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Subpoenas Served on Three Top Northrop Executives

June 30, 1988

LOS ANGELES (AP) _ Northrop Corp.’s chairman and two top executives have been ordered to testify before a federal grand jury investigating payments of more than $6.5 million to South Korean businesses, the defense contractor said. The subpoenas were issued by the grand jury for the U.S. District Court in Los Angeles, Northrop spokesman Tony Cantafio said Wednesday. Northrop also was ordered to produce documents related to its Korean deals.

Federal officials were not immediately available to comment on the action. A call placed to the U.S. Attorney’s office after business hours Wednesday went unanswered.

The Justice Department and a Congressional subcommittee have reportedly been conducting criminal investigations into Northrop’s payment of more than $6.5 million to Korean businesses in connection with attempts to sell its F-20 ″Tigershark″ jet fighter to the Korean military.

Northrop has denied it violated the Foreign Corrupt Practices Act and has said it was a victim of fraud by its Korean partners in a joint venture to build a hotel and office project in Seoul.

″We made this investment in 1984 in good faith and to show our commitment to Korea on the F-20 project,″ Cantafio said.

″We made several attempts to get the hotel built, but our partners delayed the project. When it became clear we weren’t going to get the hotel built, we tried to get our money back by going to arbitration in Korea.″

When Northrop couldn’t get its money refunded, Cantafio said, the defense contractor filed a civil lawsuit against its Korean partners to recover the $6.25 million that it paid into one of the ventures.

Eventually, Northrop’s program to develop the F-20 jet fighter failed, with development costs tagged at $1.2 billion without a single plane being sold.

Cantafio said the executives ordered to appear before the grand jury were Thomas V. Jones, Northrop’s chairman and chief executive officer; Welko E. Gasich, an executive vice president; and William C. McGagh, identified by Cantafio as Northrop’s former chief financial officer.

Although McGagh’s retirement was announced in April, he has been working with the company during a transition period.

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