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Litton to Pay $82 Million in Defense Fraud Suit

July 14, 1994

LOS ANGELES (AP) _ Litton Industries agreed Thursday to pay $82 million to settle charges of cheating the Pentagon by shifting costs at a computer-service business from commercial to military accounts.

U.S. Attorney Nora Manella, displaying a copy of the $82 million cashier’s check, said it was the largest settlement ever of a ″whistle-blower″ case handled by a U.S. Attorney’s Office.

Teledyne Inc. paid a $112 million defense-fraud settlement last year to settle two cases, one of which had been handled by central Justice Department operations in Washington.

Litton, which also will pay $4 million in fees to the whistle-blowers’ attorneys, admitted no wrongdoing. Its chairman, Alton J. Brann, maintained it acted in good faith in allocating operating costs at the single facility that served both commercial customers and the military.

The settlement was approved to end the uncertainty of a lawsuit that potentially could have cost the company $650 million, spokeswoman Kathleen Wailes said.

U.S. Attorney Howard Daniels, head of a federal prosecutors’ fraud unit here, replied that the government believed Litton intentionally engineered a fraudulent scheme to cheat taxpayers.

″The same work they did for us they charged their commercial customers one-tenth as much for,″ said Daniels, who has worked the case for six years. ″It was difficult to find on their books but that was the end result of it.″

The suit was filed under seal in 1988 against Litton Systems, a subsidiary of Beverly Hills-based Litton, by former employee James Carton, who died in December 1993. After reviewing the case, the government joined the lawsuit in April 1989 and made its allegations public.

Litton began the questionable billing practices in 1981, intensified them in 1986, and only halted them in 1992, four years after the suit was filed, when a judge ruled they were illegal, Daniels said.

Trial was to have begun on June 7 on the issue of whether Litton intentionally committed fraud, but was put off so the settlement could be negotiated.

Under the provisions of the False Claims Act, the whistle-blowers who brought the suit will receive 15 percent to 25 percent of the $82 million settlement.

That share will be divided between Carton’s widow, Anita, a hairdresser in Simi Valley, and a non-profit group that joined the litigation.

Ms. Wailes said the settlement will be reflected in Litton’s fourth-quarter earnings statement.

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