Wedtech Corp., the little machine shop that blossomed under the Reagan administration into a "South Bronx success story," announced yesterday that it is going out of business, the victim of corrupt management.
The company's new managers, who took over last January after Wedtech filed for protection under the bankruptcy laws, said they have entered an agreement to sell Wedtech's main plant and that this week they laid off most of those still working there. The rest of the defense contracting company's assets are for sale. Government-owned equipment will be returned to the Army and the Navy.
Wedtech will live on mainly as a name on lawsuits, suing former executives and those associated with them in illegal activities, and cooperating with government prosecutors in ongoing criminal investigations.
Addressing himself "to all those who stole, embezzled, bribed or extorted money from the company," Wedtech's new chief counsel, Martin Pollner, said, "We have a broad mandate from new management to continue vigorously to investigate, prosecute and recover those looted assets."
At its peak, the company had 1,400 to 1,500 employes at plants stretching from Michigan to Israel. It has 115 following Tuesday's layoffs at the main facility on Gerard Avenue in the Bronx. It once was publicly listed on the New York Stock Exchange, a fast-moving beneficiary of more than $250 million in government contracts. Trading was halted weeks ago.
"It is a tragedy of epic proportions," Pollner said. "The product it makes -- primarily parts for armored personnel carriers at present -- is really an excellent product. The Army really needs it. If it weren't for the factors of avarice and greed, this would still be a viable and healthy company in the South Bronx."
So far, 16 people connected with Wedtech have been indicted on a variety of charges, from former White House aide Lyn Nofziger and his partner in a Washington consulting firm to Rep. Mario Biaggi (D-N.Y.) and the New York regional administrator for the Small Business Administration. Four former top executives of the company have pleaded guilty to conspiring to bribe federal, state and local officials to obtain government contracts. They also admitted setting up a secret slush fund out of which they took $500,000 each for themselves.
Those still under investigation include Attorney General Edwin Meese III, his investment adviser, and a longtime friend and lawyer of Meese's who also worked for Wedtech. The company's fortunes soared in 1982 when it won a $32 million no-bid Army engine contract following lobbying by Nofziger and intercession by Meese, then White House counselor, on Wedtech's behalf.
In its announcement yesterday, Wedtech's new board of directors, headed by retired Army general Richard Cavazos, said it had concluded after seven months of operating under Chapter 11 of the Bankruptcy Code that the only feasible course of action was "to sell the businesses and real estate of the company and to pursue the recovery of assets through pending litigations and litigations to be commenced." It owes creditors an estimated $115 million to $200 million.
The company said the Defense Department is, for all practical purposes, Wedtech's only customer, but under existing contracts with the Army and Navy, it owes "tens of millions of dollars for payments received prior to the Chapter 11 filing . . . without having delivered an equivalent value in product.
"This failure," the announcement added, "was caused in part by the criminal acts of former management and, as alleged in two civil suits brought by the company, the negligence of its prior auditors in not discovering the fraud."
Completing the defense contracts now would cost Wedtech millions in labor and material without hope of compensation, the company said. At the same time, it has no hope of getting any new defense work
without completing the existing jobs.
Pollner said he could not name the proposed purchaser of the main plant before court approval of the sale, but he said the buyer intends to remain in operation in the South Bronx and hopes to reemploy some workers.
Of the 90 Wedtech employes who reported for work Monday, only 40 remain, working on inventories and returning property to the government.
The company said it also is negotiating with potential purchasers of its coating division and two wholly owned subsidiairies, a shipyard in Michigan and an electrical power equipment manufacturer on Long Island. Another subsidiary in Israel has been forced into receivership there.