Teledyne Plant Still Target of U.S. Probe : Defense: A 1991 whistle-blowing incident in Newbury Park led to four civil cases and settlements of more than $17 million. But one case remains.

As U.S. warplanes swarmed over Iraq four years ago, a nervous aerospace technician buzzed his way into the FBI office in Ventura to deliver some disturbing allegations.

The man was a nine-year employee of Teledyne Electronic’s defense production plant in Newbury Park and what he had to say touched off a massive federal investigation that still continues.

He had been instructed to fake tests of electronic gadgets on Stinger missiles that enable U.S. soldiers to distinguish friendly from enemy aircraft so they know which ones to shoot down, he told FBI agents.

“He was emotionally devastated,” recalled Gary Auer, special agent in charge of the FBI’s Ventura office.

Alarmed by the possible threat to American lives, the FBI quickly alerted the investigative agencies of every branch of the U.S. military. Auer assigned the case to one of his best agents--Alanna Lavelle, an accomplished and versatile operative who once arrested a Soviet spy in El Segundo and worked undercover as a maid for a Peruvian drug lord.

Within a month, a special defense fraud task force had assembled in Ventura County. Headed by Lavelle, it soon included eight other investigators from the Army, Navy, Air Force and Defense Criminal Investigative Service.

Together, they interviewed 150 witnesses and seized a storehouse of documents. They opened a satellite office near the Buenaventura Mall in Ventura to accommodate the extra investigators and hundreds of boxes of records obtained through federal grand jury subpoenas.

Eventually even Congress jumped into the act. And the case that began in Ventura County shifted to locales as far away as Egypt, where a team of congressional investigators traveled to pursue allegations of kickbacks to Egyptian arms buyers.

To date, the investigation has led to four civil cases, forcing Teledyne to pay more than $17 million in settlements. The company also has promised to recall and repair 5,900 Stinger missile parts that troubled the conscience of its whistle-blowing technician.

The FBI and Defense Department agencies have now begun to wrap up their four-year investigation. But one more case involving the Newbury Park plant remains, The Times has learned.

Teledyne officials acknowledge the continuing investigation, but deny any wrongdoing in any of the cases. Beyond that, they have declined comment on the allegations. “I’m sure that none of our people are going to address the specifics,” said Bill Acton, assistant director of corporate relations.

Earlier this month, Teledyne sold the Newbury Park facility, and its sister plants in Northridge and San Diego, to Litton Industries Inc. for an undisclosed price. Company officials said it was a strategic business decision and had nothing to do with the plant’s legal problems.

The Teledyne plant is a squat peach-colored building that sprawls across a huge block at the corner of Hillcrest and Lawrence drives next to the Ventura Freeway in Newbury Park. It is one of dozens of Teledyne facilities around the nation that make everything from Water Pik shower nozzles to electronic components for the Titan Missile.

The Newbury Park plant specializes in Identification Friend or Foe (IFF) devices used on U.S. Navy and Air Force warplanes to identify friendly aircraft and thus avoid casualties from what is euphemistically known as “friendly fire.”

Justice Department officials said the Teledyne prosecution became a priority because of the allegations that safety beacons were being sold to the U.S. military without required testing.

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In the bulk of defense fraud cases, companies are caught cheating the government out of money. But they don’t put human life on the line, as was alleged in this case.

Teledyne’s IFF devices on Air Force and Navy fighter jets are designed to help pilots make critical decisions during wartime or while flying over hostile terrain.

They often have only a few moments to decide whether an approaching blip on a radar screen is friendly aircraft or an enemy who could attack. Using pulses of radio waves on encrypted channels, aircraft pilots can signal each other for reassurance.

“We want to make sure the servicemen and women are protected when they use these products,” said Assistant U.S. Atty. Bryan Daly, head of the U.S. attorney’s Southern California Defense Contractor Task Force.

“Our overall goal,” he said, “is to make the companies abide by their quality assurances.”

