After more than seven years of investigation and litigation, Frequency Electronics Inc. has settled all outstanding criminal and civil cases brought against it by the U.S. government with a guilty plea to one count of filing a false statement and payments totaling $8 million.
Going forward, Frequency Electronics said it plans to get involved in the commercial wireless communications business.
In the 1980s, prior to the general commercialization of the satellite industry, Frequency Electronics was a defense contractor providing the U.S. government with time and frequency products used for navigation of satellites, secure communications, surveillance, spacecraft, electronic warfare and missile programs.
Investigations into Frequency Electronics’ role as a subcontractor to TRW began in 1990. TRW was building satellites on a highly classified government project under contracts that were subsequently canceled as a matter of convenience, said General Joseph P. Franklin, chairman and chief executive officer of Frequency Electronics.
In 1993, 38 separate criminal counts on two indictments were handed down to Frequency Electronics, its founder, Martin Bloch, and three other company officers, accusing them of conspiring to defraud the federal government while acting as a subcontractor to TRW.
With the settlement announced June 19, all the charges against the company have been dismissed and all individuals have been exonerated. The company pleaded guilty to filing a false statement that did not give a full explanation of its costs. The company agreed to pay a $400,000 fine and $1.1 million for investigation costs, plus $6.5 million to settle the civil cases. The $8 million total is likely about the same it has spent throughout the ordeal on legal fees, which averaged $1 million a year, said Harry Newman, secretary/treasurer for Frequency Electronics.
“We did this for a very important reason,” Franklin said. “We’re looking ahead. We need to avoid many more years of costly legal work, and there are immediate benefits to getting on with the business.”
Newman wholeheartedly agreed: “The litigation is behind us and everyone can devote their total energies to the corporation vs. matters of litigation … (which puts a) tremendous drain on the employees involved.”
The company seems to have weathered the storm, last week announcing its 1998 fiscal results for the year ended April 30 reporting net income of $64,000. Fiscal 1998 revenues totaled $32 million, up 15 percent compared with $27.9 million last year. Operating profits were $4 million in 1998 vs. $2.7 million 1997.
The company’s commercial space and wireless communications sales grew 34 percent from 1997, and the company is phasing out government business to set its sights on the lucrative commercial satellite and wireless communications markets.
“It’s not hard to understand why we’re phasing out the government business,” Franklin said. “That profit of $4 million is actually lower because our commercial business brought in more operating profit, and the government business was not profitable.
“We will still continue to comply with our contractual obligations and we’re going to make our proprietary technology available for the benefit of the country, but we’re looking ahead now to the commercial business in two major markets,” the CEO said.
Frequency Electronics plans to establish two individual divisions to support those markets, FEI Space and FEI Communications. “Each of these entities will develop in distinct ways. By establishing the two individual divisions we will be able to focus on that different development,” Franklin stated.
FEI Space plans to focus its efforts on establishing a family of generic products instead of custom-building projects for the government.
Satellite communications products now are being sold to Frequency Electronics customers, including Harris Corp. Hughes Electronics Corp., Lockheed Martin, Loral Space & Communications, Matra Marconi and Motorola Inc.
FEI Communications plans to gain an additional share in the personal communications services and cellular markets, Bloch said, and although it is less lucrative than commercial satellite, the products fit its technology.
