Northrop Paid Cover-Up Money, Court Papers Say : Aerospace: A sealed filing details new allegations in the company’s bid to sell F-20 fighters.

In a sealed filing in a Korean civil lawsuit, Northrop has been accused of paying $6.25 million in an influence-peddling scheme to sell jet fighters in Korea and then paying an additional $1.5 million to cover it up.

The filing, which was made last May by Korean defendants in a suit brought by Northrop, contains a number of new allegations about Northrop’s unusual relationship with various Koreans in the mid-1980s.

The court document was provided to The Times by the House Energy and Commerce Committee, which is probing the matter and has held an acrimonious hearing at which Northrop officials were grilled for hours. The allegations are also under investigation by a federal grand jury in Los Angeles.

Northrop paid $6.25 million in 1984 to a group of Koreans led by the late, politically powerful Park Chong Kyu, ostensibly to build a luxury hotel in Seoul. The hotel was supposed to garner good will at a time when the Los Angeles-based firm was attempting to sell its F-20 jet fighters to the Korean air force.

A separate agreement with another organization controlled by Park provided that a passenger bus company would be Northrop’s marketing representative in Korea, earning a commission of up to $55 million if a sale went through.

The original $6.25 million in Northrop funds for the hotel remains unaccounted for, the hotel was never built and Northrop never sold a single F-20 fighter to Korea or anybody else. Even though no sales commissions were earned by Park, Northrop agreed to pay his representatives $1.5 million in 1986.

Northrop has insisted that it was defrauded in an honest business venture and has filed the civil fraud suit in Korea against the survivors of Park and other associates in an effort to recover its money. In its own court filings, Northrop has asserted that the allegations raised by the defendants in the civil suit remain unsubstantiated.

But a number of irregularities in the deal have surfaced, including Northrop’s handling of the funds and the sometimes shadowy cast of characters with whom it chose to do business in Korea.

James K. Shin, a former Honolulu night club operator whom Northrop hired as a consultant for $102,000 a year, has alleged that the Korean payments were part of a lobbying fund intended to win influence in the Korean government. Northrop is under investigation for violations of the U.S. Foreign Corrupt Practices Act, which bars U.S. firms from making foreign bribes.

The defendants in Northrop’s Korean lawsuit allege that the firm “made payments to some Koreans whom Northrop believed could influence the Korean government to purchase aircraft.” They further assert that “Northrop knowingly deviated from the legal and prudent method of making a foreign investment in Korea.”

Some of the revelations arose in a criminal proceeding, in which Korean prosecutors questioned a number of witnesses, some of whom are now defendants in Northrop’s civil suit and others of whom are not. Excerpts from the testimony were included in the defendants’ response to the Northrop suit. That filing, labeled the “Defendants’ Statement of Defense,” alleges that a group of high-ranking Northrop vice presidents and attorneys negotiated the hotel deal as a cover to pay the $6.25 million to Park.

But the firm failed to complete a list of requirements set down by Korean law on foreign investments and joint ventures, including failing to get prior approval from the Korean minister of finance.

Even though Northrop was aware of those requirements, the company wired the $6.25 million to a Hong Kong bank in 1984 before any of them had been fulfilled, the filing said, and even before a joint operating agreement between the parties became effective. It “was completely improper and illogical,” the filing said.

In another unexplained irregularity, the funds were wired to a Hong Kong account that was controlled by a “young woman” who was an acquaintance of Park, according to the filing. The filing also indicates that money was divided up between Shin, Park and his relatives, and a few others. Whatever became of the money after that is unknown.

In Northrop’s court filing, the company asserts that its Korean partners “spent the entire $6.25 million that they stole for their personal use and benefit” and then “proceeded to cover up that fraud for nearly two years.”

Since details about the Korean deal surfaced in 1988, three Northrop vice presidents involved in the deal have resigned. Last year, the Northrop board of directors reprimanded company chairman Thomas V. Jones for his role in the matter.

After it became apparent that the hotel deal had fallen apart and no F-20 aircraft would be sold to Korea, Northrop’s board insisted that management recover the $6.25-million investment.

The defendants’ filing alleges that Northrop executives began a convoluted cover-up scheme in which the firm would pay an additional $1.5 million to the bus company controlled by Park and that money would then be used partly to repay Northrop for the hotel deal.

“Walking a path of corruption, Northrop was an easy target for the disgruntled participants,” the filing said. It alleges that Northrop received a letter from a shadowy Korean by the name of Kang Sae-Hi, threatening to “publish all facts” about the Northrop deal.

Lee Min Ha, Park’s brother-in-law and the Korean head of the joint venture, was quoted in the filing as telling a Korean prosecutor that Northrop officials wanted the $1.5 million to be used in part “to settle the whole dispute with Kang.”

The filing also quotes Charles S. Kim, a Chicago resident who was representing some of the Koreans, as telling a Korean prosecutor that former Northrop executive Donald Foulds suggested the cover-up.

Foulds’ attorney, Jan Lawrence Handzlik, said: “Mr. Foulds denies having taken part in any improper activities with respect to the Korean hotel venture, much less any cover-up activities.”

Northrop has denied that it undertook any cover-up. The $1.5-million payment after the hotel deal collapsed was an effort to terminate the sales representation agreement with the bus company, Northrop said.

And the company asserts in a final legal defense that “even if one assumes that some Northrop employees knowingly entered into or ratified a contract for some other illegal purpose, Northrop is still entitled to the return of its investment under Korean law.”

A spokesman said Thursday that “we are still trying to recover the money that was stolen from Northrop.”

NEXT STEP

A federal grand jury in Los Angeles has been investigating Northrop’s Korean payments for more than a year. The grand jury has subpoenaed records from five Northrop executives, including company Chairman Thomas V. Jones. Although some attorneys close to the case have said the grand jury activities have wound down in recent months, other attorneys said indictments could be handed down before the end of the year. Northrop and Jones are still under a 1975 consent decree signed with the Securities and Exchange Commission after it was disclosed that Northrop had allegedly made $30 million in foreign payments without proper controls. A permanent injunction in that case set down strict rules governing the company’s behavior.