Cubic Earmarks $3 Million to Settle Fraud Case : Defense: Agreement would resolve long-running federal inquiry into possible procurement wrongdoing.

SAN DIEGO —  Cubic Corp. has set aside $3 million for a settlement with the U.S. Justice Department, which is investigating possible procurement fraud at the company’s San Diego-based Defense Systems subsidiary.

Cubic executives were unavailable to comment on the $3-million provision that was briefly described in a lengthy year-end earnings statement filed Friday with the U.S. Securities and Exchange Commission. It was uncertain if the $3 million would be earmarked for penalties or attorney’s fees.

The fact that Cubic is negotiating to settle with federal officials became public knowledge earlier this month at a court hearing, but Cubic executives have declined to comment on those negotiations.

According to Friday’s filing, Cubic “has cooperated with the Department of Justice and is in the process of negotiating a resolution of all matters in connection with the investigation.” The $3-million provision represents “management’s best estimate of the probable cost to resolve these matters,” according to the SEC filing.

It was uncertain Friday if Cubic intends to plead guilty to any wrongdoing as part of the anticipated settlement. It also was unclear if the settlement would prohibit Cubic from seeking Defense Department contracts.

Cubic has said in court filings that it is seeking a settlement that would end Cubic’s involvement in the lengthy “Ill Wind” investigation that became public knowledge in June, 1988, after federal investigators searched dozens of offices of defense industry executives.

Cubic has acknowledged that federal investigators searched the office of C. C. (Sam) Wellborn, then president of the Defense Systems subsidiary, as part of the Ill Wind investigation. Cubic since has acknowledged that Wellborn, who has retired, and Cubic Defense Systems have been identified as “targets” of the continuing Ill Wind investigation.

No charges have been brought against Cubic or its executives in connection with the Ill Wind inquiry.

However, Ill Wind has resulted in 39 convictions of defense company executives and consultants elsewhere in the country. Defense contractors and consulting firms have agreed to pay $24.4 million in fines, and federal investigators have suggested that the investigation would eventually produce as many as 100 convictions.

Earlier this month, Cubic settled a shareholder suit that alleged improprieties by Wellborn and other Cubic executives in connection with procurement fraud. That suit, which sought unspecified compensatory and punitive damages, was settled for $1.2 million to cover plaintiffs’ attorney fees. Cubic acknowledged no wrongdoing in the settlement that U.S. Magistrate Harry R. McCue approved Dec. 5.

Cubic on Thursday announced that net income for the fourth quarter ended Sept. 30 fell 66% to $3.9 million, down from $6.5 million during in the corresponding quarter a year ago. Fourth-quarter revenue fell 17%, to $85.8 million, down from $100 million during the same quarter a year ago.

Net income for the year ended Sept. 30 rose by 9% to $23 million, up from $21 million a year ago. Revenue for the fiscal year rose slightly to $352 million, up from $349 million during the previous year.