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Defense Contractor Pleads Guilty to Fraud

July 22, 1986

PHILADELPHIA (AP) _ A subsidiary of defense contractor Litton Industries Inc. pleaded guilty Tuesday to defrauding the government of more than $6 million and to covering up its practice of lying about about how much it cost to produce certain military equipment.

The subsidiary, Litton Systems Inc., entered guilty pleas to 321 charges listed in an indictment announced July 15. U.S. District Court Judge Charles R. Weiner said he would rule Thursday on whether to accept a plea agreement calling for restitution of $6.3 million and a criminal fine of $3 million.

One of two men indicted, Michael J. Millspaugh, 34, of Buffalo Grove, Ill., pleaded innocent Tuesday and was released on $50,000 bond, the government said. Joseph DiLiberto, 68, of Levittown, was scheduled for arraignment Aug. 4.

The two men were officers of Clifton Precision, Special Devices Division, located in Springfield, which is the sole supplier of types of radar and instruments used aboard aircraft and ships in all branches of the armed forces.

Millspaugh, facing one count of racketeering, 20 counts of mail fraud and one count of making false statements to a government agency, is former vice president of finance and administration at the division.

DiLiberto, charged with one count of conspiracy to make false statements to a government agency and one count of making false statements to a government agency, is the former materials manager at the division.

Tuesday’s division guilty pleas were entered by Alex B. Owen, a vice president for Litton Systems, who said he was responsible for Clifton Precision’s operations.

He responded guilty three times as a court clerk read the charges: 20 counts of mail fraud, 300 counts of making false claims to the government, and one count of concealing material facts from a government agency.

Civil penalties could bring the total amount of fines and restitution to $15 million, said Assistant U.S. Attorney Nicholas C. Harbist.

Litton Systems, which cooperated in the investigation, also agreed to put $2 million in an escrow account to cover any possible labor mischarges in the contracts covered by the indictment.

Litton Systems must hire an accounting firm to determine the amount of any labor overcharges, the agreement said.

″There were only two employees that we believe directed the scheme, actually told people how to do it,″ Harbist said. He said numerous employees were aware of the scheme to add ″chicken fat″ to contracts but were not considered criminally culpable.

Owen and Litton attorney Alan J. Hoffman did not contest any of the charges as outlined by Harbist. The memorandum said the government was prepared to submit evidence showing a ″massive scheme to defraud the Department of Defense ... as well as an ancillary scheme to cover up and conceal the fraud.″

Beginning in the mid-1970s, it said, Clifton Precision began asking its suppliers to quote prices substantially above actual cost.

Blank forms were also obtained from suppliers, the government said, and inflated prices were quoted and signatures forged so the accounting department could justify cost and pricing data to government auditors, the memorandum said.

During subsequent goverment audits, division officers claimed there were no purchase order records, the memorandum said, though ″both manual and computerized purchase records existed.″

Employees ″withheld, removed and concealed documents″ from government auditors that would have revealed the price-inflating, the memorandum said.

Hoffman stressed that Special Devices Division was just one of six facilities of Clifton Precision and that Litton Industries has 56,000 law- abiding employees worldwide. And he said the company has done all it can do to correct the wrong.

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