Calling McDonnell Douglas/Boeing Whistleblowers

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Calling McDonnell Douglas/Boeing Whistleblowers

Hochfelsen & Kani is investigating various instances of procurement fraud, specifically Defense Contract Fraud in California and beyond. 

Current and former employees of McDonnell Douglas/Boeing and other defense contractors who report fraud can receive up to 30 percent of the total monetary recoveries resulting from the information they provide.

With the help of whistleblowers, the government has recovered billions of dollars in cases of defense contract fraud. Employees of defense contractors and subcontractors who provided tips have received many multimillion-dollar awards.  

Our firm investigates claims of defense contractor fraud through a network of specialized attorneys, experts in military contracts, forensic accountants, and paralegals with extensive experience in these types of cases.   

Boeing acquired McDonnell Douglas in the 1990s. McDonnell first and Boeing later have been among America’s largest Department of Defense contractors. Both before and after becoming a division of Boeing, McDonnell Douglas paid numerous fraud settlements to resolve a wide range of allegations, including inflated prices, defective products, bribery, and illegal kickbacks. 

In 2016, The Nation reported on a series of defense contractor mergers, stating, “The most outrageous spending choice of the 1990s was undoubtedly the Clinton administration’s decision to subsidize the mergers of major defense firms. As Boeing bought McDonnell Douglas, the Pentagon provided funding to pay for everything from closing down factories to subsidizing golden parachutes for displaced executives and board members. 

At the time, Vermont Congressman Bernie Sanders aptly dubbed the process ‘payoffs for layoffs,’ as executives of defense firms received healthy payouts while laid-off workers were largely left to fend for themselves.”

McDonnell’s track record of fraud, however, does not begin with Boeing’s acquisition. In fact, it may be the other way around. In 2013, when Boeing was dealing with a crisis after battery fires on two of its 787 Dreamliner planes, analysts marked the purchase of McDonnell as the beginning of all of Boeing’s troubles.

“Too much outsourcing, too little testing, too great a technology risk - it's a full-fledged corporate nightmare,” journalists wrote at the time. According to a New Yorker article, “Technically, Boeing bought McDonnell Douglas. But, as Richard Aboulafia, a noted industry analyst with the Teal Group, [explained], ‘McDonnell Douglas in effect acquired Boeing with Boeing's money.’ McDonnell Douglas executives became key players in the new company, and the McDonnell Douglas culture, averse to risk and obsessed with cost-cutting, weakened Boeing's historical commitment to making big investments in new products.”  

In the case of aircraft manufacturers, cost-cutting can have tragic consequences. Following its acquisition of Long Beach-headquartered McDonnell, Boeing’s manufacturing system shifted, and outsourcing became the norm. “This strategy was trumpeted as a reinvention of manufacturing,” The New Yorker said, “But while the finance guys loved [outsourcing]--since it meant that Boeing had to put up less money--it was a huge headache for the engineers.”

About McDonnell Douglas

Douglas Aircraft Company and McDonnell Aircraft Corporation were both founded by MIT graduates. The two companies eventually merged to form McDonnell Douglas. 

During WWII, Douglas produced about 30,000 planes. Following the war, it started producing attack jets, notably the Skyhawk. The company continued to expand as a defense contractor, and also started making commercial jets that competed with Boeing’s 707.

During the Vietnam War, McDonnell became a major military fighter supplier for the U.S. Air Force. In the mid-‘50s, both companies were producing missile systems, developing hypersonic flight projects, and gaining lucrative NASA contracts. 

In 1967, the merger was announced, and the McDonnell Douglas Corporation was born, maintaining headquarters both in Long Beach, California, and St. Louis, Missouri. Ten years later, the U.S. Air Force selected the company’s KC-10 Extender, a transport aircraft.  

