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US: Ex-Boeing Finance Chief Gets Four Months in Prison

Former Boeing official, Michael Sears, was sentenced to four months in prison for deceiving the government by offering a job to a Pentagon official while negotiating a $23 billion defense contract. Sears, 57, also was ordered to pay a $250,000 fine and perform 200 hours of community service.

by Tony Capaccio Bloomberg
February 18th, 2005

Former Boeing Co. Chief Financial Officer Michael Sears was sentenced to four months in prison for deceiving the government by offering a job to a Pentagon official as they negotiated a $23 billion defense contract.

Sears, 57, also was ordered by a judge in Alexandria, Virginia, to pay a $250,000 fine and perform 200 hours of community service. He pleaded guilty Nov. 15 to conspiring to violate conflict-of-interest laws in employment talks with former Air Force weapons acquisition chief Darleen Druyun, who is serving nine months in prison. A U.S. prosecutor said an investigation of Boeing is continuing.

Druyun represented the Pentagon in talks for the now-defunct $23 billion deal for up to 100 Boeing refueling aircraft tankers. She later became a Boeing vice president. Chicago-based Boeing, the second-largest U.S. defense contractor, fired Druyun and Sears in November 2003 after learning they discussed a job offer for Druyun during the tanker negotiations.

``Boeing's stock price hasn't been especially sensitive to this in the past year,'' said Timothy Bei, an analyst at T. Rowe Price, which owned 1.1 million Boeing shares as of December. ``The stock price has shown strong resilience in the face of this controversy. But to the degree that it relieves uncertainty, it's a good thing.''

Boeing shares have risen 18 percent over the past year. Today the shares fell $1.08, or 2 percent, to $52.58 at 3 p.m. in New York Stock Exchange composite trading.

Pre-Sentence Report

``Today's action brings this matter one step closer to closure,'' Boeing senior vice president Doug Bain said in a statement. He said the company has ``strengthened'' its hiring policies and that all employees understand that ``integrity and ethics are the foundation of our business.''

The Justice Department, in a pre-sentencing memo filed this week, said Boeing officials failed to ask ``logical questions'' of Sears after he told them in October 2002 that he had a ``non- meeting'' with Druyun.

``The senior management of Boeing did not confront the obvious legal and ethical issues presented by these employment negotiations,'' the Justice Department's memo said. ``These Boeing executives appear to have accepted the negotiations as business as usual.''

U.S. Attorney Paul McNulty said at a press conference those statements in the report ``do not suggest criminal intent on the part of any other persons.''

McNulty said there were ``civil implications to the Boeing matter,'' including ``looking at the money side'' of a possible financial payment by the company. He didn't elaborate.

``We will be continuing the investigation and let the facts take us where it goes,'' McNulty said.

`Sin of Omission'

Richard Aboulafia, an aerospace consultant for Fairfax, Virginia-based Teal Group, said the pre-sentencing report ``raises questions, but is far from damning, and looks like a sin of omission, not commission.''

``The likeliest scenario is more investigations, but almost zero impact on the bottom line,'' said Aboulafia, who doesn't own Boeing shares. ``So far, this scandal has had no impact on Boeing's ability to win Department of Defense contracts.''

U.S. District Judge Gerald B. Lee said Sears cooperated with the government and that his actions were not comparable to those of Druyun. The judge said he decided to impose a prison term because of the damage to the integrity of the U.S. weapons-buying process.

``We want to have government contractors compete fairly for work and for government officials when they leave,'' Lee said. ``That process has been harmed.''

``I'd like to apologize to the Air Force, the Department of Defense and the citizens of this country for any upheaval I have caused,'' Sears told the judge. ``I take full responsibility for the bad decision'' to offer Druyun a job during the contract negotiations, Sears said. ``I know it was wrong.''

`Cloud' Over Weapons Purchasing

Federal prosecutor Robert Wiechering recommended a sentence of four to six months, citing Sears's 30 years of experience in defense contracting, his high position in the company and the case's effects on weapons purchasing.

``There is a cloud over Air Force procurement that won't be dissipated for years,'' Wiechering said.

Sears rose to head Boeing's military aircraft unit and had once been a candidate for the chief executive's job. He joined Boeing from McDonnell Douglas after the two companies merged in 1997.

By 2002, when Boeing was negotiating the contract to sell and lease modified 767s as refueling tankers, the company was increasingly reliant on military sales as commercial aircraft demand slumped following the Sept. 11 attacks.

Druyun was sentenced in October for violating federal conflict-of-interest rules. She admitted she agreed to a higher price for the Boeing aircraft than she believed was appropriate. She began her sentence last month.

Pentagon Investigation

Michael Wynne, the Pentagon's acting undersecretary for acquisition, said Feb. 14 a Navy review concluded there was no indication Sears improperly influenced the receipt of any Boeing contracts.

Wynne said Druyun might have unduly influenced eight other contract awards totaling up to $3.5 billion, including four to Boeing and two to Lockheed Martin Corp., the largest U.S. defense contractor. The Pentagon inspector general is conducting further audits of the contracts.

Former Boeing Chief Executive Philip Condit resigned a week after Druyun and Sears were fired. He hasn't been accused of wrongdoing.

Boeing Chief Executive Harry Stonecipher, who replaced Condit, is trying to repair the company's reputation with the government, the source of more than half its revenue. The company makes the F/A-18 Navy fighter jet, F-15 Air Force fighter and C- 17 cargo plane.





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