Ex-Navy Official Pleads Guilty in Defense Probe : Pentagon: Former Assistant Secretary Paisley was the highest-ranking target in long-running fraud case.

Melvyn R. Paisley, a former assistant secretary of the Navy and the highest-ranking target of the long-running Operation Ill Wind defense procurement investigation, pleaded guilty Friday to federal conspiracy, bribery and theft charges.

His plea capped the government’s broadest investigation ever into corruption in military purchasing and shed light on a pattern of bid-rigging and bribe-paying at the pinnacle of Pentagon power.

Atty. Gen. Dick Thornburgh said Friday that the investigation “represents the most sweeping and successful operation against white-collar fraud and defense procurement ever carried out by the Department of Justice.”

With Paisley’s plea, the government has now obtained convictions or guilty pleas from 41 individuals and five corporations and has collected more than $40 million in fines and penalties.

Other individuals and corporations remain under investigation, officials said, with additional pleas and convictions expected in the next several months.

Unisys Corp., one of the major defense contractors that participated in and profited from Paisley’s actions, is expected to plead guilty to felony charges within days. The company has agreed to pay fines totaling nearly $190 million to settle the charges, a record amount in a Pentagon fraud case, prosecutors said Friday.

Paisley entered his plea three years to the day after federal agents served four dozen search warrants nationwide in the first public actions in the Ill Wind case, which had been under way for more than a year. The warrants were served in Pentagon offices, corporate suites and the homes and businesses of a number of defense consultants.

Federal prosecutors, under the direction of Henry E. Hudson, the U.S. attorney for the Eastern District of Virginia, carried out a textbook white-collar crime investigation that began with a tip more than four years ago from an ex-Marine Corps official.

Building from thousands of hours of wiretapped conversations among the principals, prosecutors put pressure on low-ranking conspirators to plead guilty and then persuaded them to be government informers.

A trickle of early leads from the first defendants turned into a cascade of documents and inside data on a complex network of bribery, fraud and kickbacks, authorities said.

The investigation disclosed the seamy underside of the $100-billion-a-year Pentagon procurement system, in which outside consultants offered generous bribes, meals, first-class travel and gifts to government officials in exchange for sensitive bid information and clandestine help in obtaining multimillion-dollar contracts for their corporate employers.

It also highlighted the danger of the revolving-door system, in which industry executives move into and out of government jobs, taking with them sensitive contract information and critical contacts with public officials.

Paisley, who agreed to cooperate fully with prosecutors, admitted accepting hundreds of thousands of dollars in bribes from Navy contractors that he assisted when serving as the senior Navy official responsible for research, engineering and systems. He will be sentenced Sept. 27 by U.S. District Judge Claude M. Hilton and faces 30 years in prison and fines totaling $750,000 on the three counts.

The lengthy government documents outlining Paisley’s deeds provide a virtual how-to manual for defrauding the government while occupying a position of great financial authority and substantial public trust.

Paisley hid his illegal gains in banks in Switzerland and in the Channel Islands. He disguised his interests in several enterprises and, in transcripts of wiretapped conversations with confederates, he displayed an obsession with deception.

In a written statement, Paisley’s attorney, prominent Washington defense lawyer E. Lawrence Barcella, said his client disputes some of the claims presented by the government but acknowledged that the prosecutors’ case was more than strong enough to convict him.

“Mel Paisley is a 66-year-old man with a long and proud record of service to the United States,” Barcella said. Despite the government’s case, which details a complicated fraud and conspiracy scheme played out over several years, Barcella added, “Today’s pleas are clearly an aberration from the law-abiding life he has led.”

Barcella said Paisley was in ill health and in a difficult financial situation because he was barred for the last three years from government work and was limited to volunteer activities.

Paisley, a World War II fighter ace and a former senior Boeing Co. executive who was appointed by President Ronald Reagan to the Navy post in 1981, profited from his government service in several ways, the documents show. His actions tainted the procurement of several key Navy systems, including the Aegis weapons system for surface ships, the F-404 jet engine for Navy fighters and the Pioneer remotely piloted vehicle for naval artillery targeting.

Through a middleman who concealed the source of the payments, Unisys Corp. paid an inflated price for a Sun Valley, Ida., condominium owned by Paisley. A senior Martin Marietta Corp. executive who was trying to obtain work for his firm on a classified Navy program provided thousands of dollars to help repair a Seattle home that Paisley was trying to sell.

In addition, the government said, Paisley conspired to rig a Navy contract for pilotless aircraft to benefit an Israeli firm known as Mazlat, which had agreed to pay him and others a $2-million kickback on the $100-million contract. Also, he secretly joined in creating a company while still a Navy official to do work on a classified project over which he had broad contracting authority.

After leaving the Navy, he became a defense contracting consultant and began receiving cash payments of $218,000 one month later from United Technologies Corp. after helping it obtain a lucrative Navy jet engine contract. Paisley went into business with a consultant with whom he had earlier conspired to cheat the Navy on behalf of corporate clients. The consultant paid him $9,500 a month, in part to subvert a former deputy who had taken over many of his duties.

In the criminal information filed in court Friday, prosecutors said that Paisley and others conspired to cheat the government through “fraud, bribery, conflicts of interest, corruption, dishonesty, deceit, misconduct, partiality and bias.”

Two of Paisley’s confederates, consultant William M. Galvin and former Unisys executive Charles F. Gardner, earlier pleaded guilty to federal charges and were sentenced to 32 months each in prison. Several lesser associates also have been convicted or pleaded guilty.

Under terms of the plea agreement, the government said it would not seek further action against Paisley “nor any member of his family.” The unusual provision appears to lift any threat of prosecution from Paisley’s wife, Vicki, who worked with her husband at Boeing and who was suspected by prosecutors of participating in his various business enterprises.

Paisley’s appointment to the sensitive Pentagon post was a surprise to a number of his former colleagues at Boeing, who knew him as an extravagant entertainer and a flamboyant storyteller. During the late 1970s, two Boeing executives accused him of bribing military officials and bugging the offices of competitors to help Boeing win government contracts.

Those charges never led to an indictment, nor did the Seattle aircraft manufacturer take disciplinary action against him.

He won his Navy job by carefully cultivating government officials, particularly former Navy Secretary John F. Lehman, whom Paisley hired as a consultant to Boeing and whom he entertained lavishly at his home and at restaurants. When Lehman was named to the top Navy job in 1981, he forwarded Paisley’s name to the White House for consideration for a senior post.

At his confirmation hearing before the Senate Armed Services Committee, he quoted George Washington when asked why he wanted the job as assistant secretary of the Navy:

“Every citizen who enjoys the protection of a free government owes not only a portion of his property, but even of his personal service to the defense of it.”