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Anatomy of a corporate espionage scandal
Series of Boeing Co. employee miscues tipped off rival Lockheed Martin Co. to misconduct

By Eric Fleischauer
DAILY Staff Writer

eric@decaturdaily.com 340-2435

A series of miscues by employees of The Boeing Co. were the clues that implicated it in a corporate espionage scandal, according to a competitor.

The penalty for that scandal will cost 100 Decatur-based Boeing employees their jobs, Boeing announced Jan. 14. More layoffs could follow.

Among the actions that clued Lockheed Martin Co. into the cloak-and-dagger scandal: A Boeing lawyer who filed Lockheed documents he was not supposed to have in an employment case, an admission of fraudulent conduct made in front of a Boeing employee whose wife worked at Lockheed, and the presence of a Boeing engineer at a bid conference that his former employer, Lockheed, also attended.

Boeing explained that the Decatur downsizing was necessary because of a July 2003 Air Force order that bars Boeing from bidding on military satellite launch vehicles. As the manufacturer of Boeing's Delta rockets, the plant here was hit first.

Former Lockheed employee

Sitting in the center of the debacle is Kenneth Branch, an engineer Boeing hired away from Lockheed.

Branch had worked in Lockheed's Evolved Expendable Launch Vehicle program since 1995. According to Lockheed, his workstation was near the confidential files detailing all aspects of the program.

Even during his Lockheed employment, Lockheed claims, Branch in August 1996 had a clandestine meeting with William Erskine and other Boeing EELV officials in California. Boeing paid for the plane ticket. Shortly after that meeting, according to Lockheed, a Boeing official said to Erskine that, if Boeing won the EELV contract, it should "give that man a job."

As later stated in the criminal complaint filed by federal officials, Boeing hired Branch while he was still working at Lockheed because Branch proposed to Erskine "an 'under-the-table' offer to hand over the entire Lockheed Martin EELV proposal presentation to aid in Erskine's proposal work in exchange for a position at Boeing if Boeing won the Air Force EELV contract award."

A separate Air Force investigation resulted in Boeing's bidding suspension. That suspension has already lasted 18 months and Boeing officials do not know when it will end.

Boeing and Lockheed officials refused comment on the investigations because of the ongoing litigation.

Branch left Lockheed in January 1997, the same year Boeing built the Delta IV plant in Decatur, but Lockheed did not realize he was working for Boeing.

In March 1997, Boeing sent Branch to a joint meeting that included teams from Boeing, Lockheed and the Air Force. Lockheed officials recognized him and, for the first time, became suspicious.

The next miscue came in 1997, when another Boeing employee saw Branch with a binder full of materials labeled as proprietary Lockheed information. She reported the incident to her supervisor.

In October 1998, Boeing won 19 of 28 possible Air Force contracts for its Delta IV satellite launch vehicles. Lockheed's Atlas series picked up the remaining nine. The skewed result, according to court documents filed by Lockheed and the Air Force, stemmed in part from Boeing's successful efforts to gain confidential bidding and technical information from former Lockheed employees.

Steep penalty

The Air Force ultimately stripped Boeing of seven of those contracts, worth $700 million, and awarded them to Lockheed.

From Lockheed's perspective, Boeing should never have been in the running for the EELV contract. Boeing lost to Lockheed and McDonnell Douglas Corp. in the first round of bidding. Boeing stayed in the game by purchasing McDonnell Douglas.

In June 1999, Erskine, a Delta IV manager, allegedly told another Boeing official that he had hired Branch for $77,000 purely to obtain Lockheed information. Boeing employees had just finished an ethics class.

The bad news for Boeing was that another engineer heard the discussion. The engineer, who had also attended the ethics class, was married to a Lockheed employee. She told her Lockheed supervisors about the conversation.

Boeing fired Erskine and Branch in August 1999. Both employees filed suit against Boeing.

More than 'a few pages'

Boeing claimed the two were fired for stealing a few pages of Lockheed proprietary material. Boeing's lawyer filed a motion asking the judge to dismiss the employment case. In support of that motion, he in March 2002 attached a box full of Lockheed proprietary material that was in Boeing's possession.

These were documents that Boeing had told Lockheed it did not have.

The volume of documents surprised Lockheed officials, according to its court filings. Boeing executives and lawyers had told Lockheed that they discovered a few such documents, none of which were particularly incriminating and none of which Boeing's EELV team saw.

In March 2003, Boeing admitted to Lockheed that it had 10 more boxes of Lockheed documents.

By the end of the various investigations, the Air Force concluded Boeing received almost 30,000 pages of confidential information relating to the satellite launch vehicles before winning the bulk of the Air Force contract.

Inside track on contracts

The Boeing mess continues to unravel. In December, the Air Force reported that one of its acquisition officers, Darleen Druyun, was negotiating with Boeing's chief financial officer for future employment while helping the company win various contracts. Lockheed claims that Druyun, who is serving nine months in prison, also provided Boeing officials with EELV cost information before Boeing won the bidding.

Boeing's chief financial officer is scheduled for sentencing Feb. 18.

Probes, lawsuits and trials

The U.S. Department of Justice is investigating. Several shareholder suits against Boeing are pending.

Branch and Erskine are scheduled for trial in March. As many as a dozen Boeing employees have given grand-jury testimony.

If convicted, both Branch and Erskine face a maximum criminal fine of $850,000 and up to 15 years in prison.

Originally expected to have at least 2,300 employees by 2004, Boeing's $450 million Decatur plant will have 550 employees after the layoffs. Boeing located in Decatur after receiving $150 million in state and local economic incentives.

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