The Justice Department next month will begin calling witnesses before a federal grand jury in New Haven, Conn., in a stepped-up investigation of the nation's largest defense contractor, General Dynamics Corp., according to witnesses cooperating with the investigation.
The inquiry stems from allegations made this year by a former executive vice president and director of General Dynamics, P. Takis Veliotis, who has turned over tapes and a number of documents to the FBI and who has alleged that the defense firm engaged in a pattern of fraud against its shareholders and the Navy during the 1970s.
General Dynamics has denied Veliotis' charges and has accused him of pursuing a vendetta because company officials froze $6 million worth of Veliotis' assets in the United States and Canada after he was indicted in September 1983 for accepting kickbacks from shipyard subcontractors. Veliotis now lives in Athens.
A General Dynamics spokesman yesterday said, "We are aware that several of our people have been called to testify," and added, "We are convinced that the current grand jury inquiry will absolve our company and our people of any charges of wrongdoing, just as two previous grand juries did after intensive reviews that lasted three years."
Justice Department officials earlier had reported to Congress that they were conducting a "vigorous" criminal investigation involving officials of General Dynamics, but investigators said they had taken little formal testimony before a sitting grand jury.
One new witness, a former assistant general manager of General Dynamics' submarine building division, James E. Ashton, said he was asked by a Justice Department attorney to appear before the panel in January. Ashton said the prosecutor told him that several other witnesses have been scheduled to testify during December.
A Justice Department spokesman yesterday reiterated the department's standing policy of not commenting on grand jury matters.
In a telephone interview yesterday, Veliotis said he met with a Justice Department attorney and an FBI agent this week and turned over several new tape recordings in addition to those he provided to the department in September. Veliotis said the Justice Department attorney, James Graham, also told him the department is stepping up its inquiry by calling its first witnesses next month. Other officials confirmed that Graham was in Greece meeting with Veliotis to receive additional evidence.
Stephen S. Trott, chief of the Justice Department's criminal division, is supervising the new investigation. Trott told a congressional hearing last month that the initial tape recordings, made by Veliotis of his conversations with senior General Dynamics' officials, were the primary reason the department has reopened its investigation.
Trott has said that the investigation has been reopened on a "different, but similar" basis. The Justice Department from 1978 through 1981 investigated charges initiated by Adm. Hyman G. Rickover that General Dynamics submitted fraudulent claims against the Navy for cost overrun reimbursement on nuclear attack submarine construction.
Rickover, however, has been caught up in new allegations that he accepted tens of thousands of dollars of gifts from General Dynamics and other contractors doing business with the nuclear Navy.
The bitterly contested claims led to the largest cost overrun settlement in Navy history when, during the Carter administration, senior Pentagon officials agreed to a settlement that has paid General Dynamics $639 million in additional compensation for Los Angeles-class submarines built at the company's Groton, Conn., shipyard.
Veliotis' relationship with prosecutors has been somewhat tempestuous since he first met with three officials from Justice the first week in May. The relationship highlights the dilemma prosecutors face in courting important potential witnesses who already are under indictment, according to an official involved in the investigation.
During the May meeting, Veliotis refused to turn over the tapes he had promised he would share with prosecutors because, he said, he doubted the sincerity of the new investigation.
Senior Justice Department officials then told congressional committees that they doubted whether Veliotis had the tape recordings and other evidence he had promised them. Veliotis then made copies of some of the tapes available to The Washington Post, which published accounts in September and October.
Now, Veliotis said, he has begun to cooperate more fully with Justice Department officials. He continues to maintain that he is offering his cooperation without any promise that the indictment pending against him in New York will be dropped.