WASHINGTON -- The FBI is conducting a broad-ranging investigation into an alleged fraud and kickback scheme among private contractors and government officials at the National Aeronautics and Space Administration's Houston center, according to government and industry sources.
Some targets of the investigation were drawn into a sting operation, in which the FBI set up a phony company that allegedly paid off a NASA official to help get a kidney-stone smashing machine onto a space shuttle flight.
The sting also drew in employees of major aerospace contractors, as well as consultants, who provide management and technical services for shuttle missions. In addition, a NASA astronaut, whose identity was unknown, has become a potential target in the investigation, according to an industry official with direct knowledge of the case and who asked not to be identified.
Martin Marietta, a major NASA contractor that is a suspect in the case, has fired two employees of the services group it acquired in April from General Electric, a company spokesman said yesterday. The two employees, left unidentified, were "not key executives," he said.
The names of other contractors suspected in the case could not be obtained, but high-level industry sources said that some companies had begun conducting internal investigations related to the matter. About a half-dozen NASA employees may be implicated and an unknown number of contractor employees, sources close to the case said.
Code-named Operation Lightning Strike, the FBI probe is believed to involve multimillion-dollar government losses and has been described by officials familiar with the investigation as the biggest procurement fraud case since the Ill Wind probe, in which 50 defense industry and Pentagon officials have been convicted.
The sting operation was called off yesterday after it was disclosed by Houston news media. It could not be determined whether authorities had suspected criminal activity before they set up the sting.
NASA officials acknowledged the existence of the investigation yesterday, but in large measure withheld detailed comment about the case or its potential consequences. The FBI in Houston and the NASA inspector general declined to comment.
The NASA probe is all but certain to heighten the scrutiny of the troubled space agency while it is trying to protect its major programs from budget cutbacks. The investigation jarred NASA officials, who had hoped to focus their attention yesterday on the space shuttle launch to repair the Hubble space telescope.
NASA has suffered through a lengthy series of embarrassing technical failures, including the losses of the Mars Observer spacecraft and the Galileo probe of Jupiter. Separately, the agency has been the target of recent charges that its management system is lax and encourages waste.
NASA Inspector General Bill Colvin, who is participating in the Lighting Strike case, testified in October that he had opened 450 investigations into waste and fraud at the agency.
A recent audit disclosed that NASA had no records accounting for 37 percent of its assets, worth $12 billion. Mr. Colvin testified that numerous NASA employees were found sleeping on the job during recent inspections.
The Lighting Strike case, the technical failures and the financial audits are likely to prompt questions of whether the problems can be traced to a common management failure in the agency, according to congressional staffers.
"NASA's dismal record of contract mismanagement and faulty financial controls may have opened the door for these kinds of improprieties," said Rep. John Conyers Jr., a Michigan Democrat whose Government Operations Committee had requested Mr. Colvin's audit.
In setting up the bogus Houston company, the FBI created a fictional high-rolling executive played by a special agent. The story line was that the executive had developed a kidney stone smashing machine that he wanted to test it aboard a space shuttle flight. The machine actually did not exist.
NBC News reported last night that one of the unwitting participants was a former NASA administrator, James M. Beggs. Now a Washington consultant, he was hired by FBI undercover agents in the sting but says that he did nothing illegal.
To prove the FBI's sham company was real, Mr. Beggs was taken to an electronics manufacturing plant in Columbia, Md., "apparently borrowed by the FBI for use in the sting," where workers were supposedly building the medical device to treat kidney stones, NBC reported.
The sting, aimed at NASA's Life Sciences Division at its Johnson Space Center in Houston, allegedly offered cash to employees of major contractors and NASA in exchange for helping get the phony kidney machine, known as a lithotriptor, on board a future shuttle flight. The bogus company attempted to persuade potential targets that NASA's endorsement could make the kidney machine highly profitable.
One source complained that news reports of the investigation in Houston yesterday had "ripped it open in mid-flight." Another said that some corporations had begun preliminary discussions with prosecutors about possible plea agreements.
If the initial allegations about the kickback scheme are borne out, said Rep. Anna Eshoo, a California Democrat,
"It will further undermine confidence in this agency. It is a troubled agency. It is frustrating, maddening, shocking."
Ms. Eshoo, a member of the House Space, Science and Technology Committee, which has authority over the NASA budget, sponsored legislation earlier this year to tighten financial management of NASA.
"There has been far too cozy a relationship between this agency and its contractors," she added. "Now this scandal reported today could damage the case for any kind of space program."
But the industry official knowledgeable about the case asserted that it is unlikely to rank as a major procurement fraud scandal.
"This is by no means as big as Ill Wind, no matter how you measure it," he said.
"This is not a big deal. It is not going to affect some corporation's bottom line."