A couple of old, but interesting articles regarding how Boeing was caught in acts of corporate espionage against their rival, Lockheed Martin, and more.  –GFS

 

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Anatomy of a corporate espionage scandal


Series of Boeing Co. employee miscues tipped off rival Lockheed Martin Co. to misconduct

January 23, 2005

Link to Original Article:  http://legacy.decaturdaily.com/decaturdaily/news/050123/anatomy.shtml

 

By Eric Fleischauer
DAILY Staff Writer
eric@decaturdaily.com · 340-2435

A series of miscues by employees of The Boeing Co. were the clues that implicated it in a corporate espionage scandal, according to a competitor.

The penalty for that scandal will cost 100 Decatur-based Boeing employees their jobs, Boeing announced Jan. 14. More layoffs could follow.

Among the actions that clued Lockheed Martin Co. into the cloak-and-dagger scandal: A Boeing lawyer who filed Lockheed documents he was not supposed to have in an employment case, an admission of fraudulent conduct made in front of a Boeing employee whose wife worked at Lockheed, and the presence of a Boeing engineer at a bid conference that his former employer, Lockheed, also attended.

Boeing explained that the Decatur downsizing was necessary because of a July 2003 Air Force order that bars Boeing from bidding on military satellite launch vehicles. As the manufacturer of Boeing’s Delta rockets, the plant here was hit first.

Former Lockheed employee

Sitting in the center of the debacle is Kenneth Branch, an engineer Boeing hired away from Lockheed.

Branch had worked in Lockheed’s Evolved Expendable Launch Vehicle program since 1995. According to Lockheed, his workstation was near the confidential files detailing all aspects of the program.

Even during his Lockheed employment, Lockheed claims, Branch in August 1996 had a clandestine meeting with William Erskine and other Boeing EELV officials in California. Boeing paid for the plane ticket. Shortly after that meeting, according to Lockheed, a Boeing official said to Erskine that, if Boeing won the EELV contract, it should “give that man a job.”

As later stated in the criminal complaint filed by federal officials, Boeing hired Branch while he was still working at Lockheed because Branch proposed to Erskine “an ‘under-the-table’ offer to hand over the entire Lockheed Martin EELV proposal presentation to aid in Erskine’s proposal work in exchange for a position at Boeing if Boeing won the Air Force EELV contract award.”

A separate Air Force investigation resulted in Boeing’s bidding suspension. That suspension has already lasted 18 months and Boeing officials do not know when it will end.

Boeing and Lockheed officials refused comment on the investigations because of the ongoing litigation.

Branch left Lockheed in January 1997, the same year Boeing built the Delta IV plant in Decatur, but Lockheed did not realize he was working for Boeing.

In March 1997, Boeing sent Branch to a joint meeting that included teams from Boeing, Lockheed and the Air Force. Lockheed officials recognized him and, for the first time, became suspicious.

The next miscue came in 1997, when another Boeing employee saw Branch with a binder full of materials labeled as proprietary Lockheed information. She reported the incident to her supervisor.

In October 1998, Boeing won 19 of 28 possible Air Force contracts for its Delta IV satellite launch vehicles. Lockheed’s Atlas series picked up the remaining nine. The skewed result, according to court documents filed by Lockheed and the Air Force, stemmed in part from Boeing’s successful efforts to gain confidential bidding and technical information from former Lockheed employees.

Steep penalty

The Air Force ultimately stripped Boeing of seven of those contracts, worth $700 million, and awarded them to Lockheed.

From Lockheed’s perspective, Boeing should never have been in the running for the EELV contract. Boeing lost to Lockheed and McDonnell Douglas Corp. in the first round of bidding. Boeing stayed in the game by purchasing McDonnell Douglas.

In June 1999, Erskine, a Delta IV manager, allegedly told another Boeing official that he had hired Branch for $77,000 purely to obtain Lockheed information. Boeing employees had just finished an ethics class.

The bad news for Boeing was that another engineer heard the discussion. The engineer, who had also attended the ethics class, was married to a Lockheed employee. She told her Lockheed supervisors about the conversation.

Boeing fired Erskine and Branch in August 1999. Both employees filed suit against Boeing.

More than ‘a few pages’

Boeing claimed the two were fired for stealing a few pages of Lockheed proprietary material. Boeing’s lawyer filed a motion asking the judge to dismiss the employment case. In support of that motion, he in March 2002 attached a box full of Lockheed proprietary material that was in Boeing’s possession.

These were documents that Boeing had told Lockheed it did not have.

The volume of documents surprised Lockheed officials, according to its court filings. Boeing executives and lawyers had told Lockheed that they discovered a few such documents, none of which were particularly incriminating and none of which Boeing’s EELV team saw.

In March 2003, Boeing admitted to Lockheed that it had 10 more boxes of Lockheed documents.

