From: sehari@iastate.edu (Babak Sehari)
Subject: U.S. Seeking To Cut Reward In GE Fraud
Originator: sehari@class1.iastate.edu
Organization: Iowa State University of Science and Technology, Ames, Iowa.
Date: Thu, 5 Nov 1992 05:55:56 GMT

11/04 (WJ) U.S. Seeking To Cut Reward In GE Fraud

    By Amal Kumar Naj
    In a move that could affect future whistle-blowers, the Justice
Department has asked a federal judge to reduce a General Electric Co.
employee's reward for uncovering government-contract fraud at the
company, The Wall Street Journal reported.
    Under the federal False Claims Act, Chester Walsh, the employee, is
eligible to receive $14.9 million for his role in exposing the fraud.
But in hearings under way in federal court in Cincinnati, the government
is seeking to have the amount reduced to $4.5 million. The government
contends, among other things, that Walsh "manipulated" the
whistle-blower protection act by delaying his suit for several years to
get a bigger reward.
    In July, GE pleaded guilty to criminal charges arising from the case
and paid $69 million in fines and damages. The fraud involved diversion
of U.S. funds by high-level company employees and an Israeli general,
Rami Dotan, in connection with Israel's acquisition of GE jet engines.

The scheme was orchestrated by employees at GE's Aircraft Engine unit in
Cincinnati and at the company's offices in Israel.
    Walsh, who was based in Tel Aviv, gathered evidence for more than
four years and then sued GE in Cincinnati in November 1990 under the
False Claims Act. The statute allows private citizens to bring such
action in behalf of the government and then collect as much as 25% of
the federal fines or assessments against the company.
    Walsh's attorneys have filed a brief protesting the reduced reward
sought by the Justice Department. "The government's position is
shocking," said John R. Phillips, one of Walsh's attorneys. "It will
send a scary message to all those who want to expose fraud."
    Since the act was strengthened in 1986 to encourage whistle-blowers
with increased payouts, nearly 500 suits have been filed, and the
Justice Department has found merit in a quarter of them.
    The Justice Department's contention that Walsh waited too long to
report the fraud was also used by GE in questioning Walsh's motive.
Walsh and his attorneys, however, said it took him four years to gather
the necessary evidence and then to surreptitiously transfer boxes of
documents to his home in the U.S.
    The government contends that the delay raised the amount of damages
it incurred from the fraud at GE to $41.6 million from $13 million. "He
actively concealed the fraud from other GE Aircraft Engine employees and
lied to General Electric on forms that asked employees whether they knew
of any wrongdoing," the government argues in the filing.
    To discourage so-called bounty hunting, the government argues that a
substantially reduced reward would "send a strong message that
whistle-blowers may not manipulate" the provisions of the act at the
expense of the U.S. "Large windfalls should not accrue to those who
endanger the interests of the U.S. by preparing their case in a dilatory
fashion," the Justice Department argues.
    The government also maintains that even if Walsh hadn't filed his
suit, news reports in Israel about Gen. Dotan's arrest and an Israeli
government investigation of the general "ultimately would have led" U.S.
investigators to the fraud.
    "Without the benefit of Mr. Walsh's complaint, the Israeli
investigators by the end of February 1991 had uncovered virtually all of
the fraud alleged in his complaint," the government filing says.
    Whether the U.S. would have had immediate access to that
information, however, is put in doubt by disclosures in July that the
Israeli government for 18 months had thwarted U.S. efforts to
investigate the military procurement scandal.
    Phillips, the attorney for Walsh, said the hearing over the award is
expected to continue for several days before the federal judge rules on
the issue.
                                 -END-
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