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Project on Government Oversight

Survey of Defense Contractor Signatories of the "Position Paper: Reform of the Federal Civil False Claims Act"

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January 1, 1994

A Partial Listing of the Fines and Settlements Paid for Fraud, Waste and Abuse in Government Contracting
 
From FY 1990 to February 1994
 
 
Revised January 1995


Foreword

The Project on Government Oversight is a non-partisan, non-profit organization that, for over fourteen years, has investigated and exposed waste and fraud in government spending.  Our goal is to change the way the government works by revealing examples of systemic problems and offering possible solutions.
 
Our methods include networking with government investigators and auditors whose findings have received little attention, working with whistleblowers inside the system who risk retaliation for exposing waste and fraud themselves, and performing independent investigations into areas we suspect are problematic. 
 
This survey is by necessity only a partial listing of cases.  Most examples of fraud against the government are never detected and prosecuted.  Of those that are, though, many qui tam cases are still under seal and voluntary disclosures are protected from public scrutiny.  All other active government investigations are not made public.  Due to the amount of fraudulent activity, the Project on Government Oversight has limited the time frame of this survey to those cases resolved since fiscal year 1990 until February 1994.
 
This research has been drawn from several sources.  As a result, the type of information listed for each case has varied by source.  Numbers in brackets denote references to sources listed on page eight. The most recent cases are listed first.  The Project on Government Oversight has made every attempt to avoid duplicate listings of cases.
 
A few voluntary disclosures have been made public and they have been noted as such.  Qui tam actions with public settlements have also been noted.
 
Appendix A is the first page of the "Position Paper: Reform of the Federal Civil False Claims Act."  The list of signatories is at the bottom of that page in alphabetical order.
 
This report was originally released in February 1994.  In this updated version we have included the rebuttal sent to the Senate Judiciary Committee by Alan Yuspeh, who represents the signatories (Appendix B).  Also, in Appendix B is the Project's response to Mr. Yuspeh's assertions.


Findings

It is worth repeating that this is only a partial listing.  Many qui tam cases are still under seal and voluntary disclosures are protected from public scrutiny.  All other active government investigations are not made public.

  • Out of the 22 signatory companies - 20 (over 90%) have been involved in fraud, waste and abuse in government contracting practices.
  • The total amount of the penalties and settlements paid by these companies is over half a billion dollars ($566,630,483).
  • There were a total of 83 examples of fraudulent activity identified in the survey of 22 companies.
  • 64% of the penalties or settlements paid by these companies were over one million dollars.
  • 17 out of the 22 signatory companies were multiple offenders.
  • One company, General Electric, had 15 examples of fraudulent activity.
  • While only 11 of these examples were False Claims cases, they collected over $125 million dollars ($125,522,306).
     

1. The Boeing Company

A. Mischarging --- Paid $3.8 Million (M) Voluntary Disclosure. [2]
 
B. Cost Mischarging --- $900,000 settlement.  [4]
 
C. Defective Pricing --- $13 M settlement.  [8]

D. Conspiracy/Conversion of Classified Documents --- $20,000 fine, $4 M restitution, $1 M reimbursement of investigation, $200,000 removal of overhead claims.  Former Marketing Analyst --- 39 count conviction, in jail for civil contempt. [8]
 

2. Eaton Corporation

A. Cost Mischarging/Conspiracy --- $4 M civil settlement.  [3]
                       
B. Kickbacks --- Buyer, 3 months jail, 5 years probation, 100 hours community service, back taxes exceeding $9,000.  [6]

3. FMC Corporation 

No Cases Found.

4. General Electric

A. Misrepresentation --- $2.7 M settlement.  [1]

B. Money Laundering --- Purchasing agent --- 39 months incarceration, 3 years probation, $325,222 fine, $1,950 court fees and $324,450 in restitutions. [1]

C. Defective Pricing-- $3.3 M reimbursement. [2]

D. Mischarging --- $576,215 reimbursement.  Voluntary Disclosure.  [11/9/92 FCR]  

E. Foreign Corrupt Practices Act violation --- $69 M in fines, penalties and civil damages. Qui Tam.  [3]

F. Cost Mischarging --- $6.4 M settlement.  [5]

G. False Claims --- $1.1 M settlement.  [5]

H. Defective Pricing --- $8.3 M settlement, a $10 M fine, and an additional $11.7 M in related civil matters.  One official received 10 months in jail and a fine $15,000.  A Second official received 5 months in jail and a $10,000 fine.  [7]

