FEDERAL SECURITIES LAWS AND DEFENSE HEARINGS BEFORE THE SUBCOMMITTEE ON OF THE COMMITTEE ON ENERGY AND COMMERCE NINETY-NINTH CONGRESS FIRST SESSION SEPTEMBER 23, 1985-PROCUREMENT ABUSES BY THE AIR FORCE, Serial No. 99-93 Printed for the use of the Committee on Energy and Commerce 62-185 O U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1986 For sale by the Superintendent of Documents, Congressional Sales Office COMMITTEE ON ENERGY AND COMMERCE JOHN D. DINGELL, Michigan, Chairman JAMES H. SCHEUER, New York DOUG WALGREN, Pennsylvania W.J. "BILLY" TAUZIN, Louisiana RON WYDEN, Oregon BILL RICHARDSON, New Mexico GERRY SIKORSKI, Minnesota JAMES T. BROYHILL, North Carolina THOMAS J. BLILEY, JR., Virginia MICHAEL G. OXLEY, Ohio Carver, Marlene, General Dynamics Corp. Chafin, Bruce F., staff, Subcommittee on Oversight and Investigations...... Chapman, Peter K., president, United Technologies International Busi- Conahan, Frank C., Director, National Security and International Affairs Division, General Accounting Office.. Cook, Wilbert C., director, contracts management, Westinghouse Electric Crossman, George R., Deputy Director of Operations, Defense Security Feuerwerger, Marvin, Director for Policy Planning, Defense Security As- 377 Fish, Howard M., vice president, international, LTV Aerospace and De- 217 Graham, Lee, lead technician, F-16 Avionics Section, Ogden Air Logistics 141 Kingsbury, Nancy, Associate Director, U.S. Air Force/NASA Subdivision, 113 Monahan, Maj. Gen. George L., Jr., director, Development and Produc- 97 Quicksall, Joe D., Senior Evaluator, General Accounting Office, Dallas, Richards, John A., Director, Office of Industrial Resource Administration, Schoepfle, Gregory K., Director, Division of Foreign Economic Research, Office of International Economic Affairs, Bureau of International Labor Peterson, Dan A., vice president, business development, Martin-Marietta 212 34 Serrano, Joseph W., staff vice president, General Dynamics Corp 227 54 Smith, Harry B., president, defense and electronics systems center, Wes- 65 Stern, Paula, Chairwoman, International Trade Commission Smith, Robert D., project engineer. Fort Worth Division, General Dynam- Smith, Richard B., manager, business and market development operation, 215 54 296 Sutherland, Kent, equipment specialist, SERD Committee, Ogden Air 153 Talbot, Linda, Chairman, SERD Committee, Ogden Air Logistics Center, 165 Wood, Frederick S., corporate vice president, contracts and pricing, Gen- eral Dynamics Corp....... 54 Testimony of-Continued Yates, Brig. Gen. Ronald W., Deputy for F-16, Aeronautical Systems Material submitted for the record by the Subcommittee on Oversight and Page 100 FEDERAL SECURITIES LAWS AND DEFENSE CONTRACTING Procurement Abuses by the Air Force, General Dynamics Corp., and Westinghouse Electric Corp. MONDAY, SEPTEMBER 23, 1985 HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. The subcommittee met, pursuant to notice, at 10:10 a.m., in room 2123, Rayburn House Office Building, Hon. John D. Dingell (chairman) presiding. Mr. DINGELL. The subcommittee will come to order. For more than a year now, the subcommittee has been conducting an investigation to determine, whether our major corporations are operating in a manner, that accords with Federal securities laws and regulations, as enforced by the Securities and Exchange Commission. In hearings to date, we have focused primarily on the General Dynamics Corp.-one of the Nation's largest defense contractors. This case study began with our receipt of allegations that the company's senior executives, deliberately attempted to manipulate its stock, and to defraud the Navy on nuclear attack submarine contracts. In addition to its violations of our securities laws, the subcommittee has learned that General Dynamics has engaged in such other activities, as falsifying books and records, failing to disclose cost overruns in the submarine program, failing to adhere to cost accounting standards, and engaging in questionable foreign payments, to name but a few examples of securities law violations. These activities of defense contractors raise serious questions, about the integrity of corporate management, and of the reports filed with the Securities and Exchange Commission. Since the very basis of our financial market system is reliable information, designed to instill public confidence, these questions are of the utmost importance. What makes these matters even more serious, of course, is that we are talking about companies engaged in building this Nation's defense systems. Already we have seen and heard enough for us to recognize that our defense procurement system is not working; that defense contractors charge the Government, any price they think they can get, |