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Loral Corp. Pleads Guilty to Three Felony Counts

December 8, 1989

ALEXANDRIA, Va. (AP) _ Loral Corp. pleaded guilty Friday to charges it tried to improperly influence the award of two defense contracts by obtaining confidential data from key Pentagon officials.

Loral, which agreed to pay $5.77 million in fines, penalties and reimbursement for the cost of the investigation, pleaded guilty to conspiracy, conversion of government property and filing a false statement.

The New York-based defense contractor admitted charging the Pentagon $578,000 it paid under bogus consulting arrangements to William M. Galvin, a defense consultant who was actually hired to influence the award of contracts for a radar detection device and a Navy blimp.

Victor D. Cohen, then deputy assistant Air Force secretary, gave Galvin inside information that was relayed to Loral, according a statement of facts that the company admitted.

Melvyn Paisley, an assistant Navy secretary for research, engineering and systems who went into business with Galvin in 1987, also assisted Loral’s unsuccessful efforts to get the blimp contract, the court papers said.

Cohen was to ″personally benefit″ from the information he gave Loral, according to a description of the conspiracy to which the company pleaded. Court papers also indicated that Cohen split some of the money that Loral paid Galvin in return for his cooperation.

Neither Cohen, Galvin nor Paisley has been charged in the investigation of Pentagon procurement fraud known as ″Operation Ill Wind.″

Loral’s guilty plea before U.S. District Judge Claude M. Hilton is the fourth by a corporation in the defense-fraud probe.

Cohen’s attorney, Julian Greenspun, called the allegations about his client ″absolute baloney.″ Greenspun said ″Mr. Cohen never took a dime in connection with any official action.″

E. Lawrence Barcella, who represents Paisley, said his client’s actions ″while assistant secretary of the Navy were always appropriate, legitimate and legal.″

Through Galvin, Cohen gave Loral details of a competing bid by Litton Systems Inc., to provide advanced radar warning devices designed to warn pilots of F-16 fighters that an enemy missile has been fired against the aircraft.

Cohen also gave Galvin results of tests the Air Force conducted on the competing radar proposals submitted by Loral and Litton, the court papers said.

Paisley used his official position to help a division of Goodyear Tire and Rubber Co., which was purchased by Loral in 1987, obtain the blimp contract, the papers said.

Paisley changed the bid requirements in accordance with the Goodyear division’s desire to build a smaller airship than the Navy originally sought. He also made other bid modifications favorable to the Goodyear division, according to the statement of facts.

After leaving the Navy, Paisley relayed information he had obtained from a high-level Navy official that Loral’s $140 million bid to build the airship was 25 percent higher than the proposal by Westinghouse Corp.

The Pentagon said in a statement the overall settlement ″will assure the integrity of the competitive process, avoid substantial cost to the government and meet the Air Force operational need on the original schedule.″

The Air Force, the statement said, considered ″many alternatives,″ including terminating its contract with Loral, but that terminating it and starting over ″would have cost $300 to $400 million and would have delayed the probram by three to four years.″

In a statement, Loral said it had suspended two individuals and disciplined two others.

The company declined to identify those individuals, but a source who spoke on condition of anonymity confirmed that Loral had suspended Louis H. Oberndorf, a senior vice president of its electronic systems subsidiary in Yonkers, N.Y., and Fred R. Nebiker, a senior vice president of the defense subsidiary.

″This regrettable incident should not have occurred at Loral,″ said Bernard L. Schwartz, the company’s chairman and chief executive officer. ″We are satisfied that Loral has procedures and controls in place to provide the best protection from anything like this occurring again.″

Loral has agreed to give up profits on the basic contract, originally priced at $43.3 million and will assume a greater share of cost overruns. The Air Force estimated the changes will save the government $4.5 million to $6.5 million, the Justice Department said.

A $70.5 million option for the 1992 fiscal year is also being removed from the contract. Loral must compete with second sources for that procurement, the Justice Department said.

The company’s plea was entered after a former Sperry Corp. official admitted approving bribes to former Navy procurement official Garland L. Tomlin Jr.

James J. Thompson, former general manager of Sperry’s Clearwater, Fla., facility pleaded guilty to conspiracy and bribery and could receive up to 20 years imprisonment and fines totaling $30,000.

Hilton scheduled sentencing for Feb. 16.

Tomlin, who has returned most of the money he received in bribes, received an 18-month sentence for his guilty plea.

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