The Justice Department recently announced that Northrop Grumman Corporation, their subsidiary Northrop Grumman Space and Mission Systems Corporation, and its predecessor TRW Incorporated agreed to settle a False Claims Act lawsuit for $325 million. The qui tam suit alleged that TRW, which Northrop Grumman acquired in 2002, sold the United States government components known as Heterojunction Bipolar Transistors (HBTs) that TRW knew were likely to fail in government satellites. TRW then billed the National Reconnaissance Office (NRO) for those defective microelectronic parts.
The government’s investigation into the case concluded that Northrop and TRW failed to properly test certain HBTs that were manufactured by TRW between the years of 1992 and 2002. Due to this negligence, Northrop and TRW integrated certain defective HBTs into NRO satellite equipment. Additionally, the investigation concluded that Northrop and TRW made fraudulent misrepresentations about, and later concealed certain facts regarding the reliability of the HBTs.
Details of the Defense Fraud
Research conducted by TRW in 1995 clearly showed that the parts would ultimately fail if placed in satellites; however, TRW chose to hide that critical information from the government. In fact, TRW never revealed the damaging results of their research, even after critical problems occurred. For example, a United States satellite “experienced critical failures” while in orbit during 2001. Additionally, several government programs were forced to delay launch of their satellites to determine the cause of those critical failures once the satellite was in space. Each program was eventually forced to replace their satellite HBTs.
In addition to the defective HBTs, TRW also withheld information from the government about a massive recall of cell phone equipment. The reason for concealing the cell phone equipment recall was because the cell phones each contained similarly defective HBTs. Again, TRW was aware of the faulty HBTs up to one month before the government began to experience HBT satellite failures. Instead of coming clean, TRW said the government problems were the result of a new and strange defect they had never seen.
The Whistleblower Case
The whistleblower in this qui tam case is Robert Ferro. He is a former TRW scientific researcher who discovered in 1995 that the HBTs TRW was producing were likely to fail when faced with operating conditions under high electrical currents, such as when being used in government satellites. However, TRW insisted that Ferro sign a nondisclosure agreement before allowing him to test the HBT parts. TRW also refused to let Ferro and his employer, Aerospace Corporation (a privately held research company) to disclose the damaging HBT results to anyone.
The TRW cover-up continued well into 2002, when Ferro began to hear of multiple satellite problems. Eventually, the Air Force asked Ferro’s employer, Aerospace, to come up with a concrete explanation as to whether TRW should have known of the potential HBT problem. When Ferro attempted to include information within that report about the results of his 1995 research, TRW completely edited the Aerospace report, ensuring there was no mention of Ferro’s 1995 testing. TRW also removed every reference within the report that alluded to the multiple other HBT warnings they had received over the years.
When the U.S.government finally demanded that TRW issue an industry-wide alert about the HBT problem, TRW initially resisted their direct order. They eventually issued an alert that contained absolutely no information or mention of the HBT failures. Instead, the alert fraudulently accused consumers of improperly using commercial-grade parts rather than the proper flight-qualified parts.
Once TRW issued its version of the industry-wide alert, Ferro chose to go directly to the government with his information. To ensure his allegations were properly investigated, Ferro later filed a qui tam (whistleblower) lawsuit in the federal district court of Los Angeles. Under the False Claims Act, a company cannot shield itself from a whistleblower lawsuit by hiding behind a nondisclosure agreement.
For his whistleblowing activities and first-hand knowledge of fraud, Ferro will be awarded $48.7 million of the total $325 million government recovery.
“The settlement of the HBT case demonstrates that the Department of Justice will investigate even the most complex and challenging allegations,” said Michael F. Hertz, Acting Assistant Attorney General for the Justice Department’s Civil Division. “The settlement demonstrates that defense contractors will be held accountable and that the government will aggressively pursue all allegations of misconduct in the procurement process.”