Department of Justice seal U.S. Department of Justice

Debra Wong Yang
United States Attorney
Central District of California


United States Courthouse
312 North Spring Street
Los Angeles, California 90012
Release No. 06-092a

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PRESS RELEASE

FOR IMMEDIATE RELEASE
July 30, 2006
For Information, Contact Public Affairs
Thom Mrozek (213) 894-6947

BOEING TO PAY UNITED STATES RECORD $615 MILLION TO RESOLVE FRAUD ALLEGATIONS


Los Angeles, CA - The United States today reached final agreement with The Boeing Company on a record $615 million settlement to resolve criminal and civil allegations that the company improperly used competitors' information to procure contracts for launch services worth billions of dollars from the Air Force and the National Aeronautics and Space Administration.

Boeing has agreed to pay a total of $615 million dollars to resolve the government's investigations and claims relating to the company's hiring of the former Air Force official, Darleen A. Druyun, by its then-chief financial officer, Michael M. Sears, and its handling of competitors' information in connection with the Evolved Expendable Launch Vehicle (EELV) Program and certain NASA launch services contracts.

"The American people rightly expect government officials and contractors to act with integrity," said Deputy Attorney General Paul J. McNulty. "The outcome of these investigations sends a clear message to those doing business with the government: harsh consequences await anyone whose conduct falls short of the highest legal and ethical standards."

The $615 million settlement includes a $565 million civil settlement and a $50 million monetary penalty, according to a separate criminal agreement. The amount is a record for government procurement fraud, for the Department of Defense and for NASA.

Under the agreement with the U.S. Attorney's Offices, the United States agrees not to bring criminal charges related to the conduct that is the subject of the settlement agreement, in part because the company is fully cooperating with the government's investigation. Boeing has agreed to accept responsibility for the conduct of its employees in these matters, continue its cooperation with federal investigators, pay a monetary penalty of $50 million, and maintain an effective ethics and compliance program, with particular attention to the hiring of former government officials and the handling of competitor information. The U.S. Attorneys' Offices may seek to prosecute Boeing for charges relating to the Druyun conduct, or to assess a further penalty of up to $10 million, if, during the two-year term of the criminal agreement, an executive management employee of Boeing commits federal crimes as outlined in the agreement, and the company fails to report the misconduct to the Department of Justice.

The settlement with the Justice Department's Civil Division provides for Boeing to pay $565 million in exchange for a complete release from any civil liability arising from the Druyan matter, as well as the EELV and certain NASA launch services contracts.

The government's investigation focused on Boeing's relationship with Druyun, who was the Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management before she retired from the Air Force in 2002.

Druyun, who was the Air Force's top career procurement officer, wielded influence over billions of dollars in contract awards, modifications and settlements. In 2000, Boeing, at Druyun's request, hired Druyun's daughter and future son-in-law. Then in 2002, Sears, who at the time was Boeing's CFO, recruited Druyun for an executive position with the company. During this period, 2000 through 2002, Druyun was responsible for dozens of Boeing contracts, including the controversial $23 billion procurement to lease a fleet of KC-767 aerial refueling tankers that has since been canceled.

Sears and Druyun have both pleaded guilty to violations of the conflict of interest statutes. In documents filed in her criminal case, Druyun admitted that Boeing's favors in hiring her children and in offering her a position influenced her contracting decisions.

The government's investigation also focused on the EELV program, which the Air Force sought to use to usher in a new generation of space launch vehicles to serve the government's critical satellite needs through 2020. Air Force strategy called for two sources to reduce the risk of failure and cost through competition. Those sources ended up being Boeing and Lockheed. Boeing's low pricing led the Air Force to award it 19 of the original 28 launch services contracts in October 1998. The United States alleged that, prior to this award, Boeing obtained more than 22,000 pages of documents from Lockheed Martin, certain of which contained confidential competition-sensitive or other proprietary information that related to Lockheed's EELV program and that some of this information was used to unfairly assist Boeing in the EELV competition. When this was subsequently discovered by the Air Force, it sought to "right the wrong" by re-balancing the contracts, at great expense. Boeing's conduct resulted in a record 20-month suspension of three of its business units from government contracting.

NASA also had launch services contracts with Boeing and Lockheed that required the contractors to compete for missions. The United States alleged that Boeing's possession and use of Lockheed's proprietary information, including additional documents obtained through different channels than the EELV documents, plus the unfair advantage the company had gained in the EELV, enabled Boeing to persuade NASA to award 19 missions, known as the 19 Pack, on a sole-source basis. The United States further alleged that the lack of competition, plus Boeing's false claims for certain costs, resulted in Boeing charging NASA much more for the 19 Pack than NASA should have paid.

NASA Inspector General Robert W. Cobb expressed his appreciation for the "superb efforts of the DOJ, DOD and NASA team that brought about this historic settlement. In addition to fulfilling our statutory mandate to protect the public's and NASA's fiscal interests, this settlement also serves as a testament for holding accountable those who abuse the government's procurement system. Indeed, the settlement represents a significant accomplishment in our continuing fight against fraud, waste and abuse."

"Now, the Boeing settlement is behind us," said Dr. Ron Sega, Under Secretary of the Air Force. "It wasn't a proud time in their history and in some ways it wasn't a proud time in our history, but Boeing is a competent and capable contractor and we look forward to a positive working relationship."

"This settlement sends a clear message that integrity in DOD contracting is indispensable and that the American public deserves no less than honest government and aggressive vigilance over the expenditure of the nation's resources," said Acting Department of Defense Inspector General Thomas F. Gimble.

The EELV and 19 Pack investigations were conducted by the U.S. Attorney's Office for the Central District of California, the Air Force's Space and Missile Systems Center at Los Angeles Air Force Base, the Western Field Office of the Defense Criminal Investigative Service (DCIS) within the Defense Department's Office of the Inspector General (OIG), the Air Force of Special Investigations, and the NASA Office of the Inspector General at the Kennedy Space Center.

The Druyun investigation was conducted by the U.S. Attorney's Office for the Eastern District of Virginia, the Mid-Atlantic Field Office of DCIS (DOD OIG) and the Air Force Office of Special Investigations.

The civil investigation and negotiations were conducted by the Civil Division of the Department of Justice, with the assistance of the U.S. Attorney's Offices and the investigative agencies.

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Release No. 06-092a

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