Three senior executives leave Raytheon, company involved in multiple DOJ criminal investigations

Three senior executives in Raytheon Technologies Corp.’s missiles division have departed the company, in a shake up in the aerospace giant’s defense business.

The departure of the unit’s chief financial officer, vice president of contracts and general counsel of the Missiles & Defense division were announced last month in an internal email seen by Bloomberg.

The email, sent by Raytheon Missiles & Defense President Wesley Kremer on Jan. 28, called it a “significant change” but didn’t elaborate on why the executives had left.

This inconspicuous news would have probably remained unnoticed if only one executive had departed. But when senior executives leave in bunches, one cannot help but wonder.

The CFO departure in particular seems quite abrupt a year only after Raytheon merged with United Technologies, and is somewhat reminiscent of Raytheon putting its chief financial officer on leave back in 2010 amid an SEC investigation into improper payments.

With some exceptions, fleeing talent could be an indication that a company is having trouble.

The exits certainly seem to coincide with Raytheon navigating additional legal concerns. The Company and its subsidiaries are presently subject to various disputes, government investigations and litigation matters across jurisdictions.

I won’t bore you to death with the full list of litigation (which is quite voluminous), but let’s examine some of them that may be of interest since they involve DOJ/SEC investigations.

It is worth noting before we start that Raytheon’s operations are classified into four main business divisions: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense.

Antitrust Investigation & Related Workers Lawsuits

Raytheon reported in its latest SEC 10-K filing that it is a target of a DOJ antitrust investigation into hiring practices in the aerospace industry.

The move aligns with the Biden administration’s increased focus on no-poaching agreements that limit hiring others’ workers. The DOJ indicated as early as 2016 that such practices could be subject to criminal enforcement. No-poach cases have traditionally been fought through civil actions in the U.S. But the fact the DOJ is now addressing them from an antitrust criminal angle is noteworthy.

The wage-fixing allegations were first brought to public attention in December 2021, when a former outsourcing manager at Pratt & Whitney, Mahesh Patel, was charged with “conspiracy in restraint of trade.” Patel is accused of acting as the main enforcer of the “no poaching” agreement, allegedly “berating” those who cheated on the deal by continuing to recruit from each other’s companies.

Shortly after, five alleged co-conspirators were also charged along with Patel, in a criminal indictment filed in the United States District Court for the District of Connecticut, charging each of them with one count of violating the federal antitrust laws.

The investigation has triggered a series of civil lawsuits from workers who allege their opportunities to advance in the industry and secure higher pay were frustrated by the purported scheme.

In its SEC filing, Raytheon Technologies said it expects the lawsuits to eventually be consolidated into a single joint complaint.

In 2019 Raytheon had received a subpoena as part of a DOJ criminal investigation into purported agreements not to solicit or hire employees in violation of the federal antitrust laws.

While the investigation has focused on alleged hiring restrictions between and among Pratt & Whitney and certain of its suppliers of outsourced engineering services, the subpoena also included requests regarding Collins Aerospace, acquired through Raytheon’s recent merger with United Technologies.

Raytheon was advised that the Company is a target of the DOJ investigation, and Raytheon continues to cooperate with the investigation.  No criminal charge has been filed against the Company or its affiliates.

Thales-Raytheon Systems Bribery Allegations & Related Shareholder Lawsuits

As previously analyzed in this prior blog post, Raytheon received a subpoena from the Securities and Exchange Commission (SEC) in 2019, seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014.
In the first quarter of 2020, the DOJ advised Raytheon Company it had opened a parallel criminal investigation.
In the third quarter of 2020, Raytheon Company received an additional subpoena from the SEC, seeking information and documents as part of its ongoing investigation.
The Company is cooperating fully with the SEC’s and DOJ’s inquiry, and is examining whether there has been any conduct that is in violation of Raytheon Company policy.
Although Raytheon is unable to predict the outcome of the SEC’s or DOJ’s inquiry, based on the information available to date, they do not believe the results of this inquiry will have a material adverse effect on their results of operations, financial condition or liquidity.
As a result of this investigation, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings.

DOJ Investigation, Contract Pricing Disputes and Related Civil Litigation

On October 8, 2020, the Company received a criminal subpoena from the DOJ seeking information and documents in connection with an investigation relating to financial accounting, internal controls over financial reporting, and cost reporting regarding Raytheon Company’s Missiles & Defense (RMD) business since 2009.
The investigation involves multi-year contracts subject to governmental regulation, including potential civil defective pricing claims for three RMD contracts entered into between 2011 and 2013.
As part of the same investigation, on March 24, 2021, the Company received a second criminal subpoena from the DOJ seeking documents relating to a different RMD contract entered into in 2017.
The Company is cooperating with the DOJ, and will continue to review the issues raised by, the DOJ’s ongoing investigation. Given the probable risk of liability for damages, interest and potential penalties, the Company has provisioned to this effect approximately $290 million for this matter.
Four shareholder lawsuits were filed against the Company after the DOJ investigation was first disclosed. A putative securities class action lawsuit was filed in the United States District Court for the District of Arizona against the Company and certain of its executives alleging that the defendants violated federal securities laws by making material misstatements in regulatory filings regarding internal controls over financial reporting in RMD.
I don’t know about you, but it does seem like Raytheon may be having a lot on its legal plate at this time, and the departure of its division general counsel, may make us wonder even more if all is well with the defense manufacturer at this time.
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