Talley Industries, Inc. and Consolidated Subsidiaries - Page 9




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          Stencel arrived at the $750,000 figure by doubling the amount               
          that they believed represented the Government's actual losses.              
               On December 24, 1985, Walter T. Skallerup, Jr., General                
          Counsel of the Navy, responded as follows to Ms. Branda's request           
          for a recommendation of the minimum settlement value of the                 
          Government's claims against Talley and Stencel:                             
                    The investigation leading to the guilty plea                      
               focused primarily on evidence of mischarging during                    
               1984.  There is reason to believe, however, that                       
               mischarging began in 1979 and continued throughout the                 
               period from 1979 to 1984.  The amount of such                          
               mischarging cannot now be quantified.  Nevertheless, we                
               believe that any settlement offer should include an                    
               amount for the full False Claims Act liability for the                 
               provable losses in 1984 and a substantial amount for                   
               the possible liability for losses in prior years, or a                 
               total of $2.5 million.                                                 
               On January 7, 1986, Ms. Branda submitted a memorandum to the           
          Assistant Attorney General, Civil Division, in which she proposed           
          to reject the pending $750,000 settlement offer and suggested               
          that the case should be settled in the range of $2 million to               
          $2.5 million.  Ms. Branda summarized her position as follows:               
                    Thus, we think that the singles figure of $1.56                   
               million adequately compensates the government for its                  
               losses based upon a fair and defensible projection.  We                
               also believe that here, where Stencel has pled guilty                  
               to related criminal charges and where civil proceedings                
               have not begun, it is premature to accept only an                      
               estimate of our single losses and that assessment of a                 
               "penalty" (as a portion of our double damages and/or                   
               forfeitures) is appropriate.  A settlement of $2 - 2.5                 
               million represents compensation for an estimate of                     
               losses, plus assessment of a penalty.                                  








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