NHDP - Walt Havenstein Tries to Re-Write History on SAIC's $500 Million Fraud Scandal While He Was CEO

Concord, NH— In an unrealistically glowing op-ed written by disgraced former GOP State Senate President Tom Eaton in today’s Union Leader, Walt Havenstein’s camp attempted to rewrite the history of a $500 million fraud scandal while he was CEO of the defense contracting company SAIC. The truth is that Havenstein continued SAIC’s practice of turning a blind eye to a scandal that led to what Manhattan U.S. Attorney Preet Bharara revealed was the “largest by dollar amount arising out of any state or government contract fraud in history” as a result of SAIC’s disastrous attempt to set up a new time-keeping system called CityTime for New York City. [Bloomberg, March 14, 2012]
 
When SAIC agreed to pay a record $500 million to avoid federal prosecution, “SAIC admitted it failed to investigate claims that a manager of the CityTime payroll project directed staffing tasks to a single subcontractor, Technodyne LLC, in exchange for kickbacks, according to documents unsealed today by federal prosecutors.” [Bloomberg, March 14, 2012]
 
The firings that Havenstein’s camp portrays as decisive were anything but. Havenstein didn’t fire the SAIC executives for their role in the scandal until nearly a year after charges were issued in the CityTime case and weeks after Havenstein announced “without warning” that he would step down from the company. [New York Times, December 15, 2010; Washington Post, Oct 3, 2011; New York Post, October 24, 2011]
 
“Under Walt Havenstein's watch, SAIC defrauded the taxpayers of New York City of upwards of $500 million dollars while Havenstein and other SAIC officials paid themselves millions," said New Hampshire Democratic Party Communications Director Julie McClain. "Instead of taking charge in response to the ‘massive and elaborate scheme to defraud’ taxpayers under his watch, Havenstein only disciplined the individuals responsible after they were caught red-handed by the authorities, and he waited nearly a year before holding higher-ups accountable. Then Havenstein either ran away from the problem or was forced out for his lack of oversight and leadership.”
 
The Washington Post reported on the dire situation for SAIC as Havenstein exited, writing "More than four decades after its founding, the contractor, now public and based in McLean, is struggling, facing two contracting scandals, the departure of its chief executive and declining sales and profit." Referring to the mess Havenstein left at SAIC, one analyst described, “The board is going to give us a new CEO, who’s going to inherit a firm that right now is losing market share, is losing people and is running out of time to fix itself” [Washington Post, November 13, 2011]. 
 
“Just like he has tried to mislead the people of New Hampshire about his residency, Walt Havenstein is trying to sweep under the rug the massive fraud and scandal that he oversaw at SAIC," McClain said. "But the facts are that Havenstein couldn't be trusted to protect taxpayer dollars as CEO of SAIC, and New Hampshire voters can't even consider giving him financial stewardship of our state.” 
 
TIMELINE OF WALT HAVENSTEIN’S SAIC CITYTIME SCANDAL:
 
September 21, 2009 - Walt Havenstein becomes CEO of SAIC [SAIC Press Release, June 23, 2009].
 
December 15, 2010 - Federal prosecutors in Manhattan announce first fraud and money laundering charges related to CityTime case [New York Times, December 15, 2010; United States Attorney Southern District of New York Press Release, December 15, 2010].
 
December 21, 2010 – SAIC project manager on the CityTime project, Gerard Denault, placed on administrative leave [SAIC Letter to Financial Information ServicesAgency, May 23, 2011].
 
January 2011 – SAIC fires Carl Bell, the project’s main systems engineer [Washington Technology, October 25, 2011; New York Daily News, February 11, 2011]
 
May 23, 2011 – SAIC fires Gerard Denault [SAIC Letter to Financial Information Services Agency, May 23, 2011]
 
June 29, 2011 – Mayor Bloomberg sends letter to Walt Havenstein demanding “SAIC reimburse the city for all sums paid to it, approximately $600 million, as well as the cost of investigating and remediating the matter" [New York Daily News, June 29, 2011].

Oct. 3, 2011 - SAIC announces Walt Havenstein will retire as CEO, effective June 15, 2012, for “personal reasons.” [Washington Biz Journal, October 3, 2011]. 
 
Oct. 24, 2011 - CityTime scandal causes shakeup at SAIC, three executives fired [New York Post, October 24, 2011].
 
