Press Release

Lockheed Martin Pays NASA $7.1 Million Settlement

By SpaceRef Editor
June 14, 2003
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(Houston, Texas ) JUNE 10 – United States Attorney Michael Shelby
announced today that Lockheed Martin, the government’s largest contractor,
has paid $7.1 million to the United States to settle a dispute regarding reimbursements
of alleged false and fraudulent claims sought through contracts with the National
Aeronautics and Space Administration [NASA]. This substantial settlement
brings to an end a nine-year investigation conducted by agents of the NASA Office
of Inspector General into allegations that payments made by NASA to Lockheed Engineering
Sciences Corporation (LESC), Lockheed Martin’s predecessor, were based upon false
and fraudulent lease cost claims. Lockheed Engineering Sciences Corporation [LESC]
held a $1.14 billion contract to support the shuttle mission at the Johnson Space
Center. The contract included a 10 year lease (1992 – 2002) of two buildings,
Lockheed Martin Plaza #1 and #2.

The dispute focused upon the government’s contention that as part of the costs
included in the 10 year lease agreement negotiated in 1992, LESC included charges
associated with promissory notes it held as interest bearing debt. This debt was
concealed in the lease costs and charged to NASA during the course of the contract.
Such costs are prohibited under Federal Acquisition Regulations, as determined
by the Defense Contract Audit Agency. Today’s agreement settles the dispute.

Commenting on today’s agreement, United States Attorney Michael Shelby said, "Our
goal has always been to protect the fiscal integrity of NASA and to ensure that
the government is not overcharged for services related to our nation’s space program.
Today’s settlement returns to the taxpayer all of the excessive costs and fees
charged by Lockheed Martin in connection with these leases during the past 10

Cobb, NASA Inspector General, said "I am appreciative of the dogged work
by the United States Attorney’s Office and our special agents in rooting out the
mischarging in a series of complex real estate and accounting transactions. When
taxpayer funds are being misused, those responsible will be held accountable."

The investigation into the false or fraudulent lease cost claims was
part of an ongoing investigation initiated in December 1994 following the disclosure
by LESC that John J. McGurr, their former Director of Contracts Administration,
had embezzled more than $600,000 in funds paid by NASA under an existing contract.
As a result of the criminal investigation, John J. McGurr was indicted in 1997.
McGurr pled guilty to money laundering, fraud against the United States and tax
evasion, and was sentenced in January 1998 to serve 41 months in federal prison
on each of the three counts of conviction. The sentences were to be served concurrently.

The investigation resulting
in today’s settlement agreement was conducted by the NASA Office of Inspector
General, the Defense Criminal Investigative Service, the United States Postal
Inspection Service, and the Defense Contract Audit Agency, and litigated by Assistant
United States Attorneys Cedric L. Joubert and Jill O. Venezia.

SpaceRef staff editor.