During the Cold War, McDonnell Douglas produced military aircraft and Tomahawk missiles. The company later began producing attack helicopters, including the AH-64 Apache, and continued manufacturing commercial jets. In 1988, it secured a multibillion-dollar tactical aircraft contract with the U.S. Navy. In 1997, following multiple layoffs and difficulties caused by dwindling demand after the end of the Cold War, McDonnell Douglas merged with Boeing.

About Boeing

Founded in Seattle in 1916, Boeing commercializes aircraft, satellites, missiles, rockets, and telecommunications equipment on a global scale. One of the world’s top aerospace manufacturers, it is also one of the top five defense contractors worldwide and a top U.S. exporter. 

Headquartered in Chicago, it has a division called Boeing Defense, Space & Security (BDS), which has had numerous defense contracts over the years. In 2018, Boeing ranked 24th on the "Fortune 500" list. Following two fatal crashes in 2018 and 2019, its reputation suffered a severe blow.  

Defense Contract Fraud Report Exposes McDonnell Douglas and Boeing

In 2010, the Secretary of Defense was asked to report to Congress on contracting fraud. The report, published in 2011, included information about the value of defense contracts with companies that were fined or found guilty of fraud over the previous decade. Naturally, McDonnell Douglas and Boeing made a stellar appearance in the document.  

The report stated, “if the allegations appear serious, DoD Components will likely plan to acquire required goods and services from alternative sources and minimize possible lost time should the allegations be proven. Even before allegations of fraud are fully proven, DoD Components have the ability to engage with the contractor either with a suspension, debarment, or a show-cause letter, and, through these processes, work with the contractor to ensure that the Government is protected in any future dealings with the contractor.”

Unfortunately, the last decade hasn’t seen much of an improvement in terms of more transparent defense contracts or more ethical contractors.

Boeing/McDonnell Douglas was one of the 54 defense contractors that were criminally charged between 2001 and 2010, and one of 300 that agreed to fraud settlements and faced unfavorable judgments.

Different Types of Procurement Fraud

Government contractor fraud is also known as procurement fraud. Vigilance against this type of wrongdoing is essential to prevent the misuse of taxpayer funds. Procurement fraud can take many forms, including:   

  • Kickbacks and bribery - Financial incentives paid to officials in charge of awarding defense contracts, both in the U.S. and abroad. This type of fraud often results in high prices being paid by the government for poor quality goods and services.
  • Bid-rigging - Different companies agree to submit complementary bids to win government contracts, sometimes dividing regions amongst themselves and creating a virtual monopoly. Information is leaked between fellow bidders. Bid conditions are manipulated to favor a specific bidder. 
  • Bidding is not publicly open - Manipulating deadlines, accepting late bids, subjecting projects to re-bidding, unlawfully disqualifying winning bidders.
  • Billing fraud - Submission of false or inflated bids to influence the process outcome.  
  • Conflicts of interest - Decision-makers have undisclosed relationships with bidders.  
  • Fraud during the delivery stage - Contractor wins with a low bid but makes various changes to increase billings. The contractor delivers substandard products or services. The contractor inflates operating costs to increase financial gain.

Defense Contracts Awarded And Penalties Paid By Boeing/Mcdonnell Douglas

Over the years, Boeing has secured many multimillion-dollar Department of Defense contracts.

Year Contract Award

  • 2018 $30 million
  • 2017 $23 million
  • 2016 $26 million
  • 2015 $17 million
  • 2014 $20 million
  • 2013 $21 million
  • 2012 $29 million
  • 2011 $22 million

Since 1995, Boeing and McDonnell Douglas have paid billions of dollars in penalties and settlements arising from cases of defense contractor fraud and other violations. 