Mar. 1, 2012 - Havenstein retires three months earlier than planned [SAIC Press Release, February 21, 2012]
 
Mar. 14, 2012 – SAIC agrees to pay $500 Million to settle New York CityTime fraud case, acknowledges “managerial failures.” [Bloomberg, March 14, 2012; SAIC Filing with SEC, March 14, 2012]
 
 
BACKGROUND:
 
UNDER HAVENSTEIN, SAIC FACED MULTIMILLION DOLLAR FRAUD SCANDAL IN CITYTIME CONTRACT WITH NEW YORK
“The company also is grappling with its New York City contract to manage an employment timekeeping system called CityTime… the U.S. Attorney's Office for the Southern District of New York has alleged that a massive and elaborate scheme to defraud the city’ corrupted the program.” (Washington Post, November 14, 2011)
 
CITYTIME INVESTIGATION BEGAN WITH A TIP FROM THE NYC DEPARTMENT OF INVESTIGATIONS; PROSECUTORS FIRST FILED CHARGES IN DECEMBER 2010 AGAINST SIX CONSULTANTS AND ALLEGED INVOLVEMENT IN A FRAUD SCHEME OF $80 MILLION
According to the New York Times, “The United States attorney’s office began its investigation into CityTime after receiving evidence of criminal activity from the city’s Department of Investigation.”
Another Times Article from December 2010 reported on the initial charges and allegations coming from US Attorneys: “federal prosecutors in Manhattan charged several of the consultants with an $80 million fraud scheme that began in 2005, accusing them of manipulating the city into paying out expensive contracts to businesses that they controlled, and then redirecting some of that money to enrich themselves. They even submitted false time sheets, the authorities said.” Indictments were announced “six defendants.”  (New York Times, March 14, 2012; New York Times, December 15, 2010)
 
“NEARLY ALL OF THE $600 MILLION THAT NEW YORK CITY HAS PAID TO THE MAIN CONTRACTOR FOR ITS TROUBLED AUTOMATED PAYROLL PROJECT HAS BEEN TAINTED BY FRAUD”
A New York Times article reporting on the CityTime scandal and charges filed by US Attorneys investigating the matter reported that “Nearly all of the $600 million that New York City has paid to the main contractor for its troubled automated payroll project has been tainted by fraud . . . ‘Today we allege what many have long feared: The CityTime project was corrupted to its core by one of the largest and most brazen frauds ever committed against the City of New York,’ Preet Bharara, the United States attorney for Manhattan, said.” (New York Times, June 20, 2011)
 
FOLLOWING INDICTMENT, MAYOR BLOOMBERG DEMANDED PAYBACK OF $600 MILLION FROM SAIC IN LETTER TO HAVENSTEIN
An article from the New York Daily News reported that “Mayor Bloomberg wants a full $600 million refund from the main contractor in the scandal-scarred CityTime payroll project . . . ‘because the project was apparently tainted by fraud and kickback schemes, the city must be made whole,’ the mayor said in a letter to Walter Havenstein, CEO of Science Applications International Corp. ‘I am, therefore, requesting that SAIC reimburse the city for all sums paid to it, approximately $600 million, as well as the cost of investigating and remediating the matter,’ the note said.” (New York Daily News, June 30, 2011)
 
FOLLOWING TROUBLES FOR THE COMPANY, HAVENSTEIN SUDDENLY ANNOUNCES DEPARTURE FROM CEO POSITION AT SAIC, CITES “PERSONAL REASONS”
The Washington Post reported that “Walter P. Havenstein, chief executive at McLean-based contracting giant Science Applications International Corp., will retire next summer, the company announced . . . In the announcement, Havenstein, who has led SAIC for just over two years, said he was leaving for personal reasons. He will depart in June. In recent months, Havenstein has spoken candidly about the budget challenges facing government contractors. In its most recent earnings announcement, SAIC reported roughly 6 percent drops in revenue and profit.” (Washington Post, October 3, 2011)
 
HAVENSTEIN’S DEPARTURE “CAME WITHOUT WARNING”
“News that SAIC's CEO, Walt Havenstein, would step down in June 2012 came without warning. He said he is leaving the McLean-based company for personal reasons. . . . SAIC reported lower profits and revenue for the fiscal second quarter and lowered its full-year outlook. . . As of Oct. 18, shares of SAIC were down 27 percent compared with six months ago.” (Washington Business Journal, October 21, 2011)
 
