When Treasury Secretary G. William Miller was chief executive officer of Textron Inc., the company had a secret $600,000 slush fund for entertaining Pentagon officials, and he knew it, the Securities and Exchange Commission charged yesterday.
The SEC said in a suit filed in U.S. District Court here that Textron, one of whose units sells military helicopters, maintained the fund from 1971 through July 1978, as part of its "marketing efforts."
It said that Pentagon employes were entertained "generally through the provision of meals," that "senior Textron officials and its chairmen . . . knew of this practice," and that "Textron's entertainment expenses were recorded on its books in a manner designed to conceal that Textron was entertaining U.S. government personnel."
For this and other reasons, the SEC charged, Textron's public reports on its financial condition during the period in question were "false and misleading."
Miller was president and chief executive officer of Textron from 1968 through 1974, when he became chairman. He remained chairman and chief executive officer until March 1978, when President Carter named him chairman of the Federal Reserve Board. He became Treasury secretary last August.
During his Federal Reserve Board confirmation hearings, it was alleged that while Miller headed Textron the company spent millions of dollars in questionable payments to government officials in numerous countries abroad to facilitate sales by its Bell Helicopter division.
Miller denied any knowledge of those payments.
No mention was made at the hearings of Pentagon entertainment funds, however.
Textron responded to yesterday's suit by agreeing to entry of a "consent decree," in which it neither admitted nor denied the SEC's allegations but did agree to take various remedial actions.
Beyond that, present Textron Chairman Robert P. Staetz would say only that, "We are relieved this long process is concluded." The SEC has been investigating Textron for a year and a half.
Similarly, Miller issued a statement last night saying simply: "I am pleased to learn that Textron has been able to conclude the SEC matter after what has been a long and extensive inquiry. Since the company has elected to agree to a settlement without admitting or denying any of the allegations, it would seem appropriate to leave any further comment to the parties directly involved."
At the White House a few hours after the suit was filed, press secretary Jody Powell also fended off questions. "I'm not sure I ought to be making a statement from this podium," he said.
The payments abroad were not illegal under U.S. law when they were made.
The SEC's main concern was not that the payments were made, but that they were not disclosed to investors; by law, full public disclosure is required of companies that are publicly held.
Similarly, the SEC did not suggest yesterday that Textron violated the law in entertaining Pentagon employes. Again, its main concern was disclosure.
The SEC charged in its suit that Textron had repeatedly misled investors and regulators in a number of ways, mainly over its foreign operations. But most of these other charges had been made before.
The SEC said the Pentagon fund was maintained to aid two Textron divisions -- Bell Helicopter and the Fafnir division which makes roller and ball bearings.
It said Textron officials, including its chairmen, not only knew the entertainment fund existed but knew that, "contrary to Textron's procedures, no substantiation for these expenses was retained."
It also said that unnamed "officers of the two Textron divisions were aware of directives issued by the (Defense Department) to its personnel prohibiting the acceptance of gratuities and entertainment from Government contractors such as Textron.'"
The SEC did not say how it knew that Textron's chairmen were aware of the fund's existence.
The SEC began its investigation after Miller's first set of confirmation hearings.
The agency does not contradict Miller's testimony before the Senate Banking Committee, which dealt with his nomination. But it does say that unnamed Textron officials knowingly provided "inadequate representations" to the committee.
Following the hearings, in June 1978, the committee chairman, Sen. William Proxmire (D-Wis.), asked the Justice Department to investigate whether Textron officials committed perjury and obstruction of justice during the nomination proceedings.
A Justice official said yesterday that this investigation is still going on.
Yesterday Proxmire, who voted against Miller's confirmation, said the SEC suit "confirms my prior opinion that G. William Miller should not have been confirmed as secretary of the treasury."
Proxmire said the SEC complaint "leaves no doubt that bribery was corporate policy at Textron."
Most of the SEC suit deals with allegedly improper Textron payments abroad and failure to disclose these.
The SEC suit says that at annual meetings in 1976 and 1977, then-chairman Miller told stockholders that the company had not made any illegal foreign payments.
"We know of no case in Textron where there has been any improper payment, illegal payments," Miller is quoted as telling shareholders in 1977.
The SEC alleges, however, that "this statement, made by the chairman without his having a reasonable basis, in light of the course of business described in [the SEC suit], was erroneous and misleading."
Textron, with 1978 sales of $3.2 billion, was one of the first conglomerates. Its products range from chain saws and snowmobiles to pens and watchbands.
Since 1970, according to the SEC, 20 percent to 30 percent of its sales have been generated by its largest division, Bell Helicopter.
To spur helicopter sales, the company allegedly paid millions of dollars to sales agents, who in turn deposited the funds in secret bank accounts in Switzerland and Luxembourg on behalf of officials of the countries buying the helicopters.
Payments were made to unnamed officials in Ghana, Mexico, United Arab Emirates, Morocco, Ceylon, Iran, Indonesia, Dominican Republic, Iraq and Colombia, according to the SEC.
The SEC says that Textron paid $30,000 to an unnamed Colombian military official in Washington for his help in arranging his country's purchase of six 205-A-1 helicopters for about $6.4 million.
The SEC complaint alleges that Textron officials hid some of these payments from the Senate Banking Committee. The commission says:
"In fact, during the Senate committee inquiry, relevant and material information about Textron/Bell's Ghanaian transaction was known to and not revealed by certain . . . officers and employes aware of the Senate committee inquiry."
Miller's confirmation hearings focused on Bell Helicopter's relationship with an Iranian aircraft company called Air Taxi, one of whose founding shareholders was Gen. Mohammed Khatami, half-brother of the Shah of Iran and commander of the air force.
Textron officials were questioned at length about Khatami's financial interest in Air Taxi, which Bell hired as its representative in Iran in 1968. They repeatedly denied knowing that commissions to Air Taxi were going to Khatami.
The SEC suit says that Khatami, who died in a hang-glider accident in Iran in 1975, "in fact received at least $500,000 of the $2,950,000 paid to Air Taxi."
The Washington Post reported last Sunday that Khatami personally received $616,700 from two Air Taxi bank accounts in Oklahoma City in 1972-73. The money was deposited in a Swiss bank account, canceled checks showed.