The importance of inter-aircraft signaling was underscored last April when two U.S. jet fighters mistakenly shot down a pair of U.S. Army helicopters in the “no-fly” zone over northern Iraq.

Although Pentagon investigators blamed the loss of 26 lives mostly on human error, their report said the two helicopters failed to transmit proper coded signals identifying them as American. Investigators have been unable to pin down why the IFF devices apparently malfunctioned.

In the Teledyne Newbury Park cases, Justice Department officials draw no connection to the friendly fire tragedy last April. Furthermore, they said, they have found no evidence that any of Teledyne’s IFF devices have contributed to any mishap.

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Following the first tip to the FBI by the Teledyne technician in early 1991, a chorus of other whistle-blowers came forward to accuse their company of a variety of alleged misconduct--including issuing the IFF devices without agreed-upon testing.

“He and his co-workers had been proceeding with the assumption that we were not at war and we would not be going to war and a failed product would not pose a risk to American servicemen,” Auer said.

But that all changed when the U.S. Army deployed the surface-to-air Stinger missiles in the Persian Gulf. Some of Teledyne’s Newbury Park workers started to sweat. And some went further than just passing along their stories to the FBI. Some went after Teledyne directly, filing two lawsuits against the company.

The first suit came when Teledyne employees took allegations of inflated pricing to Taxpayers Against Fraud, a Washington-based legal center that specializes in whistle-blower lawsuits. Under the federal False Claims Act, private citizens can sue companies for fraud on behalf of the government and share in any monetary awards if legal action is successful.

In a separate action, a Teledyne executive from Newbury Park filed another lawsuit with far-reaching allegations that ranged from “purchasing influence” in Egypt in violation of the Foreign Corrupt Practices Act to falsifying test data on IFF devices sold to the U.S. Navy and Air Force.

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In the lawsuit, defense industry executive Stephen C. Reddy extensively detailed how his former employer created phony test results for components installed on the Air Force’s F-16 jet fighters and concealed that IFF devices for the Navy’s E-2C Hawkeye surveillance planes could not pass environmental tests.

“The units froze up at cold temperatures requirements and failed vibration tests and hot temperature tests as well,” the lawsuit says. “In order to obtain fabricated ‘passing’ results, Teledyne altered approved test software without informing its customers and intentionally gerryrigged (sic) the test equipment. . . .”

In 1991, Teledyne also stepped forward to offer the government its own disclosure of production “irregularities.” The admissions were made through the Pentagon’s Voluntary Disclosure Program, which was set up to encourage defense contracts to police themselves in exchange for leniency.

But Justice Department officials said Teledyne received minimal credit during settlement negotiations for its disclosures because usually they were too little, too late.

“In the case like Teledyne’s, the corporation sees it as a tool to come in after-the-fact and say, ‘We got it to you first and we are trying to clean up our act,’ ” said Richard R. Smith, special agent in charge of the Defense Criminal Investigative Service’s Pacific regional office.

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Eventually, Teledyne and Justice Department attorneys agreed to settle the Stinger missile case for $10 million and a separate case involving substituting faulty parts in kits to test IFF devices on U.S. Navy ships for $500,000. The first lawsuit by Teledyne employees was settled for $950,000, and most of the allegations in Reddy’s lawsuit for $5.56 million.

But that last settlement did not resolve Reddy’s allegations about Teledyne purchasing influence in Egypt to win contracts to design and manufacture its IFF devices for aircraft purchased by the Egyptian Air Force.

He charged that the company violated the Foreign Corrupt Practices Act by spending millions of dollars in “commissions, gratuities, bribes and kickbacks” to woo Egyptian arms buyers.

Reddy, who was fired in 1991 after he laid out his allegations to a corporate officer, is one of the highest-ranking defense industry executives ever to have filed such a suit against a former employer.

His position as a senior program manager at Teledyne Electronics in Newbury Park gave him extensive access to company documents, which he shared with federal investigators and outlined in his lawsuit.

