Defense fraud persists despite crackdown: prosecutor's office probes 50 Southland fraud complaints.

Defense fraud persists despite crackdown 

Despite stepped-up prosecution across the country in recent years, there has been no noticeable decline in defense industry fraud, said the head of the public corruption and government fraud section of the U.S. Attorney's office in Los Angeles.

Michael Emmick, chief of the unit he said is probably the largest and most active defense-industry section in the country, told the Business Journal last week that his office is currently investigating about 50 fraud complaints in the Southern California area.

"I have no sense that the number of complaints has fallen off or declined," he said during the interview. "We think that defense contractors are still engaging in substantial fraud. We are continuing to see a substantial number of cases. It hasn't let up."

Emmick, 38, said he does not expect a drop in defense-industry fraud investigations following the apparent success of U.S. weapons in the Persian Gulf war. Nor does he expect a change in attitude among the public or elected officials toward industry fraud.

"The public should be happy about what happened in the war but our attitude hasn't changed, and I think in the long run the public and government officials will still be very interested in those that commit fraud against the government."

Emmick said he too was impressed by the apparent success of U.S. weapons, after years of hearing and seeing reports of alleged mismanagement and shoddy workmanship on government defense contracts.

But he said while watching the war on television, he was "apprehensive" about whether the country's high-technology and expensive weaponry would work and not self-destruct.

"Right now it looks like the weapons worked but it was a short war and we don't know what will happen to the weapons over the long run," Emmick said. "And we really don't know yet whether they all worked the way they were supposed to. I'm hypersensitive to this area but, from what I have seen, there have been serious allegations against many products."

He said he was confident that the prosecutors could still find juries that would be sympathetic to their cases.

"You have to remember that in these fraud cases we are usually looking at a small part of one individual project, not the entire industry. Also, people may feel good about the industry now but that could change."

Emmick said his office has received no indication from the Justice Department to pull back from industry fraud cases since the Persian Gulf war.

"It remains one of the three most important areas of investigation for the department," he said. The other primary targets for Justice investigations are the thrift and health-care industries, said Emmick.

Because of the size of the defense industry in Southern California, Emmick said, his office is the largest of its kind in the country and with more manpower could handle more investigations and prosecutions. Right now, the unit has 13 attorneys to prosecute defense industry cases, as well as those involving several other industries.

"If we had more attorneys, we could handle many more cases," Emmick said. "As it is now, what catches our attention is when it involves allegations of product safety."

The defense industry has said that most investigations and lawsuits are brought by current or former employees who are looking to make a lot of money from big settlements or judgments.

In addition, the industry says that most allegations made by employees prove to be groundless after an initial investigation.

Emmick said he agreed many of the allegations are made by disgruntled or fortune-seeking employees and that more than half of the potential cases are rejected after an initial investigation. "Usually it's because there just isn't any evidence there or it's just not big enough," he said.

Emmick would not discuss specific cases, or if there is one company or project that is involved in recurring investigations.

Last year Century City-based Northrop Corp. was fined $17 million in a false-testing case brought by Emmick's unit. Over the years, Northrop has been the target of several other charges involving allegations of mismanagement and fraud in military contracts.

Emmick said Northrop is not involved in any of the unit's current defense investigations in Southern California, which is defined as a seven-county area.

With thousands of small subcontractors in the area, Emmick said, the section's cases involve companies of all sizes. "But since most of the people in the industry work for the big companies, it would be safe to say that most of our investigations concern the larger contractors. But that's not to say that small companies could be not just as involved," he said.

Emmick said individuals' or companies' greed is the root cause of fraud cases in the industry.

He noted that there are four basic types of cases. Product-substitution schemes receive the highest priority. In those cases, the government orders a certain type of product or component but gets a substitute - and often inferior - product or part.

Kickbacks and false testing of products or parts are other examples of fraud pursued by the office.

Other types of wrongdoing include "defective pricing," which means that a contractor inflates the cost of a military project.