[Ed. Note: Original post 2014. Post updated November 2018 to report additional Northrop fraud cases.] Leo Danielides was a program manager at Northrop Grumman, a major U.S. defense contractor. This week a federal judge in Chicago unsealed a complaint filed by Danielides against his former employer in 2009.
According to the complaint, Northrop Grumman defrauded the government of up to $62,000,000. The monies are tied to a contract to furnish anti-missile systems for commercial airliners. The suit was filed under the federal False Claims Act, a whistleblower statute with roots in the American Civil War.
Danielides claims the company “stole” taxpayer monies through creative accounting and false billing. The complaint also suggests the company kept the program alive by lying about performance tests. Ultimately the program was killed in 2008 when Northrop Grumman was unable to develop an effective product.
Commercial airlines have long worried about terrorist attacks tied to shoulder fired missiles. There are now thousands of such weapons missing or unaccounted for. Many are in the hands of rebel groups but a few are thought to be in the hands of terrorist groups.
After an unsuccessful missile attack on a Israeli civilian airliner in 2002 and a DHL cargo plane in 2004, the Department of Homeland Security hired Northrop Grumman to build a system to prevent attacks against U.S. commercial aircraft.
As noted above, Danielides’ complaint was filed under the False Claims Act. That law allows whistleblowers to collect a cash award for reporting fraud that involves a federally funded program. Claims are not limited to defense contractor cases like Northrup Grumman, however. Medicare and mortgage fraud cases top the list of the most common whistleblower cases.
To receive a whistleblower award under the False Claims Act, there must be fraud against a taxpayer funded program and the person seeking the award must have original source information. As Northrup Grumman’s former program manager, Danielides obviously had “inside” information.
To claim an award, one must file a lawsuit under seal in federal court. The government then has the opportunity to investigate the claims. In our experience, the average investigation takes 2 years. During that time, the complaint is sealed meaning it remains secret.
Once the government has finished the investigation, it must decide whether to intervene and takeover the case or allow the whistleblower to prosecute the case. Most whistleblowers bring these cases with the hope that the government will takeover with their superior resources and an army of investigators, special agents and prosecutors.
Unfortunately for Leo Danielides, the government did not intervene despite a 5 year investigation. As is typical, the Justice Department declined to comment as to why they rejected his claims.
Once unsealed, these cases offer a fascinating look into the fraud and greed that takes place inside many companies.
In 2015, the court ultimately dismissed Danielides lawsuit. Under the terms of the contract, Northrop Grumman was simply required to use its “best efforts” to make the anti-missile system work. The court found that term was simply too broad and that at best, the government and company had different ideas as to the requirements under the contract.
Unfortunately for Danielides, the government declined to intervene in the Northrop case. Without the government’s support and backing, most whistleblower cases go nowhere. [Want to read about a successful case against Northrop Grumman? See Episode Three of Whistleblower TV Lawyer Brian Mahany. In a more recent case against the defense department giant, the company paid $62 million to settle double billing claims.]
Northrop Grumman – The Gift that Keeps Giving!
Leo Danielides ultimately received nothing. Since we weren’t involved in that case, it is hard to tell why things went wrong. Reading the court’s opinion, some of the fault rests with the government itself as it agreed to a contract with incredibly vague terms. That isn’t the fault of Danilides.
Northrop Grumman is no stranger to billing fraud claims and some have been successful. (Northrop claims it settles these cases with no admission of wrongdoing. In our humble opinion, whenever someone writes tens of millions of dollars in checks to the Justice Department, they did something wrong!)
Work 6, Bill 13! Overbilling Scam Revealed
On November 2, 2018, Northrop Grumman Systems Corporation agreed to settle civil allegations that it violated the False Claims Act by overstating the number of hours its employees worked on two battlefield communications contracts with the United States Air Force. The company agreed to pay a total of $27.45 million.
According to court documents, betweenJanuary 2011 ans October 2013, Grumman employees charged exactly 12 or 13.5 hours a day, seven days per week, whether or not they were working or even present. Prosecutors say that often workers were engaged in leisure activities during some of that time, including golfing, skiing, visiting local amusement parks, dining out or shopping.
This overbilling meant more money for the workers and Northrop Grumman. One employee bragged in an email, “work about 6-8 hours and charge 13.” Of course, the only one losing were taxpayers.
In announcing the settlement, a Justice Department spokesperson said, “Contractors that knowingly inflate their bills to the government will face serious consequences”. This settlement demonstrates, once again, that we will not tolerate those who falsely charge the armed forces or any agency of the United States to illegally profit at the expense of the American taxpayer.”
Once again, Northrop claimed it was settling but not admitting any wrongdoing.
Prior to that, in 2009 Northrop Grumman Space and Mission Systems Corporation agreed to pay $325 million for electronics the company knew were likely to fail in satellites. Once again, the company denied the charges but paid.
Those are not the only ones… the company paid multiple penalties to settle other whistleblower claims. Here is a partial list:
2013 Northrop Grumman Corporation paid $11,400,000.00
2012 ATK Launch Systems paid $36,967,000.00 (Grumman affiliate)
2010 Northrop Grumman Corporation paid $12,500,000.00
2010 Northrop Grumman Corporation paid $5,210,000.00
2007 Northrop Grumman paid $8,000,000.00
2003 Northrop Grumman Space paid $111,200,000.00
2003 Northrop Grumman paid $80,000,000.00
The potential whistleblower awards on the successful False Claims Act cases range between $88 million and $177 million. Not a bad payday for stepping up and reporting fraud.
Do You Have Information About Fraud Involving Northrop Grumman?
If you think you have knowledge of a fraud against the government or government funded program, contact an experienced whistleblower attorney. Having the right lawyer often means the difference between receiving a big check (up to 30% of what the government collects) or having the government lose interest.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). Our whistleblower lawyers have handled some of the largest cases in the United States including the $2.4 billion case against Allied Home Mortgage. All inquiries are protected by the attorney – client privilege meaning the information you provide is kept strictly confidential.
(Whistleblower photo courtesy of Dave Winer – scriptingnews)