Justice Department Finds No Criminal Violations at Litton

The Justice Department has closed its criminal investigation into Litton Industries after a massive raid of the defense contractor’s Woodland Hills headquarters apparently failed to turn up evidence to support allegations of fraudulent overbilling on contracts.

“We’re pleased that the criminal investigation has been concluded. We’re certainly gratified that was the result of the government’s search,” Litton spokesman Robert Knapp said.

Last March, about 40 investigators, armed with a search warrant, hauled off thousands of documents from Litton’s Guidance & Control Systems division and the next day conducted a similar raid on the company’s Salt Lake City operation.

Sources said the investigation stemmed from a whistle-blower’s lawsuit filed last year alleging that Litton was fraudulently padding cost estimates and its pricing practices on various government contracts. Litton’s Guidance & Control division makes navigation and guidance systems for missiles, aircraft and military ships.

Mike Shiohama, the Litton case supervisor with the Defense Criminal Investigative Service, said that while the criminal case is closed, “the civil case is still ongoing. And should there be additional evidence that shows criminality, we can always redress” the criminal investigation.

But attorney Phillip Benson in Yorba Linda, who specializes in filing whistle-blower suits and who is not involved in this particular Litton case, said the government, by not filing criminal charges, is now likely to let its civil investigation come to a halt.

“It doesn’t necessarily mean the government won’t take up the civil action, but certainly from my experience, the government loses tremendous zeal when there is no criminal case,” Benson said.

The source of this lawsuit is still unknown, but there has been speculation that it was filed by a Litton employee. Knapp said the company would not know who filed the suit until the case is unsealed.

Coping with whistle-blower suits has been a way of life in the defense industry since 1986 when the federal government amended the century-old False Claims Act to encourage citizens to file whistle-blower cases. Those who win a whistle-blower suit then share in the bounty with the federal government.

In the past decade, more than 1,100 whistle-blower cases have been filed across the country, and the federal government has picked up more than $1 billion in penalties from those cases.

And in 1994 Litton agreed to pay $82 million to settle allegations by a former employee that it was overcharging the Pentagon for computer work on defense contracts.

On Monday, Litton’s stock closed at $48 per share, up 37.5 cents for the day.