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SEC Probes Dismissal of 2 Boeing Executives

By Renae Merle
Washington Post Staff Writer
Saturday, March 6, 2004; Page E01

The Securities and Exchange Commission has opened an inquiry into Boeing Co.'s firing of two senior executives for unethical conduct, adding another layer to the ongoing controversy surrounding the Chicago-based firm.

In November, Boeing fired Michael M. Sears, its chief financial officer, and Darleen A. Druyun, a former Air Force procurement official, after a Boeing investigation found that Sears improperly recruited Druyun.

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"The SEC requested information from us regarding the circumstances underlying dismissal of" Sears and Druyun, the company said in an SEC filing yesterday. "We are cooperating with the SEC's inquiry."

In its probe, Boeing found that Druyun was still overseeing its programs for the Air Force and negotiating a multibillion-dollar Boeing tanker deal when she was hired.

Sears has denied wrongdoing, and Druyun's attorney has declined to comment. An SEC spokesman declined to comment.

The SEC may be questioning whether Boeing properly disclosed the unethical conduct by the two executives to shareholders, said John A. Howell, a government contracts expert at the law firm Dorsey & Whitney LLP.

The firings have sparked investigations by the U.S. attorney's office in Alexandria and the Pentagon inspector general. Defense Secretary Donald H. Rumsfeld suspended the $18 billion deal for refueling tankers.

The series of investigations Boeing faces could endanger future federal contracts for the company, Howell said. "There is already a hold placed on this tanker contract," he said.

Boeing has said it is slowing work on the tanker program until a contract is signed and laying off 150 workers. In yesterday's filing, the company said it still expected to sign a contract but, if not, it would cost Boeing about $310 million.

"Though Boeing remains publicly optimistic on the deal, the disclosure perhaps more accurately reflects the high risk of the outcome," Christopher H. Mecray, defense analyst for investment firm Deutsche Bank AG, said in a research note.

The SEC filing also revealed that Boeing may contribute $1 billion to its pension accounts in the first quarter and could close its 717 production line, which would require a $400 million charge. The 100-seat 717, which was rolled out in 1998, has suffered from declining demand. Boeing delivered 12 of the planes last year compared with 32 in 2000.

Boeing closed at $42.72 a share on the New York Stock Exchange yesterday, up 9 cents.

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