Wednesday, April 27, 2005

Possible Expansion of Criminal Investigation of L-3 Communications

A previously disclosed criminal investigation of Interstate Electronics, a subsidiary of L-3 Communications Holdings Inc., the large defense contractor, may be expanding into new areas.  A Wall Street Journal story (here) discusses an investigation by the U.S. Attorney's Office for the Central District of California (Los Angeles) involving defective parts for military radios that may now involve other military supplies, including artillery shells, for which L-3 Communications was a subcontractor.  The company has not provided any information about the types of equipment on which Interstate Electronics works, and its 10-K filing in March 2005 makes vague reference to criminal investigations involving the company: "We are currently cooperating with the U.S. Government on several investigations, none of which we anticipate will have a material adverse effect on our consolidated financial position, results of operations or cash flows."  An Interstate Electronics spokesman denied any knowledge of an expanded criminal investigation of the subsidiary's products.  A criminal indictment can have a very serious effect on military contractors, including possible debarment as a result of a criminal conviction.  With expanded spending on the military since 9/11, the investigation and prosecution of procurement fraud and defective parts has received renewed emphasis from the Department of Justice. (ph)

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