FURTHER MATTERS RELATING TO THE NOMINATION OF G. WILLIAM MILLER HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE NINETY-SIXTH CONGKESS SECOND SESSION ON THE NOMINATION OF G. WILLIAM MILLER TO BE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM PART II APPENDIX—CONSISTING OF STAFF REPORT OF SECURITIES AND EXCHANGE COMMISSION AND COMPLAINT IN RE TEXTRON INC. FEBRUARY 8, 1980 Printed for the use of the Committee on Banking, Housing, and Urban Affairs U.S. GOVERNMENT PRINTING OFFICE 57-608 O WASHINGTON : 1980 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WILLIAM PROXMIRE, Wisconsin, Chairman HARRISON A. WILLIAMS, JR., New Jersey JAKE GARN, Utah ALAN CRANSTON, California JOHN TOWER, Texas ADLAI E. STEVENSON, Illinois JOHN HEINZ, Pennsylvania ROBERT MORGAN, North Carolina WILLIAM L. ARMSTRONG, Colorado DONALD W. RIEGLE, JR., Michigan NANCY LANDON KASSEBAUM, Kansas PAUL S. SARBANES, Maryland RICHARD G. LUGAR, Indiana DONALD W. STEWART, Alabama PAUL E. TSONGAS, Massachusetts KENNETH A. MCLEAN, Staff Director M. DANNY WALL, Minority Staff Director CHARLES L. MARINACCIO, Special Counsel BRUCE F. FREED, Professional Staff Member (II) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis UNITED STATES DISTRICT CQ^ET FOR THE DISTRICT OF COLUMBIA SECURITIES AND EXCHANGE OOPMISSION, Civil Action No. — Plaintiff, v. ODMTLAINT FOR INJUNCTION AND OTHER EQUITABLE RELIEF TEXTRCN INC., Defendant. The plaintiff SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") alleges that: 1. It appears to the COMMISSION that the defendant TEXTRON INC. ("TEXTRON") has engaged and unless restrained and enjoined may in the future engage, in acts, practices and courses of business which constitute and will constitute violations of Sections 10(b), 13(a) and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78j(b), 78m(a) arri 78n(a)] and Rules 10b-5, 12b-20, 13a-l, 13a-ll and 14a-9 [17 CFR 240.10b-5, 240.12b-20, 240.133-1, 240.13a-ll and 240.14a-9] thereunder. 2. The COMMISSION, pursuant to the authority granted to it by Sections 10(b), 13(a), 14(a) and 23(a) of the Exchange Act [15 U.S.C. 78j(b), 78m(a), 78n(a) and 78w(a)] has promulgated Rules 10b-5, 12b-20, 13a-l, 13a-ll, and 14a-9 [17 CFR 240.10b-5, 240.12b-20, 240.13a-l, 240.13a-ll, and 240.14a-9], which rules were in effect at all times relevant herein and are still in effect. JURISDICTION AND VENUE 3. The COMMISSION brings this action pursuant to Sections 21(d) and (e) of the Exchange Act [15 U.S.C. 78u(d) and (e)j . to restrain and enjoin the defendant "TEXTRON from engaging in such acts, practices and courses of business. 4. This Court has jurisdiction of this action pursuant to Sections 21(e) and 27 of the Exchange Act [15 U.S.C. 78u(e) and 78aa]. (1) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 2 5. Certain of the acts, practices and courses of business constituting violations of the Exchange Act have occurred within the District of Columbia. THE DEFENDANT 6. TEXTRCN, a Delaware corporation with its principal place of business in Providence, Rhode Island, at all relevant times was engaged, and is engaged, through the operations of over twenty divisions, in the manufacturing of diversified products. Since 1970, approximately 20-30 percent of TEXTRCN's sales have been generated by TEXTRCN*s largest division, the Bell Helicopter Company ("TEXTRON/BELL"). At all relevant times, the presidents of TEXTRCN divisions, including TEXTRCN/BELL, reported directly to senior management of TEXTRON. 7. TEXTRCN's securities are registered with the COMMISSION and the New York Stock Exchange pursuant to Section 12(b) of the Exchange Act [15 U.S.C. 781(b)] and are traded on the New York Stock Exchange. As a result of such registration with the Canmission and the New York Stock Exchange, TEXTRCN is subject to the reporting [Section 13(a), 15 U.S.C. 78m(a), and Rules 12b- 20, 13a-l and 13a-ll thereunder, 17 CFR 240.12b-20, 240.13a-l and 240.13a-llJ and proxy [Section 14(a), 15 U.S.C. 78n(a), and Rule 14a-9 thereunder, 17 CFR 240.14a-9] provisions of the Exchange Act. COUNT I [Section 10(b) of the Exchange Act, 15 U.S.C. 78j(b) and Rule 10b-5 thereunder, 17 CFR 240.10b-5] 8. Paragraphs 1 through 7 are hereby realleged and incorporated herein by reference. 