The suit alleges that in 1980 Teledyne hired a former Egyptian air force intelligence officer, Ret. Major Gen. Sayed Nadim, to help win $23.6 million in contracts to make IFF devices for Egypt’s F-16s and other jet fighters, ground-to-air defense radars and naval ships.

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In an inter-office memo obtained by The Times, one employee explains that Teledyne Electronics paid Nadim and his company, Sahara Overseas Services, in at least four ways: a consulting agreement for Egypt, a consulting agreement for the Middle East, a lease on his Cairo office and payroll for three employees and other administrative costs.

In the early 1980s, the suit alleges, Teledyne repeatedly certified to the Pentagon and State Department that it had no consultants, nor did it pay any agent fees or commissions in obtaining its Egyptian contracts.

Teledyne also flew Nadim and other Egyptian military and government personnel from Egypt to Southern California and Las Vegas and picked up the tab for their hotels, rental cars and entertainment expenses, the lawsuit said.

In his suit, Reddy estimates that Nadim and Sahara Overseas Services were paid about $11 million--a figure he said was confirmed by congressional investigators.

He alleges that Teledyne’s Newbury Park operation also had a $35.7-million cost overrun on its Egyptian contracts, which it covered by altering time cards of Teledyne employees so it would be charged to separate U.S. military contracts.

The allegations caught the attention of the House Energy and Commerce subcommittee on oversight and investigations, which last April sent four investigators to Cairo to track down Nadim and meet with their Egyptian law enforcement officials.

As soon as they arrived, Nadim told them in a brief phone conversation that he was leaving the country and did not know when he would return.

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The committee has urged Justice Department prosecution of the allegations and had planned to hold congressional hearings on the issue this year. But a committee staff member said the new Republican majority has shown no interest in “pursuing the suspected fraudulent use of American tax dollars in Egypt.” Justice Department attorneys decline comment on any possible prosecution.

To be sure, Teledyne’s legal woes have not been limited to its Newbury Park operation.

The Century City-based conglomerate has faced more than a dozen separate criminal and civil investigations in the past six years.

Last year, Teledyne agreed to pay $112.5 million to settle two longstanding whistle-blower suits that alleged the company kept two sets of books to inflate prices and fraudulently tested switches sold to the Pentagon. Last week, the company pleaded guilty to illegally exporting zirconium that was used in making cluster bombs for Iraq.

Nor are such troubles with the law new even to Teledyne Electronics in Newbury Park.

In 1989, the Pentagon suspended Teledyne from bidding on new contracts because of its role in the Justice Department’s massive “Operation Ill Wind” defense fraud investigation.

Prosecutors accused Teledyne Electronics of hiring private consultants who bribed government employees for information that could give the company an edge in winning lucrative contracts.

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In the end, the consultants went to jail and two Newbury Park employees were found guilty of wire fraud and conspiracy. Teledyne Electronics pleaded guilty and was fined $4.8 million.

The six-month ban on new contracts disrupted business at the plant and contributed to the hemorrhage of employees from 500 in 1989 to a low of 190 this month when it was sold.

Litton decided to hire 170 of the 190 former Teledyne Electronics employees, said Litton spokesman Robert Knapp.

As a condition of hiring, he said, new employees were required to sign a formal pledge to abide by the company’s business standards and ethical code of conduct.

Furthermore, he said Litton specified in the sale agreement it will accept no liability for Teledyne problems that occurred before the purchase.

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Avoiding Friendly Fire

Military aircraft are equipped with Identification Friend or Foe (IFF) systems to distinguish friendly from hostile aircraft before they come into visual range.

IFF Systems at Work

1. Similar to safety beacons on civilian planes, military transponders can automatically “squawk” or broadcast an identifying code in repeated bursts. The information can include altitude, heading and speed.

2. In wartime or flying over hostile territory, warplanes operate on a special “passover” system designed to reassure friendly aircraft of their arrival without giving anything away to potential foes.

3. Using encrypted channels, warplanes can query other aircraft for their identification with a burst of electronic pulses.

4. If a target does not respond with the proper codes, it will be instantly recognized as a threat. The consequences can be deadly.