I. Cost Mischarging --- $24.6 M settlement.  Voluntary Disclosure.  [7]

J. Defective Pricing --- $900,000 settlement. (Division since sold to Martin Marietta) [8]

K. Product Substitution --- $1.1 M settlement.  [8]

L. Conspiracy/Conversion of Classified Documents --- $2.5 M civil settlement and a $20,000 criminal fine.  [8]

M. Procurement Fraud/Mail Fraud --- Found guilty, criminal fine of $10 M and $2.2 M in restitutions.  [9]

N. Procurement Fraud --- Pled guilty, $20,000 in criminal fines.  [9]

O. Fraud --- $41,200 settlement.  Voluntary Disclosure.  [9]

5. Grumman Corporation

A. Kickbacks --- Former president --- 1 year in jail (suspended), fined $25,000, and ordered to pay restitution of $33,900.  [2]

B. False Shipping and Billing Receipts --- Shipping Manager --- 3 years jail (suspended), 3 years probation, $50,000 fine, 500 hrs community service.  [7]

C. Conspiracy/Conversion of Classified Documents --- $20,000 criminal fine, $2.5 M civil settlement and a court assessment of $100.  [8]

D. Procurement Fraud --- Pled guilty, criminal fine of $20,000.  [9]

E. Fraud --- $2.48 M settlement.  [9]

6. GTE Government Systems Corporation 

No Cases Found.

7. Honeywell, Inc. 

A. Fraud --- $700,000 settlement.  Voluntary Disclosure.  [9]

B. Fraud --- $2 M settlement.  Voluntary Disclosure.  [9]

C. False Claims --- $2 M settlement. Qui Tam.  [10] 

8. Hughes Aircraft Company

A. False Statement --- $3.5 M criminal fine.  [2]

B. Mischarging --- $275,000 settlement.  Qui Tam.  [8/30/93 FCR]

C. Product Substitution --- Found Guilty and facing a maximum $500,000 fine.  [3]

D. Defective Pricing --- $11 M settlement.  Qui Tam.  [4]

E. Obstruction of Justice --- Vice President --- 10 yrs in prison and $250,000 fine. [1/13/92 FCR]

F. Kickbacks --- Engineer fined $5,000 and 3 years probation. [1/13/92 FCR]

G. Conspiracy/Conversion of Classified Documents --- $3.6 M criminal and civil settlement, $50,000 reimbursement of investigation, $50,000 removal of overhead claims.  [8]

H. Procurement Fraud --- Pled guilty, criminal fine of $20,000.  [9]

I.  Procurement Fraud --- Found guilty, fines unknown.  [9]

9. Litton Industries

A. Fraud --- $1.5 M in criminal fines, $1.3 civil, $1.1 reimbursement.  [1/24/94 FCR]

B. Conspiracy --- Two officials face 35 years in prison and a $350,000 fine. [7/1/91 FCR]

C. Cost Mischarging --- $2.4 M settlement. [5]

D. Defective Pricing --- $1 M settlement.  [6]

10. Magnavox Electronics Systems Company

A. Defective Pricing --- $1.63 M settlement.  [5]

B. Proprietary Information --- fined $1.5 M. [7]

C. Procurement Fraud --- Pled guilty, criminal fine of $150,000.  [9]

11. Martin Marietta Corporation

A. Money Laundering --- $179,614 fine.  [1]

B. Labor Mischarging --- $1.1 M settlement.  [1]

C. Cost Mischarging --- $2.6 M and $898,000 settlements.  [7]

D. Cost Mischarging --- $3.6 M settlement.  Voluntary Disclosure  [7]

E. Procurement Fraud --- $752,000 settlement.  [9]

12. McDonnell Douglas

A. Defective Pricing --- $1.38 settlement.   [1]

B. Defective Pricing --- $1 M settlement.  [3]

C. Defective Pricing --- $7.5 M settlement.  [6]

D. Defective Pricing --- $12.2 M settlement.  [8]

13. Newport News Shipbuilding

A. False Claims --- $180,000 settlement and $10,000 to relator for wrongful termination.  Qui Tam.  [10]

14. Northrop Corporation

A. False Statements --- $2.2 M civil recovery.  [4]

B. False Claims/False Statements --- Civil settlements of $8 M, $750,000 for investigative and administrative costs and will perform about $20 M worth of corrective measures.  Qui Tam.  [5]

