Names In the News

Boeing: $615 M Escape

Boeing will pay $615 million to end three years of Justice Department investigations into high-profile contracting scandals at the defense giant, in a June deal that allows the company to avoid criminal charges or any admission of wrongdoing.

As part of the settlement, the government will forgo criminal charges against Boeing, despite a string of procurement violations and alleged corruption that has tarnished the company’s reputation and prompted it to overhaul its corporate culture.

Boeing has been under investigation for improperly acquiring thousands of pages of rival Lockheed Martin Corp.’s proprietary documents in the late 1990s, using some of them to help win a competition for government rocket-launching business.

Years later, Boeing illegally recruited a senior Air Force procurement official while she still had authority over billions of dollars in other Boeing contracts. She also championed company efforts to skirt normal procurement procedures in offering to provide refueling tankers to the Air Force through a controversial $20 billion leasing program, since derailed.

By avoiding a corporate admission of wrongdoing, Boeing has made it harder for Lockheed to pursue its pending civil claims for damages related to the improperly obtained material, the Wall Street Journal reported.

Fannie Mae: Unethical

Fannie Mae will pay fines totaling $400 million to settle Office of Federal Housing Enterprise Oversight (OFHEO) and Securities and Exchange Commission (SEC) charges of improper accounting, according to a settlement deal announced in May.

The settlement deal was announced as OFHEO released an extraordinary report documenting what OFHEO Director Joseph Lockhart calls Fannie Mae’s “arrogant and unethical culture.”

“The image of Fannie Mae as one of the lowest-risk and ‘best in class’ institutions was a facade,” says Lockhart. “Our examination found an environment where the ends justified the means. Senior management manipulated accounting, reaped maximum, undeserved bonuses, and prevented the rest of the world from knowing. They co-opted their internal auditors. They stonewalled OFHEO.”

“The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6 billion of losses, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars,” Lockhart says.

During the period covered by this report — 1998 to mid-2004 — Fannie Mae reported extremely smooth profit growth and hit announced targets for earnings per share precisely each quarter.

Earnings management made a significant contribution to the compensation of Fannie Mae Chairman and CEO Franklin Raines, which totaled over $90 million from 1998 through 2003. More than half of Raines’ income, as well as the other highest compensated executives at Fannie Mae, came from bonuses and arrangements directly tied to achieving earnings per share targets.

BIO’s Liability Shield

Drug industry lobbyists conspired with the White House and Senate Majority Leader Bill Frist, R-Tennessee, last year to craft a sweeping liability provision that shields the industry from lawsuits over products used to treat pandemic illnesses, even in cases of gross negligence or gross recklessness, according to a report issued last week by Public Citizen.

The report, “Willful Misconduct: How Bill Frist and the Drug Lobby Covertly Bagged a Liability Shield,” relies on internal documents and e-mails of the Biotechnology Industry Organization (BIO) to illustrate the degree to which Frist’s office deferred to drug industry demands and describes Frist’s sleight of hand in securing passage of the provision.

Frist inserted the shield provision into an already-completed conference report for the defense appropriations bill in the dead of night, with the aid of House Majority Leader Dennis Hastert, R-Illinois. Many of the members of the conference committee had never seen the language, let alone approved it. Committee leaders explicitly assured Democrats, made wary by rumors circulating in the preceding days, that no attempt would be made to insert the liability measure into the spending bill.

The shield is unnecessary, according to Public Citizen, because the government now can and does indemnify drug companies in contracts, using provisions saying that the government will cover costs in excess of the companies’ insurance.

The BIO documents obtained by Public Citizen and detailed in the report show the extraordinary access to White House and congressional officials that industry lobbyists enjoyed. On November 15, 2005, for example, Dave Boyer, director of federal relations for BIO, sent an e-mail message to an undisclosed list announcing that BIO had been summoned to a White House meeting to discuss the liability shield proposal.

Several days later, Boyer and lobbyists for three drug companies met with Frist’s staff, along with representatives from the Justice Department, the Department of Health and Human Services and the White House for further discussions.

— Russell Mokhiber