General Electric Co. has threatened to sue a whistle-blowing employee to recover any monetary award he receives for bringing forward allegations of wrongdoing in the company's sale of military jet engines to Israel, people involved in the case said yesterday.
For several years military contractors have sought ways to blunt the provisions of a federal law intended to encourage and protect whistle-blowers. But General Electric's threat to countersue the whistle-blower in this case is a highly aggressive tactic that will raise substantial questions about the way the whistle-blower law works, lawyers and congressional investigators said.
Proponents of the law, the False Claims Act, said countersuits from companies would have a chilling effect on prospective whistle-blowers and would undercut the spirit, if not the letter, of the law.
But the case also suggests the mounting frustration among large government contractors at the whistle-blower law's central provisions, which in effect offer bounties to employees by allowing them to share in any financial recovery to the government as a result of information they bring forward.
Contractors argue that the law, by offering a financial reward, undermines their own efforts to encourage employees to report suspicions of wrongdoing immediately to officials within the company.
A spokesman for GE, Bruce Bunch, declined to comment on whether the company was considering suing the whistle-blower in this case, Chester L. Walsh, who served as general manager of the company's aircraft-engine group in Israel from 1984 to 1988.
Mr. Bunch also declined to comment on statements by two of Mr. Walsh's lawyers, John R. Phillips and Mary Louise Cohen, that GE has threatened to dismiss Mr. Walsh if he does not agree to retire on terms that would allow the company to sue him.
But Mr. Bunch repeated the company's argument that Mr. Walsh, who joined GE in 1964, had secretly gathered information about the reported wrongdoing and had failed to bring the information to the attention of the company, as a written GE policy requires him to do.
General Electric has not denied the basic allegations in the case, which are that a group of employees in the aircraft-engine division conspired with an Israeli general, Rami Dotan, to submit fraudulent claims for work done for the Israeli air force that would ultimately be paid for by the U.S. government.
GE has instead said that it reported the matter to the government as soon as the company became aware of possible wrongdoing in December 1990. The company said it was cooperating with the Justice Department in its investigation of the case.
GE and the Justice Department tried to negotiate a settlement of the case in recent months. But the two sides have been unable to come to terms, lawyers involved in the case said. And yesterday the Justice Department filed an amended civil complaint against GE in U.S. District Court in Cincinnati.
In addition to the Justice Department's civil and criminal investigations, the case is under investigation by the House Oversight and Investigations Subcommittee, whose chairman is Rep. John D. Dingell, D-Mich. The case has also received widespread attention in Israel, where Dotan last year pleaded guilty to fraud and bribery charges in the case.
A member of the oversight subcommittee's staff said that GE executives had spoken repeatedly to congressional investigators of their intention to sue Mr. Walsh should the case result in a monetary award for him. Mr. Walsh could theoretically receive as much as 25 percent of the $120 million in damages the Justice Department is seeking from General Electric, although the actual amount he would receive if the case is settled or decided against General Electric in court is likely to be far less.
General Electric has repeatedly argued that Mr. Walsh could have brought the information forward to company officials much earlier than he did and ended any wrongdoing much sooner.
All GE employees sign a statement each year pledging to bring to management's attention any evidence of fraud promptly.
Mr. Walsh's lawyers said he could not report the information internally because he believed Dotan might harm him physically. Mr. Walsh believed that any internal reports of wrongdoing would go straight to his direct superiors, who were aware of the purported fraud and who had close ties to Dotan, the lawyers said.