By the end of the various investigations, the Air Force concluded Boeing received almost 30,000 pages of confidential information relating to the satellite launch vehicles before winning the bulk of the Air Force contract.

Inside track on contracts

The Boeing mess continues to unravel. In December, the Air Force reported that one of its acquisition officers, Darleen Druyun, was negotiating with Boeing’s chief financial officer for future employment while helping the company win various contracts. Lockheed claims that Druyun, who is serving nine months in prison, also provided Boeing officials with EELV cost information before Boeing won the bidding.

Boeing’s chief financial officer is scheduled for sentencing Feb. 18.

Probes, lawsuits and trials

The U.S. Department of Justice is investigating. Several shareholder suits against Boeing are pending.

Branch and Erskine are scheduled for trial in March. As many as a dozen Boeing employees have given grand-jury testimony.

If convicted, both Branch and Erskine face a maximum criminal fine of $850,000 and up to 15 years in prison.

Originally expected to have at least 2,300 employees by 2004, Boeing’s $450 million Decatur plant will have 550 employees after the layoffs. Boeing located in Decatur after receiving $150 million in state and local economic incentives.

 

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Boeing units suspended; MCI faces

 debarment: corporate scandals bring

penalties for contractors.

Publication: Set-Aside Alert
Date: Friday, August 8 2003
Link to Original:  http://www.allbusiness.com/government/658843-1.html

 

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In a rare slap at two of the government’s largest contractors, three Boeing Co. units and MCI WorldCom have been declared ineligible for federal contracts as a result of separate ethics investigations.

Boeing

The Air Force suspended Boeing’s Launch Systems, Launch Services, and Delta Program business units because the company used proprietary data from rival Lockheed Martin in bidding successfully on the Evolved Expendable Launch Vehicle contract.

Boeing was also stripped of seven of its 19 scheduled Delta rocket launches; those launches were given to Lockheed Martin. Air Force Undersecretary Peter Teets said Boeing stands to lose about $1 billion in revenue.

The suspension is indefinite; however, Teets said it might be lifted in time for the next round of competition for launches, set to begin late this year, if Boeing makes satisfactory changes in its ethics programs.

“If Boeing were to not take corrective actions, if Boeing were to not respond strongly to this matter, then we would take into consideration the potential for debarment,” he said at a July 24 Pentagon briefing. But he added that it is in the government’s interest for Boeing to remain in the space business, so there will be two strong competitors.

The Justice Department is conducting a criminal investigation of Boeing’s activities. Two former employees have been indicted in Los Angeles in the case.

The Air Force investigation found that one of those former employees had worked for Lockheed Martin, and brought proprietary documents with him when he joined Boeing.

“I have never heard of a case of this scale,” Teets said.

“First, the extent of Lockheed Martin proprietary material in Boeing possession at the time of (launch) source selection was extraordinary–approximately 25,000 pages. Second, the quality of information was sufficient to provide great insight into Lockheed Martin’s proprietary cost and pricing. Third, Boeing was not forthcoming with the Air Force about the amount of Lockheed Martin data in its possession, and it took a period of approximately four years for them to provide us with all of it.”

Boeing CEO Philip Condit apologized for the employees’ actions. The company has appointed former senator Warren Rudman (RNH) to lead a review of its policies on ethics and the handling of competitive information.

In a recent study, the Project on Government Oversight, a watchdog group, found that Boeing had committed 50 acts of misconduct and paid nearly $379 million in fines and penalties from 1990 to 2003.

 

MCI WorldCom

The General Services Administration suspended MCI WorldCom from bidding on new federal contracts and proposed debarment of the scandal-ridden telecommunications company.

In announcing the action July 31, GSA said it had “determined that MCI WorldCom lacks the necessary internal controls and business ethics.”

The federal government is MCI’s largest customer, spending $700 million to $1 billion a year.

The company was suspended immediately from competing for new work and has 30 days to appeal the proposed debarment. Its biggest federal contract comes up for renewal in January.

MCI is under federal bankruptcy protection after admitting to accounting irregularities amounting to $11 billion.

GSA said its decision was not related to the latest charges against MCI, that it cheated competitors by rerouting long-distance calls to avoid paying access fees to link to local telephone networks. Federal prosecutors are investigating.

The company told a federal bankruptcy court in New York that the charges are “groundless.” It said competitors, especially AT&T, are trying “to generate negative publicity and derail the Company’s reorganization efforts.”

In a letter to GSA, Verizon General Counsel William Barr noted the fraud allegations and wrote that the “United States is now on notice that it is effectively serving as a ‘fence” for stolen property,” the Wall Street Journal reported.

Competitors had protested when the government awarded new contracts to MCI to build telecom networks in Afghanistan and Iraq even after its accounting scandal had come to light.