Defense Contract Fraud Settlements & Judgments Against McDonnell/Boeing 2001-2010

2004 BOEING A/C (MCDONNELL DOUGLAS) Liability: $6 million
2004 MCDONNELL DOUGLAS Liability: $50.8 million
2003 MCDONNELL DOUGLAS HELICOPTER SYS Liability: $ 2.5 million
2000 BOEING COMPANY Liability: $54 million
2003 BOEING COMPANY Liability: $652.000
2006 BOEING COMPANY Liability: $565 million
2009 BOEING COMPANY Liability: $2 million 
2009 BOEING COMPANY (Int. Defense Systems) Liability: $25 million

A History of Fraud at Boeing/McDonnell Douglas

Whether Boeing “inherited” a culture of cost-cutting and insufficient quality controls from McDonnell Douglas or not, the fact is that both companies have been involved in massive-scale defense contractor fraud. 

Foreign Bribery

McDonnell Douglas has not only paid large settlements, but it has also seen many of its executives indicted and convicted. In 1981, the company pleaded guilty, and several executives were indicted in connection with a $1.6-million bribe paid to promote the sale of jetliners to Pakistan.

Plane Crash – Design Flaw Settlement  

In 1986, a jury ordered McDonnell to pay $32 million for making fraudulent claims about its DC-10 model’s crash resistance. The case was filed after a Continental Airlines jet manufactured by McDonnell crashed at LAX. The jury found “fraud and deceit” in the manufacturer’s claims that the jetliner’s wing fuel tanks would not rupture under certain conditions.

Four passengers were killed in the accident, and 70 were injured. After the verdict was announced, a spokesperson for Continental said, “It was a design flaw waiting for an accident to happen.” McDonnell was found guilty of fraud, negligence, and breach of contract.    

Defense Contract Fraud – Apache Helicopter

In 1993, Arizona-based McDonnell Douglas Helicopter Co. agreed to pay $1.4 million to resolve allegations of defense contract fraud. According to the Department of Justice, the contractor inflated the cost of kits used to transport the Apache attack helicopter between 1985 and 1986.  

In spite of proposing to include transportation kits made by McDonnell, the company bought lower-priced kits from an Israel-based manufacturer and later billed the government for the cost of kits made in-house. 

Thus, McDonnell’s Apache contract with the Department of Defense was inflated by the difference between McDonnell’s listed price for the kits and the amount the company actually paid to Israel Aircraft. After the contractor agreed to a settlement, a McDonnell spokesperson stated, “we don't have any intention of defrauding the government. Never have, never will."

Contractors must offer the government the best price available in the market for their products and services. When they inflate prices or offer bigger discounts to private buyers, this constitutes fraud. Whistleblowers can sue these unethical contractors under the False Claims Act to receive a share of any taxpayer funds recovered. 

McDonnell Douglas allegedly made false statements when it certified that it had offered the most accurate estimates of costs and that it had disclosed all pricing and cost data to the government. 

Defense Contract Kickbacks – Executive Jailed

Boeing's CFO was fined $250,000 and jailed for four months after he offered a job to Air Force procurement official Darleen Druyun while she was negotiating a $23-billion contract with the manufacturer. 

The Chief Financial Officer, Michael M. Sears, pleaded guilty to aiding and abetting illicit employment negotiations. He admitted that he offered Druyun a lucrative position at Boeing as she was processing an Air Force acquisition deal for 100 aerial tankers.  

Defense Contract Bribery/Kickbacks – Three Prison Sentences

In 2014, a Boeing procurement officer and two California residents were sentenced to between 15 and 20 months in prison for their role in a kickback scheme involving military aircraft contracts.

The defendants in the case were Deon Anderson, a St. Louis resident, William P. Boozer, of Hacienda Heights, CA, and Robert Diaz, Jr., of Alta Loma, CA. The court found that Anderson conspired with subcontractors Boozer and Diaz to rig bids related to military aircraft contracts. The scheme involved the sharing of non-public bid information and the payment of kickbacks. 

Military Contract Fraud – $3.9 Million Whistleblower Award

In 2014, Boeing agreed to pay $23 million to settle False Claims Act allegations involving improper invoices for wages. Four whistleblowers initiated the case, alleging that Boeing overcharged the government for labor pursuant to an aircraft maintenance contract. 