9. During the period from at least 1971 to 1978, TEXTRON, directly and indirectly, in connection with the purchase and sale of securities, and by use of the means and instrumentalities of interstate ccrxierce and the mails, has employed devices, schemes and artifices to defraud, has made untrue statements of material facts, anc has coittec to state material facts necessary to make the statements made, in li^ht of the circumstances under Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 3 which they were made, not misleading, and has engaged in acts, practices and courses of business which have operated as a fraud and deceit upon purchasers and sellers of securities and other persons, all in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that: a) TEXTRON has engaged in a course of business pursuant to which TEXTRON, directly and indirectly, has made payments which totalled at least $5,400,000 to TEXTRON sales agents knowing or having reason to know that payments to such sales agents would be shared in whole or in part with foreign government officials or employees, directly to senior foreign government officials and anployees, to members of ruling families, to associates of senior foreign government officials and employees, to persons it believed to be foreign government officials or employees, and to entities in which senior foreign government officials or employees had an ownership or financial interest, in connection with the use of their influence or position to secure business for TEXTRCN; b) TEXTRCN arranged or structured many of its payments described in subparagraph "a" above through its sales agents and facil- itated such payments by transmitting "commissions" of sales agents to bank accounts and third parties outside the sales territory of the sales agents; and c) TEXTRON failed to disclose this course of business and risks to its earnings and revenues occasioned by such practices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 4 The following paragraphs of this Count I describe scrae of the above- described transactions. FOREIGN PAYMENTS 10. Fran 1973 through 1975, TEXTRCN/BELL paid approximately $2,950,000 to Air Taxi Company, TEXTRCN/BELL1 s sales agent in Iran, in connection with a i^ontract, secured in or around June 1973, pursuant to which the Iranian Army agreed to purchase 489 Bell helicopters for approximately $500,000,000. During this period, General Mohammed Khatami, Coriander-in-Chief of the Iranian Air Force, had a financial interest in Air Taxi, and in fact received at least $500,000 of the $2,950,000 paid to Air Taxi. TEXTRCN/BELL knew or had reason to know of Khatami's interest in Air Taxi, through cne or more of its senior officials, although those persons responsible for negotiating the payment to Air Taxi deny having any knowledge or belief of such interest. 11. In 1973, TEXTRCN/BELL paid approximately $155,000 to an official of the Mexican Air Force, in connection with a contract pursuant to which the Mexican Air Force agreed to purchase ten helicopters and related spare parts for $3,500,000. 12. In or around February 1975, TEXTRON/BELL paid approximately $200,000 to its dealer for the United Arab Emirates ("UAE") knowing or having reason to know that this sum would be transferred to an entity owned by a senior official of the Government of Oman, in connection with a contract, secured in or around January 1974, pursuant to which the Oman Department of Defense ("ODQD"), agreed to purchase five Model 205 helicopters and related spare parts for approximately $3,500,000. 15. In 1976," TEXTRON/BELL paid approximately $275,000 to its dealer for the UAE knowing or having reason to know that this sum would be transferred to a close relative and personal assistant on diplomatic affairs of the Sultan of Oman, in connection with a contract, secured in or around October 1974, pursuant to which ODOD agreed to purchase five Model 214 helicopters and related spare parts for approximately $8,700,000. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 5 14. In 1973 and 1974, TEXTRON/BELL paid approximately $40,000 to its sales agent for Ceylcn, knowing or having reason to knew that all or part of this sum would be transferred an official of the Government of Ceylon, in connection with a contract, secured in or around February 1972, pursuant to which Ceylon would receive, under the Grant-in-A id Program of the United States government, four helicopters and related spare parts totalling approximately $460,000. 15. In 1974, TEXTRCN/BELL paid approximately $100,000 to its sales agent for Morocco knowing or having reason to knew that all or part of this sum would be transferred to Moroccan military officials. The payment was made in connection with a $1,700,000 contract between TEXTRCN/BELL and the United States government which was promoted by senior TEXTRON/BELL offi- cials who knew or had reason to know, as early as 1971, that payments to the sales agent would be shared with Moroccan military officials, and resulted in the Government of Morocco receiving two helicopters and related parts.