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Litton Indicted, Agrees to Plead Guilty To Defrauding Government

July 15, 1986

PHILADELPHIA (AP) _ A division of Litton Industries, a major defense contractor, was indicted Tuesday along with two former executives on charges of defrauding the government out of $6.3 million on contracts to manufacture instruments for aircraft and other military hardware.

The company agreed to plead guilty and to pay $15 million in criminal and civil fines and restitution, authorities said. U.S. Attorney Edward S.G. Dennis Jr. said that constituted one of the largest sums ever recovered from a defense contractor accused of wrongdoing.

Named in the indictment were Clifton Precision Special Devices of Springfield, Delaware County, a unit of Litton; Michael J. Millspaugh, former vice president of finance and administration; and Joseph DiLiberto, former purchasing manager.

Special Devices will plead guilty within the next two weeks to all 321 counts against it: 300 counts of making false claims, 20 of mail fraud and one count of concealing material facts from a U.S. agent, authorities said.

Gary Glazer, chief of the fraud division of the U.S. Attorney’s Office, said Litton, in agreeing to pay $6.3 million in restitution and fines of about $8.7 million, was accepting the maximum penalty that it could have received.

Millspaugh, who faces a possible 125-year prison term if convicted on all charges, and DiLiberto, who could face 15 years in prison, are scheduled for arraignment next week. There was no word on how they would plead.

Dennis said the company had ″grossly inflated prices intentionally″ on about 45 contracts from 1975 to 1984.

Specifically, the indictment alleged the Litton unit defrauded the Pentagon on contracts for radar equipment and other instruments for the F-16, F-106, F- 4 and B-52 aircraft, Cobra jet helicopters, Navy destroyers and other warships.

The company inflated costs and pricing data and sought to conceal the scheme from government auditors and investigators, according to Harbist. The inflated figures were known inside the unit as ″chicken fat,″ authorities said.

Assistant U.S. Attorney Nicholas Harbist said the investigation was continuing, and other indictments might follow.

Litton, in a statement from its Beverly Hills, Calif., headquarters, said it ″will take whatever specific additional actions are necessary to reassure the Defense Department that it is a responsible company fully qualified to do business with the U.S. government.″

Special Devices produces a variety of electronic products, primarily for the Pentagon.

Litton said the division’s annual sales amounted to about $25 million - or about one half of 1 percent of Litton sales companywide. The unit has about 400 workers.

″Only a handful of employees were engaged in the illegal activities,″ said Litton Chairman Fred O’Green. ″New people have been put into key positions and a program is in place to strengthen cost accounting and bid and proposal practices at the division to be in full compliance with corporate and government requirements.″

The Pentagon declined comment Tuesday on whether Litton’s indictment and guilty plea would result in its suspension from new defense contracts. The Pentagon has increasingly ordered such suspensions in recent years in a crackdown on errant contractors, using the procedure to demand improvements to accounting procedures and the development of corporate codes of ethics.

Harbist said Millspaugh, 34, of Buffalo Grove, Ill., directed the scheme and was assisted by DiLiberto.

Harbist said Millspaugh was charged with one count of racketeering, 20 counts of mail fraud and one count of making false statements to investigators. He could receive up to 125 years in prison and $55,000 in fines, the prosecutor said.

Millspaugh left Litton for another job a year ago, said Litton spokesman Robert Knapp.

DiLiberto, 68, of Levittown, Pa., was charged with one count of conspiracy and one count of making false statements to a government agent and could receive up to 15 years in prison and $15,000 in fines.

DiLiberto retired three years ago, Knapp said.

Litton was ranked in fiscal 1985 as the nation’s 19th-largest defense contractor, having received contracts worth more than $1.5 billion. The fiscal 1985 rankings are the latest available.

The company owns a number of subsidiaries, including Ingalls Shipbuilding, a major shipbuilder for the Navy. Much of its other work is in defense electronics for jet fighters, including electronic jammers, radars and radio communication systems.

The indictment of Litton is only the latest in a series of legal actions or disclosures of wrongdoing involving some of the nation’s largest and best known defense contractors.

Last month, the Justice Department announced it was taking over a $1.2 billion lawsuit filed by three former employees against TRW Inc., who have alleged the company manipulated prices in violation of antitrust laws in connection with contracts to provide parts for the B-1 bomber and jet fighters.

In December 1985, a federal grand jury indicted the General Dynamics Corp., and four former or current executives, including then NASA administrator James M. Beggs, on charges of improper billing of expenses on an Army air-defense gun.

In October 1985, the Rockwell International Corp. pleaded guilty to 20 counts of fraud involving mischarges on an Air Force electronics contract. And prior to that, in March 1985, the General Electric Co. pleaded guilty to a 108-count indictment alleging it had defrauded the Pentagon of $800,000 on a Minuteman missile contract.

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