House subcommittee members yesterday accused General Dynamics Corp., the nation's largest defense contractor, of improper activities ranging from lying about a major delay in submarine construction to charging the government for boarding an executive's dog.
The company's two top executives were castigated for staging an elaborate cover-up of a gift of $1,125 earrings to a Navy admiral's wife. The panel also disclosed that the executives failed to tell the Defense Department about a company director's involvement in a bribery case at the time the director was granted a top-secret security clearance.
The language in the Energy and Commerce oversight subcommittee hearing was not the oblique kind usual in Congress; the attacks were personal. At one point, Rep. Gerry E. Sikorski (D-Minn.) told the company executives, "You lied. You didn't tell the truth."
At another point, Rep. John W. Bryant (D-Tex.) told General Dynamics Chairman David S. Lewis, "You've got a crook on your board of directors, and you're telling us today he's going to stay there. You ought to hang your head in shame . . . . The problem with General Dynamics is you."
Lewis vigorously defended General Dynamics as "an honest and reputable company" that has been "badly maligned" by false and unfair allegations. "We are determined to leave no stone unturned to restore our reputation," he said.
As the hearing continued, however, Lewis said the panel had "found some cases that look very wrong to us" and that "it's apparent that there have been some mistakes made."
The subcommittee, chaired by John D. Dingell (D-Mich.), provided the first public forum for Lewis and chief financial officer Gorden E. MacDonald to defend the St. Louis-based company, which also is under investigation by the Navy, Justice Department, Securities and Exchange Commission and Internal Revenue Service.
During four hours of heated questioning, subcommittee Democrats said General Dynamics was undermining support for defense spending by charging the Pentagon for liquor bills, travel expenses for an executive's birthday party and $1,000 for a chili cookoff at the Congressional Country Club. Rep. Ron Wyden (D-Ore.) called it "a textbook case on how to fleece the American taxpayer."
The wrangling began when the panel played a tape of a telephone conversation eight years ago between MacDonald and P. Takis Veliotis, then manager of the company's Electric Boat submarine yard. Veliotis, who made the tape and gave it to investigators, was indicted in 1983 for allegedly receiving kickbacks on unrelated ship construction and is now a fugitive living in Greece.
The tape indicates that General Dynamics delayed public announcement that the delivery date for the first Trident nuclear missile submarine had slipped by one year to keep the price of the firm's stock from dropping. Subcommittee members said such action violates Securities and Exchange Commission rules.
According to the tape, made Nov. 30, 1977, Veliotis told MacDonald that the Trident delivery date of October 1979 cited in a company press release was "not real" and that construction would take at least another year. MacDonald replied that Lewis "understands that. But he wanted to go ahead anyway only to stop our stock from sliding."
Sikorski told MacDonald that the company's press release "was not accurate. You knew it, Mr. Lewis knew it . . . and you're on tape proving it. That is a classic example of an SEC violation."
"I violently disagree with that," MacDonald said.
MacDonald said that Veliotis was new on the job at the time and that he did not agree with Veliotis' analysis because other officials had told him construction was only weeks behind schedule. He also said that the tape was incomplete and that his comments about stock slippage were based on fears of a cost overrun, not construction delays. "You lied," Sikorski answered. "You didn't tell the truth . . . . The proof of the pudding is that you delivered the submarine two years late."
Lewis attacked Veliotis' credibility, accusing him of "malicious and untrue allegations" and saying, "It is incomprehensible that the word of Veliotis, indicted for lying under oath, has been so eagerly accepted by newsmen and investigators," while the company's explanations "have been largely ignored."
On other subjects raised by the panel:
* MacDonald acknowledged that he directed an aide to buy $1,125 in jewelry for the wife of then-admiral Hyman G. Rickover. He said Rickover, who received numerous gifts from the company, had requested the gift for his wife.
Asked by Rep. Richard C. Shelby (D-Ala.) why he "covered it up," MacDonald said he had not known that the aide listed the earrings in company records as 10 retirement watches. He said he did not disclose payment for the earrings to outside auditors or the Navy because "it didn't even come into my mind that that was a gift." Lewis said the gift was "ill-advised" and "a mistake."
* Lewis made little attempt to defend company bills to the Pentagon for numerous questionable expenses cited by the panel. But he said much of the $50 million in charges challenged by Pentagon auditors from 1979 to 1982 would be found legitimate.
Laughter filled the hearing room when Dingell asked why the company had charged the government $155 for "Fursten" at "Silver Maple Farm." Fursten is an executive's dog, boarded at a St. Louis kennel while 70 company officials and their wives attended a business conference at a South Carolina retreat at a cost of more than $100,000.
Questioning grew more serious when members asked why General Dynamics charged the Pentagon $4,000 for an executive's 12-day trip to San Francisco for the Democratic National Convention, $18,000 for an initiation fee at Old Warson Country Club in St. Louis, $800 for liquor for the Air Force Association and a $352-a-night hotel room at New York's Waldorf-Astoria Hotel for Lewis and his wife.
"When are all these fraudulent-type billings going to stop?" Shelby asked. Rep. James C. Slattery (D-Kan.) said General Dynamics "violated the law" by entertaining several high-ranking military officials at taxpayer expense.
"They are not supposed to do that," Lewis conceded. "That is against the regulations . . . . I think we have a great deal of work to do . . . to make sure that things that are not allowable are not submitted."
* Lewis said he has withdrawn $105,000 in charges to the Pentagon for trips on corporate aircraft primarily to his family farm but believes that it was appropriate to charge other flights to meetings of corporate boards on which he serves. He said he uses company jets for security reasons but acknowledged that he sometimes took commercial flights to Hawaii and elsewhere. Pentagon auditors have questioned $22 million in corporate aircraft use by the firm.
Lewis said it was "foolish" for General Dynamics to destroy passenger lists after its flights and said it no longer does so.
* Lewis defended company director Lester Crown, an unindicted co-conspirator in a 1974 Illinois bribery case. Dingell announced yesterday that the Pentagon is investigating whether to revoke the top-secret security clearance granted Crown in 1974 because General Dynamics did not disclose his involvement in the bribe case then.
SEC officials said Crown, son of the company's largest stockholder, helped make illegal payments to Illinois legislators and directed company employes to falsify expense vouchers to cover the payments.
Lewis said he supports Crown now and backed his election as a director in 1974 because Crown's role in the bribe case was an "aberration" for which Crown is "deeply regretful." Crown could not be reached for comment.