Northrop Settles Largest-Ever Defense Fraud Suit…But Loses Nothing

Sunday, April 05, 2009

Northrop Grumman Corp. has agreed to settle the largest case ever of fraud involving military procurement, valued at $325 million. However, the federal government won’t see any net gain from the settlement, but the defense giant will. That’s because the Pentagon also agreed to pay the defense contractor the exact same amount to settle a different lawsuit Northrop had brought against the government back in the mid-1990s over the cancellation of a cruise missile program, the Tri-Service Standoff Attack Missile.

The first settlement involved faulty parts made for spy satellites (some of which were lost in orbit) for the National Reconnaissance Office from 1995-2002 that were provided by Aerospace, Inc., which worked with another defense company, TRW, Inc., on the project. Northrop acquired TRW in 2002 and essentially inherited its liability in the matter. Although Northrop admitted no wrongdoing, company officials said it was “in the best interest of all sides” to settle the case. By settling its missile lawsuit with the Pentagon, Northrop actually stands to enjoy a net gain of about $62 million, according to defense analysts, because of a settlement fund it had originally set up for the satellite parts case that would now be applied to the company’s balance sheet.
The faulty parts problem was discovered by whistleblower Robert Ferro, an Aerospace Corp. official, who was pressured to not publish his findings. Because the False Claims Act requires the federal government to pay whistleblowers 15% to 25% of the amount recovered, Ferro and his attorneys will be awarded $48.7 million.
-Noel Brinkerhoff
Northrop Agrees to Pay $325 Million to Settle Suit (by Andy Pasztor, Wall Street Journal)


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