A group of investors sued Flow General Inc. yesterday, accusing the McLean firm of covering up a federal investigation of efforts to win a defense contract so senior executives could sell their stock in the company before its value plunged.
The suit, filed at the U.S. District Court in Manhattan, alleges that Flow General misled investors about the potential implications for the company of a criminal probe of an Army computer contract.
As a result of that investigation, a Flow General subsidiary pleaded guilty on May 24 to federal conflict of interest charges and paid a $30,000 fine.
The Army last month began proceedings to cut the company off from further defense business for an unspecified period of time.
Douglas Poretz, a Flow General spokesman, said the McLean electronics and biological research firm would have no comment on the suit. Two similar lawsuits have been filed against the company, one in Delaware and another in New York.
The latest lawsuit, filed by Ida M. Lawrence and three other New York City investors, said Flow General had assured the public the criminal charges were groundless.
The suit charged that misleading disclosures permitted senior management to sell their own stock at inflated prices "prior to the inevitable unraveling of the . . . scandal and allowing them to maintain their management positions."
The suit charged that during the period Flow General knew about the investigation, three of its executives--Richard D. Holbrook, Joseph E. Hall and Rodney W. Cook--sold a total of 82,000 shares for about $1.57 million. The suit asserted that if the stock had been sold following the guilty plea, it would have been worth about $650,000.
In the criminal case, Flow's subsidiary, General Research Corp., pleaded guilty to illegally buying inside information to help win a $2.6 million Army computer contract in 1980. After the company entered its plea, to three criminal conspiracy and corruption charges, the court dropped six other accounts of the original indictment and dismissed charges against five employes.
The contract was for development of a computer software system for personnel records. A competing firm's complaint led to the investigation.