the government is unlikely to bring criminal charges against Teledyne Systems or Halamandaris, concerned that a jury might not understand even what crime was allegedly committed.

“Nobody put a gun to the government’s head and said you have to pay this,” one official explained.

The government will go ahead with the civil suit, charging the firm failed to disclose illegal “reserves” contained in its bids. The government stands to recover as much as $100 million in actual damages in the case, a government official said.