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Three Former Philips Employees Charged in Fraud

December 15, 1995

MIAMI (AP) _ Three former managers of a defense contractor bilked the government of $30 million by falsifying information about missile parts, federal officials said Thursday.

Edward A. Souza, Samuel Bell and William Kauffman were charged with conspiracy. In addition, Souza, a general manager, and Kauffman,a director of quality, also were charged with making false statements.

The three worked in the West Palm Beach factories of Philips Electronics North America Corp., a division of the Dutch giant electronics concern, Philips NV. Philips sold the company in 1993.

Prosecutors alleged the three and others would report to the government that there were ``no test failures″ of parts when in fact there were several. They also were accused of contracting work to an uncertified facility in the Dominican Republic, where it was cheaper to make parts.

Philips had a special agreement with the U.S. government that allowed the parts to be sold directly to the Defense Department at a higher price than commercial parts. In return, Philips had to manufacture and test the parts, called tantalum capacitors, according to strict military specifications.

``In some instances employees were instructed to destroy records,″ U.S. Attorney Kendall Coffey said. ``And it was all done to cover up the fact that this company was falsely, fictitiously and flagrantly violating their duties to the United States government and Department of Defense.″

Eighty missiles sent to the Persian Gulf during the Iraq war were returned because they were defective, officials said. There were no documented cases, however, that a faulty Philips part caused a missile failure.

The company cooperated in the investigation. In 1992, it made a voluntary disclosure of the problems at the West Palm Beach facility and settled with the government.

However, Philips faces a minimum of $60 million in fines and penalties stemming from a Department of Justice civil investigation, said Wilfredo Fernandez, a spokesman at the U.S. Attorney’s Office in Miami.

Robert P. Foley, a lawyer for Souza, said his client didn’t know what he was doing was wrong. He wouldn’t elaborate.

``It was everybody’s knowledge,″ Foley said. ``It was a question of whether it was illegal or not. When they decided it was, they obviously stopped.″

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