C. Production Substitution/False Statement --- $17 M fine.  [8]

D. False Claims --- $525,000 settlement.  Qui Tam. [9]

15. Raytheon Company

A. Mischarging --- $3.7 M settlement.  [10/18/93 FCR]

B. Defective Pricing --- $2.7 M settlement.  [3]

C. Conspiracy/Conversion of Classified Documents --- $1 M civil and criminal settlement. [8]

D. Procurement Fraud --- Pled guilty, $10,000 in criminal fines.  [9]

16. Rockwell International Corporation

A. Mischarging --- $450,000 settlement and $800,000 in fees and reimbursements. Qui Tam. [1993 FCR p.74] [10]

B. Defective Pricing --- $5.1 M settlement.  [3]

C. Cost Mischarging ---  $1.4 M settlement.  Manager to perform 100 hrs community service.  [3]

D. Conspiracy/Mail Fraud --- Purchasing Manager --- 4 years jail, $12,000 fine, 3 years probation after release from jail.  [6]

17. Sundstrand Corporation

A. False Claim --- $42,306 settlement and $250,000 to relator for wrongful termination.  Qui Tam.

18. Teledyne Corporation

A. False Testing --- $5 M settlement and $5 M reparations.  [1]

B. False Claims --- $1.5 M criminal fine.  [1]

C. Product Substitution --- $17.5 M criminal fine and $2.15 M settlement.  [2]

D. Defective Pricing --- $1.8 M settlement.  [3]

E. Conspiracy --- Controller --- 5 years probation, $15,000 fine; Second Controller 2 years jail, 18 month suspended, 5 years probation, $10,000 fine.  [6]

19. Texas Instruments

A. Product Substitution --- $550,000 settlement.  Voluntary Disclosure.  [3]

B. False Claims --- $586,526 settlement.  [8/31/92 FCR]

C. Fraud --- $230,000 settlement.  [9]

20. TRW Inc.

A. Inflating Prices/False Certification ---  $2.5 M settlement.  Qui Tam. [10/11/93 FCR]

21. Unisys Corporation

A. ILLWIND --- $4 M criminal fines, $4 M restitutions, $155 M civil fines, $27 M to settle 3 other actions.  [5]

B. False Claims --- $10 M settlement. Qui Tam.  [10]

22. United Technologies

A. Environmental violations --- Penalties of $3.7 M for hazardous waste and $1.6 M for water pollution.  [8/17/93 FCR]

B. Kickbacks --- Former Purchasing Agent --- 48 months confinement, 3 years supervised probation, 300 hours community service.  [2]

C. Conspiracy to Defraud --- $6 M in fines.  [8/31/92 FCR]

Additionally: McDonnell Douglas Corporation;  General Motors Company;  Hughes Aircraft Company (These corporations were tried together).

A. Fraud --- combined $1.1 settlement.  [9]



Sources: 
 
 
[1] Department of Defense Inspector General (DOD IG) Semiannual Report to the Congress, April 1 to September 30, 1993.
 
[2] DOD IG Semiannual Report to the Congress October 1, 1992 to March 31, 1993.
 
[3] DOD IG Semiannual Report to the Congress April 1, 1992 to September 30, 1992.
 
[4] DOD IG Semiannual Report to the Congress October 1, 1991 to March 31, 1992.
 
[5] DOD IG Semiannual Report to the Congress April 1, 1991 to September 30, 1991.
 
[6] DOD IG Semiannual Report to the Congress October 1, 1990 to March 31, 1991.
 
[7] DOD IG Semiannual Report to the Congress April 1, 1990 to September 30, 1990.
 
[8] DOD IG Semiannual Report to the Congress October 1, 1989 to March 31, 1990.
 
[9] United States General Accounting Office, GAO/GGD-92-135FS, September 1992.
 
[10] Justice Department Database.
 
[ / / / FCR] Federal Contracts Report.


Appendix A 
 
Appendix B  

Related Work