THREE “TOP EXECUTIVES” FIRED IN FALLOUT FROM CITYTIME SCANDAL
The New York Daily News Reported “The CityTime payroll scandal has caused a major management shakeup at the company hired by the city to install what became a fraud-ridden boondoggle.” And according to a Washington Post report, “McLean-based Science Applications International said it has removed three of its top executives and begun an internal review following a fraud investigation into work the company did for New York City. . . Walter P. Havenstein, SAIC’s chief executive, said in a memo to employees Monday that Deborah Alderson, president of the company’s defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business, have been removed from their positions and are no longer with the company.” (New York Post, October 24, 2011; Washington Post, October 24, 2011)
 
HAVENSTEIN'S TENURE AS CEO LEAVES SAIC IN DIRE STRAITS
“More than four decades after its founding, the contractor, now public and based in McLean, is struggling, facing two contracting scandals, the departure of its chief executive and declining sales and profit. The company's plight has led to some soul-searching about whether its problems are linked to a generally tougher budget environment or tied to a change in strategy. In recent years, the company's units have shifted from pursuing contracts autonomously to teaming up in an effort to bring more capabilities to the table. ‘Where some people would say we may have let go of our small, entrepreneurial nature, I would say what we've really done is helped transform ourselves to be able to punch our weight in the marketplace,’ said chief executive Walter P. Havenstein, who plans to step down in June. ‘We've got to be able to think as a scaled company, not just in the individual pieces, and I think that's at the heart of the cultural shift.’ Thus far, that strategy has not yielded the kind of results that SAIC has produced in the past, and analysts and industry observers say the company is at a critical juncture as it readies to select a new leader.” (Washington Post, November 14, 2011)
 
HAVENSTEIN RETIRED THREE MONTHS EARLIER THAN PLANNED; DEPARTED ON MARCH 1, 2012
“SAIC, Inc.'s (NYSE: SAI) Board of Directors announced today that John P. Jumper will succeed Walter P. Havenstein as chief executive officer on March 1, 2012.” (SAIC Press Release, Feb 21, 2012)
 
MARCH 2012: SAIC STRUCK DEAL WITH US ATTORNEYS TO AVOID FEDERAL PROSECUTION; REQUIRED TO PAY $500 MILLION
The New York Times reported that “A major government contractor agreed on Wednesday to pay a record $500 million to avoid federal prosecution for its role in the scandal-tarred CityTime project . . . The project was plagued by widespread fraud and weak oversight . . . Under an agreement with federal prosecutors, the contractor, Science Applications International Corporation, will reimburse the city for about 80 percent of the money it spent on the project, whose budget ballooned to nearly $700 million, from $73 million, and was described by the United States attorney in Manhattan, Preet Bharara, as ‘a fraudsters’ field day that lasted seven years.’ The $500 million, in restitution and penalties, is believed to be the largest amount ever paid to resolve an accusation of contract fraud involving a state or local government, said Mr. Bharara, who announced the agreement at a news conference.” (New York Times, March 14, 2012)
 
COMPANY'S "MANAGERIAL FAILURES" CITED IN SAIC's STATEMENT OF RESPONSIBILITY
"The Company acknowledges that the conduct and managerial failures described herein contributed to the ability of Denault and Bell to commit their alleged crimes against the City, and that the City was defrauded by SAIC as a result." [SAIC Filing with SEC, March 14, 2012]
 
FOLLOWING HAVENSTEIN’S TIME AS CEO, SAIC CALLED A “BELEAGUERED” COMPANY; INVESTORS STAYED AWAY FROM THE COMPANY AND EARNINGS FELL
“Beleaguered federal contracting giant SAIC Inc. will take a hard look at unloading some segments of its business - and will steer clear of state and local government work - as new leadership at the McLean company tries to right the ship. Executives won't go so far as to confirm any plans to divest portions of the company's business, but analysts say SAIC will have to do more than shuffle its portfolio internally if it wants to win over nervous investors who watched a fraud scandal result in a payout of more than half a billion dollars and saw earnings fall 3 percent to $10.59 billion during fiscal 2012, which ended Jan. 31. Stu Shea, who was appointed chief operating officer this month as part of a restructuring that also brought in John Jumper as CEO, said SAIC will trim investments in areas that offer little return, including "generic" information technology services and systems engineering and technical assistance.” (Washington Business Journal, March 23, 2012)