U.S. Investigating Northrop Defense Plant in Illinois

Federal investigators are conducting a criminal probe of Northrop that involves Pentagon contracts at its Defense Systems Division in Rolling Meadows, Ill., the aerospace firm confirmed Sunday.

Northrop acknowledged that the division and an undisclosed number of its employees there received federal subpoenas in the last week of May. The firm declined to identify the programs involved.

The investigation adds to the company’s legal troubles. Northrop is now the subject of at least five separate federal criminal investigations and a defendant in two civil fraud cases brought by the Department of Justice.

In one case earlier this year, the Los Angeles-based company and five current and former employees were named in a 167-count indictment charging that Northrop conspired to falsify tests on guidance components for nuclear-armed cruise missiles.

In the most recent case, the U.S. Attorney’s Office in Chicago subpoenaed Northrop records in a probe of possible overcharges on an undisclosed contract, the Daily Herald in Arlington, Ill. reported over the weekend.

“We are still trying to understand what this is about,” said Northrop spokesman Tony Cantafio.

Such federal subpoenas are issued by grand juries, indicating that the investigation involves alleged criminal wrongdoing. A Northrop spokeswoman said she had no additional information about the matter.

Headed by Corporate Officer

The Rolling Meadows operation is headed by Wallace Solberg, a Northrop corporate officer. The spokeswoman said she did not know whether Solberg was subpoenaed, and he could not be reached for comment. Cantafio later said that “quite a few individuals” received subpoenas.

The Rolling Meadows operation has experienced operational problems on at least some of its contracts. It took a $10-million charge against profits in the second quarter of 1988 for development problems encountered on a radar jamming system for the F-15 jet fighter.

The Defense Systems Division employs more than 4,000 workers and accounted for about $343 million in sales in 1988. In addition to the F-15, it has built equipment for the B-1 bomber and the B-52 bomber.

Northrop’s numerous electronics businesses have been cited for performance and ethics problems in recent years.

The criminal indictment earlier this year involved the firm’s precision products division in Newton, Mass., which builds electronic guidance equipment. Throughout much of the 1980s, Northrop experienced production problems on its MX missile guidance system, ultimately forcing the Air Force to temporarily stop contract payments on the program.

Peripheral Concern to Investors

Paul Nisbet, a securities analyst at Prudential-Bache Securities, said the investigation appears to fit a pattern in which the smaller operations of defense companies find themselves investigative targets more often than the firms’ main operations.

“I can’t get too excited about this, as long as it is on the periphery of the company,” Nisbet said. “Now, if it were on the B-2 (Stealth) bomber program at Palmdale, then I’d say this is really threatening.”

In addition to the federal investigations of the cruise missile guidance components and the Rolling Meadows operation, Northrop is being investigated for the propriety of $7.75 million in payments made to South Korean individuals to help market the F-20 jet fighter. The company is among those companies under scrutiny in the massive federal influence-peddling probe known as Operation Ill Wind.

The company is also under investigation for the use of fictitious businesses to purchase parts on the MX missile system. The company set up fictitious businesses to buy the parts when its official purchasing system became backlogged.

And the company is also believed to still be under criminal investigation for certain matters involving testing on the MX missile guidance system. The company was charged with civil fraud for improper testing of MX components.