Northrop Grumman-TRW Whistle Blower Case – Who Paid The Piper?

A company is found guilty of supplying defective parts to the Pentagon’s spy satellite program and is fined. A whistle blower receives his reward for exposing the case. But the company does not have to pay a penny. It may sound bizarre, but that’s exactly what happened in the settlement of the country’s biggest Pentagon related whistle blower case.

Robert Ferro is an electrical engineer with Aerospace Corp, a research laboratory that received federal funding to evaluate satellite parts for the Pentagon. Ferro blew the whistle on the parts which were defective and which the manufacturer, TRW, knew would fail. Under the False Claims Act, even people not affiliated with the federal government can sue federal contractors on behalf of the government and if their claims are held valid, they are entitled to 15% to 25% of the total settlement amount.

Ferro claimed that research done in 1995 proved that the parts would fail when placed in the satellites, but TRW (later acquired by Northrop Grumman) did not inform the government. Northrop Grumman –TRW was found guilty and agreed to pay $325 million to settle the claims. But the company will not be issuing any checks. In an odd “coincidence” the government also announced that it has settled a separate long running dispute with the company and would be paying them $325 million. In other words, no money will change hands and everyone goes home happy.

Well, not everyone. The whistle blower still has to be paid, and paid a large sum - $48.7 million. This is the largest ever settlement in a Pentagon related whistle blower case, easily passing the previous amount of $27.2 million. But Northrop will not be paying Mr. Ferro. The Justice Department said that the money would be part of the adjusted settlement between the government and Northrop and would be paid from “Treasury’s Fund.”

The Government won the case, the whistle blower was paid and Northrop does not pay a penny! The company says that it believes that “the settlement is in the best interest of all parties.” Especially those who do not have to pay from their own pockets.

Leaving all that aside, the fact that a whistle blower was able to use the False Claims Act and sue a company on behalf of the government and receive over $48 million for his efforts should encourage whistle blowers all over to stand up and do their part in exposing wrong doing wherever they find it.