A San Fernando Valley-based weapons manufacturer is a subject of two federal investigations into possible defense procurement fraud, according to federal agents, one involving its ties to the Pentagon and the other involving its work with subcontractors.
The first investigation into the Marquardt Co. of Van Nuys began more than two years ago and focuses on its ties to Victor D. Cohen, 52, an Air Force deputy assistant secretary overseeing tactical warfare systems.
Federal investigators based in Southern California say allegations of an improper relationship between Marquardt officers and Cohen first arose in 1985 and have since become part of the nationwide Pentagon procurement investigation, code-named Operation Ill Wind.
One of the areas of inquiry, the investigators say, is a $17-million government award to Marquardt to build a facility to produce casings for cluster bombs, large devices that spew out as many as 250 mini-bombs when the case opens. The award was made to the company in 1985 after strong lobbying by Cohen.
Cohen's Pentagon office was searched and sealed by the FBI on June 14. Among the items sought by investigators, according to a Washington attorney who formerly represented Cohen, were records of any Cohen dealings with Marquardt.
A week later, Cohen was one of six Defense Department officials stripped of sensitive contracting duties by Defense Secretary Frank C. Carlucci.
"About two years ago, we received allegations of improprieties regarding Cohen and a number of defense contractors, including Marquardt," said one federal investigator in Los Angeles who asked not to be identified. "Some hard-core evidence was developed about a number of companies. It was decided at that time that the case should be centralized in Washington."
Allegations of Kickbacks
The second investigation centers on allegations that Marquardt officers received cash kickbacks for awarding what some sources call vastly inflated contracts on the cluster bomb to several machine shops in California and Nevada, according to federal agents.
This investigation began six weeks ago and has become part of DEFCON, a probe of defense subcontractors handled jointly by the FBI, the Internal Revenue Service and the Defense Criminal Investigative Service, an investigative unit of the Department of Defense.
DEFCON, which is confined to Southern California, began four years ago after allegations surfaced of widespread bribery, bid-rigging, payoffs and kickbacks in the middle-management level of the defense industry. So far, federal prosecutors have recovered more than $50 million in fraudulent payments and won 97 defense industry convictions.
"Information received regarding Marquardt is being looked at as part of Operation DEFCON," said Rodney Hansen, special agent in charge of the Defense Criminal Investigative Service office in Southern California. "It's in the beginning stages. I really can't comment anymore than that."
Surprised by Probes
Marquardt President Frank X. Marshall said he was surprised to hear that the firm is the subject of two federal investigations.
"Absolutely not, and I sure as hell would know about it," Marshall said. "I have no idea what you are talking about."
When told that the allegations included Marquardt officers' receiving cash kickbacks for awarding inflated contracts to outside firms, Marshall responded:
"Jesus, don't tell me that. That is the first time I have ever heard that. It is unbelievable. I must live in another world."
Nevertheless, federal investigators said they are pursuing allegations of subcontractor kickbacks. Among the areas they are interested in are allegations that a $350,000 job on the cluster bomb was inflated to $1 million and awarded to a machine shop. Out of the inflated profits, the machine shop allegedly kicked back a part to Marquardt, investigators said.
A source familiar with the alleged scheme said subcontractors ostensibly competing on a job actually agreed to inflated bids knowing that they would not get the contract this time but would be in line for future ones.
"It didn't take long for subcontractors to learn the game, to figure out who's who as far as the contract goes and then collude price-wise," the source said. "Each took a piece of the pie."
A number of current and former Marquardt employees said in interviews that federal agents had questioned them recently about the $17-million award for the cluster bomb facility, allegations of subcontractor kickbacks and about Cohen and his possible ties to former Marquardt President Ken Woodgrift.
Woodgrift was promoted in 1986 to chairman of a division of Marquardt's parent company, International Signal & Control Group, a Lancaster, Pa.-based electronics company that had nearly $600 million in sales last year.
Woodgrift did not return phone calls. The Times gave an International Signal spokesman a list of questions to ask Woodgrift, but the spokesman refused to say if Woodgrift had seen it.