Another Teledyne Inc. unit might face temporary debarment from receiving U.S. government contracts.
Teledyne Systems in Northridge, which makes aircraft guidance and navigation systems, last week said it agreed to plead guilty and pay a $1.5-million fine for making false statements to the government regarding commissions paid to a Taiwanese agent for helping the company win Taiwan military contracts from 1984 to 1988.
It was the second time in less than a year that a Teledyne unit agreed to plead guilty to criminal charges.
Until recently, the debarment of a major defense contractor was unheard of. But in April, Teledyne Relays in Hawthorne was banned from receiving government contracts for a year, the first time one of the Pentagon’s top 100 contractors was debarred. The move followed the conviction in November of Teledyne’s Hawthorne unit for fraud in the testing of electronic relay switches, for which Teledyne paid a $17.5-million fine.
Teledyne has had numerous other legal troubles. Last month it agreed to pay $10 million to settle government claims that Teledyne Electronics in Newbury Park failed to make certain tests on missile components. The same unit in 1989 pleaded guilty to charges stemming from the so-called Ill Wind defense-contracting fraud scandal.
And in May, Teledyne’s Wah Chang Albany unit, based in Albany, Ore., was indicted in federal court in Miami for allegedly violating U. S. arms-export laws in the sale of zirconium for Iraqi cluster bombs before the Persian Gulf War, charges the company has denied. Teledyne is also involved in several pending civil suits.
After its history of defense fraud scandals and the recent debarment of the Teledyne Relays unit, analysts say Teledyne undoubtedly faces more penalties.
Teledyne Systems in Northridge, which is part of the Teledyne Industries division, “definitely could” be debarred from government contracts for a short period of time, said analyst Sidney J. Heller at Lehman Bros. in New York.
The parent company, Teledyne Inc., is based in Century City, and is a defense and industrial concern with nearly $3 billion in annual sales in everything from electronics to exotic metals, dental products and shower heads.
Teledyne receives about one-third of its total revenue from the U. S. government. It is the world’s largest producer of zirconium, used in nuclear weapons and conventional military weapons.
Teledyne is also a key supplier of high-power microwave amplifiers for electronic warfare gear, and its compact jet engines power cruise missiles.
The three charges to which Teledyne Systems in Northridge agreed to plead guilty involve the payment of commissions by Teledyne Systems to Taiwanese consultant Richard Hei.
The commissions helped the company win three Taiwan government contracts and subcontracts totaling nearly $71 million for work on a computer system for fighter aircraft and the production of anti-submarine warfare systems for helicopters and other aircraft. Taiwan requires military contractors to disclose payments of commissions to consultants.
Teledyne Systems admitted to falsely describing to the U. S. government Hei’s commissions as payment for services performed after the contracts were awarded.
Assistant U. S. Atty. Bryan D. Daly said he did not know how Hei was able to help Teledyne Systems win the contracts in question.
Teledyne said it “regrets the conduct that resulted in the settlement.” The company said that in 1988 and early 1989, Teledyne’s corporate office learned of the relationship with Hei, terminated the arrangement, disciplined employees and made disclosures to the government.
Teledyne said it has since reinforced its ethics and compliance programs and controls on the use of foreign representatives.
In February, 1990, Hei sued Teledyne in Los Angeles Superior Court, saying that the company had failed to pay commissions owed to him. Teledyne quickly settled by paying Hei $2.5 million.
Teledyne had acknowledged in documents filed with the Securities and Exchange Commission in July, before the announcement of its guilty plea, that if any of its units were convicted of wrongdoing, the unit “and conceivably the company” could be debarred for up to three years from receiving government contracts. “A suspension or debarment of the company would have a material adverse effect on the future operating results and consolidated financial condition of the company,” Teledyne said.
But on Friday, the company said it has had ongoing discussions with the Defense Logistics Agency, the Department of Defense office that issues debarments, regarding the Hei matter.
The company said it was “hopeful that the DLA, after careful consideration of all the facts, will decide that neither suspension nor debarment is warranted.”
DLA officials said they couldn’t comment on whether they are considering a debarment until Teledyne officially enters its guilty plea in federal court. That is due to take place Sept. 13 in Los Angeles.
In debarment proceedings the DLA looks at whether any monies were wrongfully paid, if individuals involved in the wrongdoing were properly reprimanded and if systems have been put in place to ensure the offense isn’t repeated, said DLA spokesman Larry Wilson.
Meanwhile, Teledyne Systems in Northridge is also at the center of a civil action brought by the U. S. government that accuses the unit of fraudulently inflating bids. The government is seeking treble its estimated $70 million in alleged damages.
That case is due to go to trial sometime next year and Teledyne says it intends to “vigorously defend” itself against those allegations.
Teledyne’s legal woes continue despite the company’s hiring in March of former Secretary of the Air Force Donald B. Rice as president.
But analyst R. Jackson Blackstock at First Boston in New York said the latest guilty plea is a positive development for Teledyne, because it resolves one more legal issue and signals the company’s willingness to own up to past transgressions.
“It’s only reasonable to expect that working their way through it there will be some costs,” said Blackstock. “Could one of them be that they have further business disruption because of a penalty? Clearly that’s a possibility. But I think that Wall Street will view the cleaning up of these lawsuits as a positive.”
Analysts also note Teledyne’s planned restructuring, announced last month.
The company plans to shrink its 65 divisions to 21, lay off 1,200 workers and eliminate many middle-management positions.
As part of the restructuring, Teledyne Systems, Teledyne Electronics and Teledyne Ryan Electronics in San Diego will merge into one unit with its headquarters in Northridge.