A spokesperson for the plaintiffs commented, “They overbilled the government by shifting expenses to other contract areas they shouldn’t have … all of it resulting in (Boeing) getting more money.” For their assistance in recovering taxpayer funds, the whistleblowers received a $3.9 million award.

Defense contractors must adhere to strict accounting guidelines when billing the government. Failure to fulfill the Department of Defense’s requirements can be grounds for a False Claims Act lawsuit. 

Overbilling for Defense Contract Labor – $18 Million False Claims Act Settlement

In 2015, Boeing paid another $18 million to resolve the second set of allegations of overbilling in connection with the maintenance of Air Force C-17 Globemaster aircrafts. Boeing allegedly overbilled the government for mechanics’ wages according to its contract to maintain and repair the troops/cargo transporting aircrafts. The work was done at Boeing’s facilities in Long Beach, California. The whistleblower who initiated the case was James Thomas Webb, a former Boeing employee. Webb received a multimillion-dollar award. 

Under the False Claims Act, insiders like Webb can sue fraudsters on behalf of the government and share in any resulting recoveries.   

Largest Penalties Paid in Cases Against Boeing 1995-2019

Year Instance/Violation Defendant Penalties
2012 F-15 Midair Breakup Boeing Company $1 million
2004 Military Aircraft-Russian Titanium Boeing Company $7.4 million
1998 Arms Export Control Act Violation Boeing Company $10 million
2001 Securities Class Action Boeing Company $92.5 million
2008 Inflated Price B-1 Bomber System Boeing Company $4 million
1997 Aircraft Program Unallowed Costs Boeing Company $6 million
2000 Defective Chinook Helicopters Boeing Company $54 million
2015 Mismanagement of 401(k) Plan Boeing Company $57 million
2000 Quality Control Problems Boeing Company $1.2 million
2009 Defects & Overbilling KC-10 Boeing Company $25 million
1998 Defective Pricing Boeing Company $1.8 million
2009 KC-135 Labor Overbilling Boeing Company $2 million
2007 Aircraft Parts Overbilling Boeing Company $1 million
2004 Gender Discrimination Class Action Boeing Company $40.6 million
2008 Excessive Foreign Supplies Boeing Company $3 million
2011 Breach of Contract, Fraud Boeing Company $43.7 million
2011 Defective Oxygen Systems B-777 Boeing Company $1 million
2008 Radioactive Waste Pollution Boeing Company $89.4 million
2012 Santa Monica Water Contamination Boeing Company $39.5 million
2010 Natural Resource Damages Boeing Company $2.3 million
2011 Contract Pricing Problems Boeing Company $1.6 million
2003 Defective Apache Helicopter Boeing Company $3.3 million
2006 Illegal Hiring of Government Officials Boeing Company $615 million
2003 Illegal Transfer of Rocket Data to China Boeing Company $6 million
2001 Arms Export Control Act Violation) Boeing Company $4.2 million
2006 Arms Export Control Act Violation Boeing Company $15 million
2015 Settlement of Pending FraudCases Boeing Company $12 million
2010 Moses Lake Wellfield Site Cleanup Boeing Company $2 million
2001 Machine Tools Export Violation (China) Boeing Company $2.1 million
2012 Violation SPEEA Agreements Boeing Company $47 million
2013 AA Flight 1640 Emergency Landing Boeing Company $2.3 million
2015 Improper Labor Charges Boeing Company $18 million
2014 Improper Labor Charges Boeing Company $23 million
2012 Improper Billing on Chinook Helicopter Boeing Company $4.4 million

Largest Penalties Paid in Cases Initiated Against McDonnell 1998-2014

Year Instance/Violation   Defendant   Penalties
2014 Cancellation of McDonnell A-12 Program Boeing Company,
General Dynamics
$400 million
2001 Machine Tools Export Violation (China) Boeing Company $2.1 million
1997 McDonnell Douglas C-17 overcharge Boeing Company $2 million
2003 McDonnell Douglas Helicopter Negligence Boeing Company Undisclosed 
2003 Defective Apache Helicopter Fuzz Busters Boeing Company $3.3 million 
2009 McDonnell Aircraft Toxin Exposure Boeing Company Undisclosed 
1998 Defective Pricing McDonnell products Boeing Company $1.8 million

Is Your Employer or an Affiliate Involved in Defense Contract Fraud?

