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Huntington Ingalls' ex-parent accused of misusing Katrina funds

PASCAGOULA — Huntington Ingalls Industries Inc. has disclosed a federal civil investigation into allegations that its former parent — defense giant Northrop Grumman Corp. — used Hurricane Katrina relief funds to improperly recover shipbuilding costs.

In its latest quarterly filing with the Securities and Exchange Commission, Newport News, Va.-based Huntington Ingalls said it is cooperating with the investigation and denies the allegations. According to the filing, Huntington Ingalls is targeted by a whistleblower suit filing asking for at least $835 million. The company denies the allegation.

The filing does not disclose what shipyards may be involved. Huntington Ingalls owns yards in Pascagoula, and Avondale, La.

Huntington Ingalls disclosed that it was first informed by the Justice Department Jan. 31 through Northrop Grumman of a suit filed under the federal False Claims Act. The company said it believed the sealed suit was filed in Washington by at least one plaintiff.

Under the False Claims Act, which is aimed at people and companies that defraud the federal government, individuals may file action on behalf of the government as whistleblowers. They stand to collect a portion of any damages awarded if the Justice Department decides to pursue the suit. A decision by the Justice Department has not been made, the company said.

Certain portions of the suit were redacted, the company said. That is common practice to protect the identities of whistleblowers.

Huntington Ingalls also said the allegations mirror claims made by an insurer that carried property and business interruption policies for Northrop Grumman. Both companies have said those claims are “without merit,” according to the filing.

Huntington Ingalls said it “intends to vigorously to defend the matter” and the claims “evidence a fundamental lack of understanding of the terms and conditions in the company’s shipbuilding contracts, including the post-Katrina modifications to those contracts, and the manner in which the parties performed in connection with the contracts.”

Northrop Grumman spokesman Randy Belote referred questions yesterday about investigations to the company’s quarterly filings. An examination of the company’s recent quarterly filings had no mention of a whistleblower suit. However, Northrop Grumman’s third-quarter report for 2010 said the company was continuing to pursue a suit against insurer FM Global and other defendants in a dispute over flood damages from Hurricane Katrina.

According to the last two quarterly filings, the company has since stopped reporting legal matters involving shipbuilding because Huntington Ingalls “generally has responsibility for investigations, claims and litigation matters related to the shipbuilding business.”

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