Shortly after starting work at Teledyne Systems, Klaus Kirchhoff was told that the defense contractor kept two sets of books. There was the thick white binder filled with "official" cost estimates for the Pentagon. Then, Kirchhoff alleges in a 1989 lawsuit, there was the green binder, containing different numbers for identical work. "I was told to keep it under lock and key at all times," charges Kirchhoff, who worked as a contract costs analyst in 1988. "It seemed illegal as hell."
Kirchhoff isn't alone in his harsh assessment of Teledyne Inc., a $3.2 billion-a-year conglomerate. The Pentagon contractor is fighting suits that have battered its stock and could bar it from defense work, which contributes revenues of $1.3 billion a year. The suits aren't just by isolated whistle-blowers, either. The Justice Dept. has joined in three whistle-blower cases unsealed since 1990.
The bombshells keep landing. BUSINESS WEEK has learned that congressional investigators will meet on Dec. 4 with Egyptian diplomats to discuss charges by a former employee that Teledyne executives made $1.5 million in illegal payments to a retired Egyptian Air Force general to secure lucrative contracts. The allegations, made in a still-sealed whistle-blower suit, also are being probed by the Federal Bureau of Investigation.
The known suits against Teledyne seek $890 million in damages, which could be trebled under the federal False Claims Act. In the worst case, which is highly unlikely, damage awards and penalties could surpass Teledyne's $1.1 billion in assets. The company won't comment on specific allegations. But a Teledyne spokesman says it is prepared to take reserves against future judgments. "We certainly will, if and when it becomes clear whether thereis something to quantify," he says. Trouble has been brewing at Teledyne all fall. In early November, the Los Angeles-based company pleaded guilty to 35 counts of falsifying test results in a criminal case stemming from one of the suits that the Justice Dept. has joined. The company agreed to pay a $17.5 million fine. The Pentagon then temporarily suspended Teledyne's Relays Div. from bidding on future contracts. The suspension may be extended, says a Pentagon insider.
The disturbing allegations don't stop there. Taken together, the whistle-blower suits portray divisions that cut corners and sacrificed quality on military work. The Relays suit charges that antiquated testing equipment was not replaced. At a Teledyne Controls plant, alleges another suit, workers unable to read the Pentagon's rigid specifications were hired to solder circuit boards.
RICH BRIBES. Teledyne also allegedly ignored complaints by those it hired to ensure quality. In the Controls suit, which Justice joined in 1991, former Teledyne employee Marianne Gendron charges that her complaints about poor equipment and improper training led to her banishment to a dingy corner of the plant. Moreover, Gendron alleges in an interview that she saw a Teledyne executive pay a Defense Dept. inspector to assure his approval of shipments of untested components. The Teledyne spokesman points out that the allegation isn't part of Gendron's suit.
Payoffs are central to a still-sealed whistle-blower suit filed by Stephen C. Reddy, a onetime program manager for Teledyne Electronics in the Middle East. He charges that Teledyne paid a retired Egyptian general $1.5 million in cash and provided him $288,000 for a Cairo flat. The money allegedly paved the way for the company to get at least $23 million in Egyptian Air Force contracts.
Teledyne may also have charged the U.S. $35 million for cost overruns on the Egyptian equipment. Teledyne says it can't comment on a case that is under seal and that it is unethical for others to do so.
The Teledyne spokesman says any wrongdoing was "certainly not motivated by action from the corporate office." But as Congress continues its probe of the Egyptian case, the company may finally have to explain how so many of its divisions could run afoul of the law without headquarters knowing.
TABLE: THE LAWSUITS THAT COULD TORPEDO TELEDYNE
Business unit Allegations Potential liability
TELEDYNE RELAYS Improper testing, $1 billion
TELEDYNE CONTROLS Selling defective compo- $300 million
nents, buying substandard
parts, using unskilled labor
TELEDYNE SYSTEMS Overbilling $250 million
TELEDYNE Bribery of a foreign $300 million
ELECTRONICS official, false billing
Total potential liabilities $1.85 billion
Teledyne's net worth $504 million