At Hochfelsen & Kani, we help military contractor/subcontractor employees report fraud and obtain cash rewards.   

Defense contract whistleblowers are instrumental in protecting U.S. taxpayer’s dollars. Under the Federal False Claims Act, individuals who provide original information about contractor fraud can receive from 15 to 30 percent of any recovery resulting from their lawsuit.  

Defense contract fraud cases have led to billions of dollars in recoveries. In one landmark case, a whistleblower received an $18.4 million award in connection with allegedly defective products supplied to the U.S. Army. Contractors who provided products and services for the U.S. Military during the Iraq and Afghanistan wars paid $73 million to resolve fraud lawsuits in 2012 alone.  

If you are an insider with knowledge about illegal kickbacks, defective products, overbilling, or other violations by Defense contractors, contact Hochfelsen & Kani’s Procurement Fraud Team for a complimentary consultation. 

Did Your Employer Violate the False Claims Act?

Defense contract violations lead to the loss of millions of tax dollars every year. Companies that supply the Army, Navy, Air Force or Marines with various products and services must abide by the Federal False Claims Act. Under this legislation, false statements made to the government at any point during a contract renders the whole process fraudulent, and violators can face treble (triple) damages and other penalties.   

Do You Have Information About a Defense Contractor Who May Have Violated the False Claims Act?

Examples of FCA violations include providing poor quality products and services, billing for more services/products than actually provided, failing to adhere to manufacturing specifications, failing to report defective products, using unsafe materials, overbilling, manipulating bids, paying kickbacks, overcharging for labor, and falsely claiming that goods are U.S.-made. 

If you suspect Boeing or another defense contractor has engaged in this type of misconduct, you can become a whistleblower, help recover millions of taxpayer dollars, and secure a cash award. Contact Steve Hochfelsen and David Kani at Hochfelsen & Kani for a confidential consultation, free of charge. 

Your employer will not learn about your inquiry at this stage, and we can help you prepare for that moment, to minimize negative impacts and maximize your whistleblower award. The False Claims Act protects whistleblowers from retaliation, and we have obtained substantial settlements for our clients in anti-retaliation lawsuits. 

Our government contractor fraud attorneys are prepared to guide you all the way to a successful settlement or verdict. Call Hochfelsen & Kani’s Defense Contract Fraud Recovery Team for a confidential consultation. 714-907-0697

It is important to act fast. There is a statute of limitations (a deadline) to file False Claims Act lawsuits against government contractors. The standard period is between six and ten years. Remember that the only way to secure a large cash award is by filing a lawsuit with the aid of a whistleblower attorney. If you call a government hotline, your case is unlikely to be investigated, and you will likely receive no reward. 

Thanks to the Wartime Suspension of Limitations Act, you may report fraudulent defense contracts dating back up to 15 years as long as they were connected to the pursuit of war. Contact one of our whistleblower attorneys today to ensure that your case can still be filed in court. 

If another person has the same information about fraud as you do, the first to report it may be the only one entitled to a share of taxpayer fund recoveries. Call us today to maximize your chances of receiving a whistleblower award. 

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David Kani

David Kani is a Southern California based trial lawyer with a focus on whistleblower (False Claims Act, SEC and others) cases.

To connect with David: [hidden email] or 714-907-0697.
To learn more about Hochfelsen & Kani LLP: hockani.com

Read David's ebook: The Smart Whistleblower's Playbook
For media inquiries or speaking engagements: [hidden email]



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