Deal With U.S. Would Let Boeing Avoid Prosecution
By LESLIE WAYNE
Published: May 16, 2006
Boeing, the nation's second-largest military contractor, has agreed to pay
$615 million under a tentative deal with federal prosecutors that will allow
the company to avoid criminal charges, Boeing and senior Justice Department
officials said yesterday.
The agreement, which is expected to become final in a few weeks, would end a
three-year investigation into wrongdoing by Boeing employees and would
require the company to pay $565 million to cover civil claims and $50
million to end a criminal inquiry. Senior Justice Department officials, who
asked on a telephone news conference not to be identified, said they
believed this was the largest fine ever imposed on a military contractor.
While avoiding criminal charges, Boeing will agree to "accept
responsibility," the Justice officials said, for the actions of its
employees. One case involved the theft of proprietary data from a rival, the
Lockheed Martin Corporation. The other involved Boeing's hiring of a former
Air Force official who oversaw Boeing contracts at the Pentagon.
Boeing will also be monitored by the Justice Department for two years and be
required to maintain a federal ethics and compliance program as well as to
cooperate with federal investigators in any future investigations. Should
Boeing violate these provisions, it could be prosecuted and fined up to $10
million, according to the settlement.
"Boeing does accept responsibility for the actions of its employees," said
the senior Justice Department official, who added that the $615 million
figure reflected "money that was lost to the government due to Boeing's
Boeing declined to comment, but said in a statement that "Boeing will accept
responsibility for the conduct of its employees and make additional
commitments regarding ongoing compliance."
News of the settlement was first reported yesterday by The Wall Street
Analysts estimate that the settlement will depress Boeing's 2006 earnings by
59 cents to 75 cents a share, but say the agreement will lift a taint of
corruption from Boeing and better position it to bid on Pentagon business.
Boeing's stock, which had been rising for two years, closed at $85.86
yesterday, down $1.15.
"This is a heck of a penalty," said Howard Rubel, an aerospace analyst with
Jefferies & Company. "But it has eliminated the 'bad citizenship' knock from
being on the company. It pushes into the past things that were done in the
past. And it gets rid of the uncertainty that a defense contractor could
have been convicted of fraud or a felony."
Settlement of the charges also reflects efforts by the chief executive of
Boeing, W. James McNerney Jr., who was hired last year after the two
previous Boeing chief executives resigned under fire. Mr. McNerney responded
to the ethical controversies by reorganizing the company's military
business, putting a new emphasis on training and pressing for a resolution
of the investigations.
"McNerney inherited a company in crisis," said Loren B. Thompson, a military
industry analyst at the Lexington Institute, a Washington-area research
group. "There was a danger that all these controversies would distract the
company from getting business. His top goal was to eliminate these
distractions. To announce that this controversy is behind them would be a
The settlement grew out of two investigations into the company. In one,
Boeing employees were found to have stolen thousands of pages of proprietary
documents from Lockheed in the late 1990's and used them to help bid for
government rocket-launch business.
To penalize the company, the Pentagon stripped Boeing of $1 billion in
Pentagon rocket-launch business in 2004. In March, it was allowed to bid for
rocket-launch business after a 20-month suspension, the longest for any
major military contractor.
In the other case, Boeing was found to have improperly recruited an Air
Force contracting official, Darleen A. Druyun, while she was still at the
Pentagon, where she was overseeing billions of dollars in Boeing business.
Ms. Druyun later admitted to steering contracts to Boeing to help her get a
job with the company. Ms. Druyun was fired from Boeing, and then pleaded
guilty to conflict-of-interest charges and was sentenced to a nine-month
prison term. Michael M. Sears, Boeing's former chief financial officer who
had met with Ms. Druyun to recruit her, was also fired, and later jailed.
Those scandals also led to the resignation of Philip M. Condit, then Boeing
chief executive. His successor, Harry C. Stonecipher, was fired last year
after an extramarital affair with a Boeing employee.
Mr. McNerney has taken several steps to clean up the company. He allowed
Boeing's in-house counsel, Douglas G. Bain, to make a blistering
presentation to Boeing executives at a meeting in Orlando, Fla., this year
about unethical behavior.
He reorganized Boeing's military division to provide for greater
accountability. He has brought in J. Michael Luttig, who resigned last week
from the United States Court of Appeals for the Fourth Circuit, based in
Richmond, Va., to replace Mr. Bain, who is retiring. Mr. Luttig's name had
surfaced as a possible candidate for the Supreme Court.
In addition, the Boeing board recently altered the company's executive
compensation plan to put more emphasis on ethical behavior.
"One by one, McNerney has addressed all the issues getting in the way of
running the company smoothly," Mr. Thompson of the Lexington Institute said.