Defense Giant Litton Pleads Guilty to Fraud
California-based defense-contracting giant Litton Industries Inc. pleaded guilty to federal fraud charges Friday, agreeing to pay $3.9 million in fines, civil claims and prosecution costs arising from a 1988 procurement scandal.
The negotiated plea closed the final case in a 7 1/2-year Justice Department legal campaign that resulted in $250 million in penalties and the conviction of 64 government officials, consultants and corporate executives from 10 defense contractors.
The massive scandal erupted in the mid-1980s at the peak of the military-spending boom, and the ensuing investigation broke important new ground in the prosecution of white-collar crime, including the first use of wiretaps against corporate and government lawbreakers.
It also brought a significant tightening of the procedures that the Defense Department uses in doing business with contractors and outside consultants.
In a statement issued after Friday’s plea, Atty. Gen. Janet Reno called the investigation, which began during the Ronald Reagan Administration, “one of the most successful . . . ever undertaken,” saying that it “fundamentally changed how white-collar crimes are investigated.”
She predicted that the techniques honed in the prosecution would serve as a prototype for future investigations into crimes involving fraud in environmental, medical, insurance and consumer issues, as well as in government contracting.
Lawrence J. Korb, a former Pentagon policy-maker now at the Brookings Institution, agreed. Korb said the operation “got rid of the old-boy network in defense procurement” and “put the fear of God” into the industry.
“It knocked off a lot of things that everybody knew were not quite right,” he said. “The bribery and information-trading were so rife that it was almost like a Third World country. This changed the whole culture on that account.”
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The criminal charges to which Beverly Hills-based Litton pleaded guilty alleged that executives of the company’s Litton Data Systems division, now based in Agoura Hills, hired consultants with contacts inside the Pentagon to provide them with confidential information needed to win three Navy or Marine Corps contracts valued at $147 million.
Although Litton ultimately was unsuccessful--it failed to win contracts on two of the projects and decided against submitting a bid on a third after the inquiry became public--the government charged the firm with conspiracy and wire fraud. The incidents occurred between March, 1987, and June, 1988.
Two executives of Litton Data Systems--Thomas D. McAusland, former senior vice president of business development, and Christopher M. Paford, former business development director--were convicted in an earlier case.
Litton, in a statement issued Friday, said it had pleaded guilty only because it technically is legally responsible for all actions taken by senior-level managers. But the company insisted that it had neither broken any law nor benefited from any of the deals.
Norman L. Roberts, a senior vice president and general counsel of the firm, said “neither the charges against the employees nor the charges against the company involved any bribery of government officials, any gratuities or any contracts won by Litton.
“The case was decided against the two men despite the fact that there was not even a law or public regulation at the time prohibiting the exchange of unclassified procurement-related information between people inside and outside the government,” he said.
The $3.9 million in penalties that Litton will be forced to pay includes $1.5 million in criminal fines, $1.3 million in civil claims and $1.1 million to reimburse the federal government for the costs of investigating and prosecuting the case.
The Operation Ill Wind investigation began late in 1986, when an official of a defense-contracting firm in northern Virginia told the FBI that he had encountered a consultant who had sought to sell him insider information that would help the firm win a multimillion-dollar Pentagon contract.
The firm and the FBI agreed to join forces and a few weeks later successfully prodded the consultant into cooperating. Federal agents won court orders to place wiretaps on 26 telephone lines in five states.
On June 14, 1988, federal law enforcement agents used search warrants to seize corporate records in 10 states, including sites in Los Angeles, San Francisco and San Diego.
Building on evidence obtained through plea bargains, the prosecutors eventually won guilty pleas from dozens of top corporate executives and government officials, including Melvyn R. Paisley, the one-time assistant secretary of the Navy who was sentenced to four years in prison.
Joseph Aronica, chief prosecutor in the Litton case, called the operation “one of the most successful white-collar investigations ever conducted.”
Besides Litton, the list of corporations convicted includes major names in the defense-contracting field: Grumman, Hazeltine, LTV Aerospace, Teledyne Industries, Cubic Defense Systems, Loral Corp., Whittaker, Sperry/Unisys and United Technologies.
Although the allegations in each case were different, the pattern appeared to be similar throughout: The firms were charged with a variety of schemes to rig bids on lucrative defense contracts, to create secret slush funds, to hire corrupt consultants or to funnel bribes to government officials.
In a statement accompanying other court documents, the government said Litton hired consultants to obtain inside information about Pentagon contract-evaluation figures needed to keep the company in the final stages of competition on key projects.
It also asked them to obtain information on presentations being offered by competitors and sought copies of internal Pentagon rankings of the bids being made for each project.
All such information ordinarily should have been closely held by Pentagon officials.
The government included summaries of some 38 separate telephone conversations and financial transactions involving the two Litton executives and the consultants. The case was heard in U.S. District Court in Alexandria, Va.
